Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Tax Cut Hr Block

Can You Refile Taxes1040ez File OnlineHow To File A Free State Tax ReturnPa 1040ez1040z Tax FormHow Do I File My 2012 Taxes Online2010 Federal Tax Forms InstructionsMy TurbotaxState Tax Filing1040 Ez Form 20122011 Tax FilingFree Tax Estimator 2011Filing Form 1040ezTax Forms 2009Free State Income Tax PreparationFree 1040ez FilingHow To Amend A Tax ReturnWww Irs GovlefileIrs Forms 1040 EzIrs Gov Freefile ComWalmart Free Tax Preparation 2013Free Income TaxIrs Free E File 2011File 2012 Taxes Online For Free1040ez FormHow To Fill Out 1040x ExampleH&r Block Tax FormsH And R Block Free FederalH&r Block Military Taxes1040x FilingAuto Fill 1040x1040 Income Tax Forms1040ez Instruction Manual2012 State Tax Form1040ez Instruction BookletAmend 2010 Tax Return TurbotaxTurbotax 2009 Download FreeHow To Refile A Tax Return1040ez InstructionsFile State Taxes Free 2013

Tax Cut Hr Block

Tax cut hr block 1. Tax cut hr block   Tax Withholding for 2014 Table of Contents Introduction Useful Items - You may want to see: Salaries and WagesDetermining Amount of Tax Withheld Using Form W-4 Completing Form W-4 and Worksheets Getting the Right Amount of Tax Withheld Rules Your Employer Must Follow Exemption From Withholding Supplemental Wages Penalties Tips Taxable Fringe BenefitsSpecial rule. Tax cut hr block Exceptions. Tax cut hr block Sick Pay Pensions and AnnuitiesPeriodic Payments Nonperiodic Payments Eligible Rollover Distributions Choosing Not To Have Income Tax Withheld Gambling WinningsException. Tax cut hr block Identical wagers. Tax cut hr block Unemployment Compensation Federal Payments Backup WithholdingTaxpayer identification number. Tax cut hr block Underreported interest or dividends. Tax cut hr block Introduction This chapter discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. Tax cut hr block This chapter explains in detail the rules for withholding tax from each of these types of income. Tax cut hr block The discussion of salaries and wages includes an explanation of how to complete Form W-4. Tax cut hr block This chapter also covers backup withholding on interest, dividends, and other payments. Tax cut hr block Useful Items - You may want to see: Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request See chapter 5 of this publication for information about getting these publications and forms. Tax cut hr block Salaries and Wages Income tax is withheld from the pay of most employees. Tax cut hr block Your pay includes your regular pay, bonuses, commissions, and vacation allowances. Tax cut hr block It also includes reimbursements and other expense allowances paid under a nonaccountable plan. Tax cut hr block See Supplemental Wages , later, for definitions of accountable and nonaccountable plans. Tax cut hr block If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. Tax cut hr block This is explained under Exemption From Withholding , later. Tax cut hr block You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. Tax cut hr block If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2. Tax cut hr block Military retirees. Tax cut hr block   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. Tax cut hr block Household workers. Tax cut hr block   If you are a household worker, you can ask your employer to withhold income tax from your pay. Tax cut hr block A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. Tax cut hr block   Tax is withheld only if you want it withheld and your employer agrees to withhold it. Tax cut hr block If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2. Tax cut hr block Farmworkers. Tax cut hr block   Generally, income tax is withheld from your cash wages for work on a farm unless your employer both: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. Tax cut hr block Differential wage payments. Tax cut hr block   When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Tax cut hr block Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. Tax cut hr block The wages and withholding will be reported on Form W-2, Wage and Tax Statement. Tax cut hr block Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. Tax cut hr block The amount you earn in each payroll period. Tax cut hr block The information you give your employer on Form W-4. Tax cut hr block Form W-4 includes four types of information that your employer will use to figure your withholding. Tax cut hr block Whether to withhold at the single rate or at the lower married rate. Tax cut hr block How many withholding allowances you claim (each allowance reduces the amount withheld). Tax cut hr block Whether you want an additional amount withheld. Tax cut hr block Whether you are claiming an exemption from withholding in 2014. Tax cut hr block See Exemption From Withholding , later. Tax cut hr block Note. Tax cut hr block You must specify a filing status and a number of withholding allowances on Form W-4. Tax cut hr block You cannot specify only a dollar amount of withholding. Tax cut hr block New Job When you start a new job, you must fill out a Form W-4 and give it to your employer. Tax cut hr block Your employer should have copies of the form. Tax cut hr block If you need to change the information later, you must fill out a new form. Tax cut hr block If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. Tax cut hr block You may be able to avoid overwithholding if your employer agrees to use the part-year method. Tax cut hr block See Part-Year Method , later, for more information. Tax cut hr block Employee also receiving pension income. Tax cut hr block   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. Tax cut hr block However, you can choose to split your withholding allowances between your pension and job in any manner. Tax cut hr block Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. Tax cut hr block When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances. Tax cut hr block If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. Tax cut hr block See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) , later. Tax cut hr block Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. Tax cut hr block See Table 1-1 for examples of personal and financial changes you should consider. Tax cut hr block Table 1-1. Tax cut hr block Personal and Financial Changes Factor Examples Lifestyle change Marriage Divorce Birth or adoption of child Loss of an exemption Purchase of a new home Retirement Filing chapter 11 bankruptcy Wage income You or your spouse start or stop working, or start or stop a second job Change in the amount of taxable income not subject to withholding Interest income Dividends Capital gains Self-employment income IRA (including certain Roth  IRA) distributions Change in the amount of adjustments to income IRA deduction Student loan interest deduction Alimony expense Change in the amount of itemized deductions or tax credits Medical expenses Taxes Interest expense Gifts to charity Job expenses Dependent care expenses Education credit Child tax credit Earned income credit If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method , explained later. Tax cut hr block Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too much or too little. Tax cut hr block If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. Tax cut hr block You can get a blank Form W-4 from your employer or print the form from IRS. Tax cut hr block gov. Tax cut hr block You should try to have your withholding match your actual tax liability. Tax cut hr block If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. Tax cut hr block If too much tax is withheld, you will lose the use of that money until you get your refund. Tax cut hr block Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. Tax cut hr block See Table 1-1 for examples. Tax cut hr block Note. Tax cut hr block You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax. Tax cut hr block When Should You Check Your Withholding? The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld. Tax cut hr block You should check your withholding when any of the following situations occur. Tax cut hr block You receive a paycheck stub (statement) covering a full pay period in 2014, showing tax withheld based on 2014 tax rates. Tax cut hr block You prepare your 2013 tax return and get a: Big refund, or Balance due that is: More than you can comfortably pay, or Subject to a penalty. Tax cut hr block There are changes in your life or financial situation that affect your tax liability. Tax cut hr block See Table 1-1. Tax cut hr block There are changes in the tax law that affect your tax liability. Tax cut hr block How Do You Check Your Withholding? You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. Tax cut hr block You can also use the IRS Withholding calculator at www. Tax cut hr block irs. Tax cut hr block gov/individuals. Tax cut hr block If you use the worksheets and tables in this publication, follow these steps. Tax cut hr block Fill out Worksheet 1-5 to project your total federal income tax liability for 2014. Tax cut hr block Fill out Worksheet 1-7 to project your total federal withholding for 2014 and compare that with your projected tax liability from Worksheet 1-5. Tax cut hr block If you are not having enough tax withheld, line 6 of Worksheet 1-7 will show you how much more to have withheld each payday. Tax cut hr block For ways to increase the amount of tax withheld, see How Do You Increase Your Withholding? If line 5 of Worksheet 1-7 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, for ways to decrease the amount of tax you have withheld each payday. Tax cut hr block How Do You Increase Your Withholding? There are two ways to increase your withholding. Tax cut hr block You can: Decrease the number of allowances you claim on Form W-4, or Enter an additional amount that you want withheld from each paycheck on Form W-4. Tax cut hr block Requesting an additional amount withheld. Tax cut hr block   You can request that an additional amount be withheld from each paycheck by following these steps. Tax cut hr block Complete Worksheets 1-5 and 1-7. Tax cut hr block Complete a new Form W-4 if the amount on Worksheet 1-7, line 5: Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or Would cause you to pay a penalty when you file your tax return for 2014. Tax cut hr block Enter on your new Form W-4, the same number of withholding allowances your employer now uses for your withholding. Tax cut hr block This is the number of allowances you entered on the last Form W-4 you gave your employer. Tax cut hr block Enter on your new Form W-4, the amount from Worksheet 1-7, line 6. Tax cut hr block Give your newly completed Form W-4 to your employer. Tax cut hr block   If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year. Tax cut hr block Example. Tax cut hr block Early in 2014, Steve Miller used Worksheets 1-5, 1-6, and 1-7 to project his 2014 tax liability ($4,316) and his withholding for the year ($3,516). Tax cut hr block Steve's tax will be underwithheld by $800 ($4,316 − $3,516). Tax cut hr block His choices are to pay this amount when he files his 2014 tax return, make estimated tax payments, or increase his withholding now. Tax cut hr block Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2014. Tax cut hr block Steve completes the new Form W-4 as before, entering the same number of withholding allowances as before, but, in addition, entering $16 ($800 ÷ 50) on the form as the additional amount to be withheld from his pay each payday. Tax cut hr block He gives the completed form to his employer. Tax cut hr block What if I have more than one job or my spouse also has a job?   You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. Tax cut hr block If this is the case, you can increase your withholding for one or more of the jobs. Tax cut hr block   You can apply the amount on Worksheet 1-7, line 5, to only one job or divide it between the jobs any way you wish. Tax cut hr block For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2014 for that job. Tax cut hr block This will give you the additional amount to enter on the Form W-4 you will file for that job. Tax cut hr block You need to give your employer a new Form W-4 for each job for which you are changing your withholding. Tax cut hr block Example. Tax cut hr block Meg Green works in a store and earns $46,000 a year. Tax cut hr block Her husband, John, works full-time in manufacturing and earns $68,000 a year. Tax cut hr block In 2014, they will also have $184 in taxable interest and $1,000 of other taxable income. Tax cut hr block They expect to file a joint income tax return. Tax cut hr block Meg and John complete Worksheets 1-5, 1-6, and 1-7. Tax cut hr block Line 5 of Worksheet 1-7 shows that they will owe an additional $4,459 after subtracting their withholding for the year. Tax cut hr block They can divide the $4,459 any way they want. Tax cut hr block They can enter an additional amount on either of their Forms W-4, or divide it between them. Tax cut hr block They decide to have the additional amount withheld from John's wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on his Form W-4. Tax cut hr block Both claim the same number of allowances as before. Tax cut hr block How Do You Decrease Your Withholding? If your completed Worksheets 1-5 and 1-7 show that you may have more tax withheld than your projected tax liability for 2014, you may be able to decrease your withholding. Tax cut hr block There are two ways to do this. Tax cut hr block You can: Decrease any additional amount you are having withheld, or Increase the number of allowances you claim on Form W-4. Tax cut hr block You can claim only the number of allowances to which you are entitled. Tax cut hr block To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication. Tax cut hr block Increasing the number of allowances. Tax cut hr block   Figure and increase the number of withholding allowances you can claim as follows. Tax cut hr block On a new Form W-4, complete the Personal Allowances Worksheet. Tax cut hr block If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. Tax cut hr block If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later. Tax cut hr block If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet. Tax cut hr block If the number of allowances you can claim on Form W-4, is different from the number you already are claiming, give the newly completed Form W-4 to your employer. Tax cut hr block Converting Credits to Withholding Allowances Table 1-2 , later, shows many of the tax credits you may be able to use to decrease your withholding. Tax cut hr block The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit and the child tax credit. Tax cut hr block Complete Worksheet 1-8 to figure these credits more accurately and also take other credits into account. Tax cut hr block Include the amount from line 12 of Worksheet 1-8 in the total on line 5 of the Deductions and Adjustments Worksheet. Tax cut hr block Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4. Tax cut hr block If you take the child and dependent care credit into account on Worksheet 1-8, enter -0- on line F of the Personal Allowances Worksheet. Tax cut hr block If you take the child tax credit into account on Worksheet 1-8, enter -0- on line G of the Personal Allowances Worksheet. Tax cut hr block Example. Tax cut hr block Brett and Alyssa Davis are married and expect to file a joint return for 2014. Tax cut hr block Their expected taxable income from all sources is $68,000. Tax cut hr block They expect to have $15,900 of itemized deductions. Tax cut hr block Their projected tax credits include a child and dependent care credit of $960 and an adoption credit of $1,500. Tax cut hr block The Davis' complete Worksheet 1-8, as follows, to see whether they can convert their tax credits into additional withholding allowances. Tax cut hr block Line 1, expected child and dependent care credit—$960. Tax cut hr block Line 9, expected adoption credit—$1,500. Tax cut hr block Line 10, total estimated tax credits—$2,460. Tax cut hr block Line 11. Tax cut hr block Their combined total income from all sources, $68,000, falls between $42,001 and $98,000 on the table for married filing jointly or qualifying widow(er). Tax cut hr block The number to the right of this range is 6. Tax cut hr block 7. Tax cut hr block Line 12, multiply line 10 by line 11—$16,482. Tax cut hr block Then the Davis' complete the Form W-4 worksheets. Tax cut hr block Because they choose to account for their child and dependent care credit on the Deductions and Adjustments Worksheet, they enter -0- on line F of the Personal Allowances Worksheet and figure a new total for line H. Tax cut hr block They take the result on line 12 of Worksheet 1-8, add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet, and complete the Form W-4 worksheets. Tax cut hr block When Will Your New Form W-4 Go Into Effect? If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4. Tax cut hr block If the change is for next year, your new Form W-4 will not take effect until next year. Tax cut hr block Retirees Returning to the Workforce When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). Tax cut hr block However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. Tax cut hr block You completed either form based on your projected income at that time. Tax cut hr block Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income. Tax cut hr block The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. Tax cut hr block Start off with the Personal Allowances Worksheet. Tax cut hr block Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet. Tax cut hr block The third worksheet is the most important for this situation. Tax cut hr block Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. Tax cut hr block If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck. Tax cut hr block Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. Tax cut hr block It is your decision how to divide up your withholding allowances between these sources of income. Tax cut hr block For example, you may want to “take home” most of your weekly paycheck to use as spending money and use your monthly pension to “pay the bills. Tax cut hr block ” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4. Tax cut hr block There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances. Tax cut hr block Use the withholding tables in Publication 15 (Circular E), Employer's Tax Guide. Tax cut hr block Contact your pension provider and your employer's payroll department. Tax cut hr block And remember, this is not a final decision. Tax cut hr block If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above. Tax cut hr block You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. Tax cut hr block You may need more tax withheld, or you may need less. Tax cut hr block Table 1-2. Tax cut hr block Tax Credits for 2014 For more information about the . Tax cut hr block . Tax cut hr block . Tax cut hr block See . Tax cut hr block . Tax cut hr block . Tax cut hr block Adoption credit Form 8839 instructions Child and dependent care expenses, credit for Publication 503, Child and Dependent Care Expenses Child tax credit (including the additional child tax credit) Instructions for Form 1040 or Form 1040A Earned income credit Publication 596, Earned Income Credit Education credits Publication 970, Tax Benefits for Education Elderly or the disabled, credit for the Publication 524, Credit for the Elderly or the Disabled Foreign tax credit (except any credit that applies to wages not subject to U. Tax cut hr block S. Tax cut hr block income tax withholding because they are subject to income tax withholding by a foreign country) Publication 514, Foreign Tax Credit for Individuals General business credit Form 3800, General Business Credit Mortgage interest credit Publication 530, Tax Information for First-Time Homeowners Qualified electric vehicle passive activity credit Form 8834 Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year) Form 8801 instructions Retirement savings contributions credit (saver's credit) Publication 590, Individual Retirement Arrangements (IRAs) Tax credit bonds, credit to holders of Form 8912 instructions Completing Form W-4 and Worksheets When reading the following discussion, you may find it helpful to refer to Form W-4. Tax cut hr block Marital Status There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. Tax cut hr block Everyone else must have tax withheld at the higher single rate. Tax cut hr block Single. Tax cut hr block   You must check the “Single” box if any of the following applies. Tax cut hr block You are single. Tax cut hr block If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. Tax cut hr block You are married, but neither you nor your spouse is a citizen or resident of the United States. Tax cut hr block You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. Tax cut hr block For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. Tax cut hr block Married. Tax cut hr block   You qualify to check the “Married” box if any of the following applies. Tax cut hr block You are married and neither you nor your spouse is a nonresident alien. Tax cut hr block You are considered married for the whole year even if your spouse died during the year. Tax cut hr block You are married and either you or your spouse is a nonresident alien who has chosen to be treated as a resident alien for tax purposes. Tax cut hr block For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. Tax cut hr block You expect to be able to file your return as a qualifying widow or widower. Tax cut hr block You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. Tax cut hr block However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. Tax cut hr block For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Tax cut hr block Married, but withhold at higher single rate. Tax cut hr block   Some married people find that they do not have enough tax withheld at the married rate. Tax cut hr block This can happen, for example, when both spouses work. Tax cut hr block To avoid this, you can check the “Married, but withhold at higher Single rate” box (even if you qualify for the married rate). Tax cut hr block Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later. Tax cut hr block Withholding Allowances The more allowances you claim on Form W-4, the less income tax your employer will withhold. Tax cut hr block You will have the most tax withheld if you claim “0” allowances. Tax cut hr block The number of allowances you can claim depends on the following factors. Tax cut hr block How many exemptions you can take on your tax return. Tax cut hr block Whether you have income from more than one job. Tax cut hr block What deductions, adjustments to income, and credits you expect to have for the year. Tax cut hr block Whether you will file as head of household. Tax cut hr block If you are married (filing jointly), it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4. Tax cut hr block Or, if married filing separately, whether or not your spouse also works. Tax cut hr block Form W-4 worksheets. Tax cut hr block    Form W-4 has worksheets to help you figure how many withholding allowances you can claim. Tax cut hr block The worksheets are for your own records. Tax cut hr block Do not give them to your employer. Tax cut hr block   Complete only one set of Form W-4 worksheets, no matter how many jobs you have. Tax cut hr block If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. Tax cut hr block Complete separate sets of worksheets only if you and your spouse will file separate returns. Tax cut hr block   If you are not exempt from withholding (see Exemption From Withholding , later), complete the Personal Allowances Worksheet on page 1 of the form. Tax cut hr block Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. Tax cut hr block If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments. Tax cut hr block   Complete all worksheets that apply to your situation. Tax cut hr block The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year. Tax cut hr block Multiple jobs. Tax cut hr block   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Tax cut hr block Then split your allowances between the Forms W-4 for each job. Tax cut hr block You cannot claim the same allowances with more than one employer at the same time. Tax cut hr block You can claim all your allowances with one employer and none with the other(s), or divide them any other way. Tax cut hr block Married individuals. Tax cut hr block   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Tax cut hr block Use only one set of worksheets. Tax cut hr block You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. Tax cut hr block   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. Tax cut hr block Alternative method of figuring withholding allowances. Tax cut hr block   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. Tax cut hr block   The method you use must be based on withholding schedules, the tax rate schedules, and the 2014 Estimated Tax Worksheet in chapter 2. Tax cut hr block It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4. Tax cut hr block   You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. Tax cut hr block You still must give your employer a Form W-4 claiming your withholding allowances. Tax cut hr block Employees who are not citizens or residents. Tax cut hr block   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. Tax cut hr block However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U. Tax cut hr block S. Tax cut hr block national. Tax cut hr block It also does not apply if your spouse is a U. Tax cut hr block S. Tax cut hr block citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. Tax cut hr block Special rules apply to residents of South Korea and India. Tax cut hr block For more information, see Withholding From Compensation in chapter 8 of Publication 519. Tax cut hr block Personal Allowances Worksheet Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply. Tax cut hr block Exemptions. Tax cut hr block Only one job. Tax cut hr block Head of household filing status. Tax cut hr block Child and dependent care credit. Tax cut hr block Child tax credit. Tax cut hr block Exemptions (worksheet lines A, C, and D). Tax cut hr block   You can claim one withholding allowance for each exemption you expect to claim on your tax return. Tax cut hr block Self. Tax cut hr block   You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. Tax cut hr block If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption. Tax cut hr block Spouse. Tax cut hr block   You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Tax cut hr block Do not claim this allowance if you and your spouse expect to file separate returns. Tax cut hr block Dependents. Tax cut hr block   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. Tax cut hr block Only one job (worksheet line B). Tax cut hr block    You can claim an additional withholding allowance if any of the following apply for 2014. Tax cut hr block You are single and you have only one job at a time. Tax cut hr block You are married, you have only one job at a time, and your spouse does not work. Tax cut hr block Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less. Tax cut hr block If you qualify for this allowance, enter “1” on line B of the worksheet. Tax cut hr block Head of household filing status (worksheet line E). Tax cut hr block   Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that: Was the main home for all of 2014 of your parent whom you can claim as a dependent, or You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent. Tax cut hr block For more information, see Publication 501. Tax cut hr block   If you expect to file as head of household on your 2014 tax return, enter “1” on line E of the worksheet. Tax cut hr block Reduction of personal allowances. Tax cut hr block   For 2014, your deduction for personal exemptions on your tax return is reduced if your adjusted gross income (AGI) is more than the AGI shown next for your filing status. Tax cut hr block Personal Allowance Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1-1 to figure your reduced number of personal allowances on lines A, C, and D of the Personal Allowances Worksheet. Tax cut hr block Worksheet 1-1. Tax cut hr block Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold 1. Tax cut hr block Enter the total amount of allowances on lines A, C, and D of the Personal Allowance Worksheet without regard to the phaseout rule 1. Tax cut hr block   2. Tax cut hr block Enter your expected AGI 2. Tax cut hr block       3. Tax cut hr block Enter $254,200 if single $305,050 if married filing jointly or qualifying widow(er) $152,525 if married filing separately $279,650 if head of household 3. Tax cut hr block       4. Tax cut hr block Subtract line 3 from line 2 4. Tax cut hr block       5. Tax cut hr block Divide line 4 by $125,000 ($62,500 if married filing separately). Tax cut hr block Enter the result as a decimal 5. Tax cut hr block   6. Tax cut hr block Multiply line 1 by line 5. Tax cut hr block If the result is not a whole number, increase it to the next higher whole number 6. Tax cut hr block   7. Tax cut hr block Subtract line 6 from line 1. Tax cut hr block The total of the numbers you enter on A, C, and D of the Personal Allowances Worksheet can not be more than this amount 7. Tax cut hr block     Child and dependent care credit (worksheet line F). Tax cut hr block   Enter “1” on line F if you expect to claim a credit for at least $2,000 of qualifying child or dependent care expenses on your 2014 return. Tax cut hr block Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. Tax cut hr block For more information, see Publication 503, Child and Dependent Care Expenses. Tax cut hr block   Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. Tax cut hr block Child tax credit (worksheet line G). Tax cut hr block   If your total income will be less than $65,000 ($95,000 if married), enter “2” on line G for each eligible child. Tax cut hr block Subtract “1” from that amount if you have three to six eligible children. Tax cut hr block Subtract “2” from that amount if you have seven or more eligible children. Tax cut hr block   If your total income will be between $65,000 and $84,000 ($95,000 and $119,000 if married), enter “1” on line G for each eligible child. Tax cut hr block   An eligible child is any child: Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Who will be under age 17 at the end of 2014, Who is younger than you (or your spouse if filing jointly) or permanently and totally disabled, Who will not provide over half of his or her own support for 2014, Who will not file a joint return, unless the return is filed only as a claim for refund, Who will live with you for more than half of 2014, Who is a U. Tax cut hr block S. Tax cut hr block citizen, U. Tax cut hr block S. Tax cut hr block national, or U. Tax cut hr block S. Tax cut hr block resident alien, and Who will be claimed as a dependent on your return. Tax cut hr block If you are a U. Tax cut hr block S. Tax cut hr block citizen or U. Tax cut hr block S. Tax cut hr block national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. Tax cut hr block   Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2013 instructions for Form 1040 or 1040A, line 6c. Tax cut hr block   For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A. Tax cut hr block   Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. Tax cut hr block Total personal allowances (worksheet line H). Tax cut hr block    Add lines A through G and enter the total on line H. Tax cut hr block If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4. Tax cut hr block Deductions and Adjustments Worksheet Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. Tax cut hr block Also, complete this worksheet when you have changes to those items to see if you need to change your withholding. Tax cut hr block Use the amount of each item you reasonably can expect to show on your return. Tax cut hr block However, do not use more than: The amount shown for that item on your 2013 return (or your 2012 return if you have not yet filed your 2013 return), plus Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2013 or 2014. Tax cut hr block Do not include any amount shown on your last tax return that has been disallowed by the IRS. Tax cut hr block Example. Tax cut hr block On June 30, 2013, you bought your first home. Tax cut hr block On your 2013 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Tax cut hr block Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2014 return. Tax cut hr block You can use $13,200 to figure the number of your withholding allowances for itemized deductions. Tax cut hr block Not itemizing deductions. Tax cut hr block   If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “0” on line 3 of the worksheet. Tax cut hr block Itemized deductions (worksheet line 1). Tax cut hr block   Enter your estimated total itemized deductions on line 1 of the worksheet. Tax cut hr block   Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2014. Tax cut hr block You normally claim these deductions on Schedule A of Form 1040. Tax cut hr block Medical and dental expenses that are more than 10% (7. Tax cut hr block 5% if either you or your spouse was born before January 2, 1950) of your 2014 AGI (defined under AGI , later). Tax cut hr block State and local income or property taxes. Tax cut hr block Deductible home mortgage interest. Tax cut hr block Investment interest up to net investment income. Tax cut hr block Charitable contributions. Tax cut hr block Casualty and theft losses that are more than $100 and 10% of your AGI. Tax cut hr block Fully deductible miscellaneous itemized deductions, including: Impairment-related work expenses of persons with disabilities, Federal estate tax on income in respect of a decedent, Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it, Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death, Gambling losses up to the amount of gambling winnings reported on your return, and Casualty and theft losses from  income-producing property. Tax cut hr block Other miscellaneous itemized deductions that are more than 2% of your AGI, including: Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies, Safe deposit box rental, Tax counsel and assistance, and Certain fees paid to an IRA trustee or custodian. Tax cut hr block AGI. Tax cut hr block   For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2014 minus any estimated adjustments to income (discussed later) that you include on line 4 of the Deductions and Adjustments Worksheet. Tax cut hr block Phaseout of itemized deductions. Tax cut hr block   For 2014, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. Tax cut hr block    Itemized Deduction Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1–2 to figure your reduction in itemized deductions. Tax cut hr block Worksheet 1-2. Tax cut hr block Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions 1. Tax cut hr block Enter the estimated total of your itemized deductions 1. Tax cut hr block   2. Tax cut hr block Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses 2. Tax cut hr block   3. Tax cut hr block Is the amount on line 2 less than the amount on line 1? ❑ No. Tax cut hr block Stop here. Tax cut hr block Your deduction is not limited. Tax cut hr block Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. Tax cut hr block  ❑ Yes. Tax cut hr block Subtract line 2 from line 1. Tax cut hr block 3. Tax cut hr block       4. Tax cut hr block Multiply line 3 by 80% (. Tax cut hr block 80) 4. Tax cut hr block       5. Tax cut hr block Enter your expected AGI 5. Tax cut hr block       6. Tax cut hr block Enter $305,050 If married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately 6. Tax cut hr block   7. Tax cut hr block Is the amount on line 6 less than the amount on line 5? ❑ No. Tax cut hr block Stop here. Tax cut hr block Your deduction is not limited. Tax cut hr block Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. Tax cut hr block  ❑ Yes. Tax cut hr block Subtract line 6 from line 5. Tax cut hr block 7. Tax cut hr block       8. Tax cut hr block Multiply line 7 by 3% (. Tax cut hr block 03) 8. Tax cut hr block       9. Tax cut hr block Enter the smaller of line 4 or line 8 9. Tax cut hr block     10. Tax cut hr block Subtract line 9 from line 1. Tax cut hr block Enter the result here and on line 1 of the Deductions and Adjustments Worksheet 10. Tax cut hr block     Adjustments to income (worksheet line 4). Tax cut hr block   Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet. Tax cut hr block   You can take the following adjustments to income into account when figuring additional withholding allowances for 2014. Tax cut hr block These adjustments appear on page 1 of your Form 1040 or 1040A. Tax cut hr block Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b. Tax cut hr block Net operating loss carryovers. Tax cut hr block Certain business expenses of reservists, performing artists, and fee-based government officials. Tax cut hr block Health savings account or medical savings account deduction. Tax cut hr block Certain moving expenses. Tax cut hr block Deduction for self-employment tax. Tax cut hr block Deduction for contributions to self-employed SEP, and qualified SIMPLE plans. Tax cut hr block Self-employed health insurance deduction. Tax cut hr block Penalty on early withdrawal of savings. Tax cut hr block Alimony paid. Tax cut hr block IRA deduction. Tax cut hr block Student loan interest deduction. Tax cut hr block Jury duty pay given to your employer. Tax cut hr block Reforestation amortization and expenses. Tax cut hr block Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. Tax cut hr block Repayment of certain supplemental unemployment benefits. Tax cut hr block Contributions to IRC 501(c)(18)(D) pension plans. Tax cut hr block Contributions by certain chaplains to IRC 403(b) plans. Tax cut hr block Attorney fees and court costs for certain unlawful discrimination claims. Tax cut hr block Attorney fees and court costs for certain whistleblower awards. Tax cut hr block Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040). Tax cut hr block Tax credits (worksheet line 5). Tax cut hr block   Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). Tax cut hr block But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet. Tax cut hr block   If you take the child and dependent care credit into account on line 5, do not use line F. Tax cut hr block If you take the child tax credit into account on line 5, do not use line G. Tax cut hr block   In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits. Tax cut hr block See the individual tax form instructions for more details. Tax cut hr block Foreign tax credit, except any credit that applies to wages not subject to U. Tax cut hr block S. Tax cut hr block income tax withholding because they are subject to income tax withholding by a foreign country. Tax cut hr block See Publication 514, Foreign Tax Credit for Individuals. Tax cut hr block Credit for the elderly or the disabled. Tax cut hr block See Publication 524, Credit for the Elderly or the Disabled. Tax cut hr block Education credits. Tax cut hr block See Publication 970, Tax Benefits for Education. Tax cut hr block Retirement savings contributions credit (saver's credit). Tax cut hr block See Publication 590. Tax cut hr block Mortgage interest credit. Tax cut hr block See Publication 530, Tax Information for Homeowners. Tax cut hr block Adoption credit. Tax cut hr block See the Instructions for Form 8839. Tax cut hr block Credit for nonrefundable portion of prior year minimum tax if you paid alternative minimum tax in an earlier year. Tax cut hr block See the Instructions for Form 8801. Tax cut hr block General business credit. Tax cut hr block See the Instructions for Form 3800. Tax cut hr block Earned income credit. Tax cut hr block See Publication 596. Tax cut hr block Figuring line 5 entry. Tax cut hr block   To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-3 . Tax cut hr block Example. Tax cut hr block You are married and expect to file a joint return for 2014. Tax cut hr block Your combined estimated wages are $68,000. Tax cut hr block Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660). Tax cut hr block In Table 1-3, the number corresponding to your combined estimated wages ($42,001 – $98,000) is 6. Tax cut hr block 7. Tax cut hr block Multiply your total estimated tax credits of $2,660 by 6. Tax cut hr block 7. Tax cut hr block Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. Tax cut hr block Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet. Tax cut hr block Nonwage income (worksheet line 6). Tax cut hr block   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Tax cut hr block Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income. Tax cut hr block   If line 6 is more than line 5, you may not have enough income tax withheld from your wages. Tax cut hr block See Getting the Right Amount of Tax Withheld , later. Tax cut hr block Net deductions and adjustments (worksheet line 8). Tax cut hr block    If line 7 is less than $3,950, enter “0” on line 8. Tax cut hr block If line 7 is $3,950 or more, divide it by $3,950, drop any fraction, and enter the result on line 8. Tax cut hr block Example. Tax cut hr block If line 7 is $5,200, $5,200 ÷ $3,950 = 1. Tax cut hr block 32. Tax cut hr block Drop the fraction (. Tax cut hr block 32) and enter “1” on line 8. Tax cut hr block Two-Earners/Multiple Jobs Worksheet Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $50,000 ($20,000 if married). Tax cut hr block Reducing your allowances (worksheet lines 1-3). Tax cut hr block   On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). Tax cut hr block Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). Tax cut hr block Enter that number on line 2. Tax cut hr block However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than “3. Tax cut hr block ”    Table 1-3. Tax cut hr block Deductions and Adjustments Worksheet (Form W-4)—Line 5 a. Tax cut hr block  Married Filing Jointly or Qualifying Widow(er) If combined income from all sources is:   Multiply credits by: $0 – 42,000 10. Tax cut hr block 0 $42,001 – 98,000 6. Tax cut hr block 7 $98,001 – 180,000 4. Tax cut hr block 0 $180,001 – 270,000 3. Tax cut hr block 6 $270,001 – 440,000 3. Tax cut hr block 0 $440,001 – 490,000. Tax cut hr block . Tax cut hr block . Tax cut hr block . Tax cut hr block 2. Tax cut hr block 9 $490,001 and over 2. Tax cut hr block 5 b. Tax cut hr block  Single If combined income from all sources is:   Multiply credits by: $0 – 19,000 10. Tax cut hr block 0 $19,001 – 47,000 6. Tax cut hr block 7 $47,001 – 104,000 4. Tax cut hr block 0 $104,001 – 205,000 3. Tax cut hr block 6 $205,001 – 430,000 3. Tax cut hr block 0 $430,001 and over 2. Tax cut hr block 5 c. Tax cut hr block  Head of Household If combined income from all sources is:   Multiply credits by: $0 – 30,000 10. Tax cut hr block 0 $30,001 – 66,000 6. Tax cut hr block 7 $66,001 – 150,000 4. Tax cut hr block 0 $150,001 – 235,000 3. Tax cut hr block 6 $235,001 – 430,000 3. Tax cut hr block 0 $430,001 – 460,000 2. Tax cut hr block 9 $460,001 and over 2. Tax cut hr block 5 d. Tax cut hr block  Married Filing Separately   If combined income from all sources is:   Multiply credits by: $0 – 21,000 10. Tax cut hr block 0 $21,001 – 49,000 6. Tax cut hr block 7 $49,001 – 90,000 4. Tax cut hr block 0 $90,001 – 135,000 3. Tax cut hr block 6 $135,001 – 220,000 3. Tax cut hr block 0 $220,001 – 245,000 2. Tax cut hr block 9 $245,001 and over 2. Tax cut hr block 5   Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. Tax cut hr block If line 1 is more than or equal to line 2, do not use the rest of the worksheet. Tax cut hr block   If line 1 is less than line 2, enter “0” on Form W-4, line 5. Tax cut hr block Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding. Tax cut hr block Other amounts owed. Tax cut hr block   If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. Tax cut hr block The total is the additional withholding needed for the year. Tax cut hr block Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. Tax cut hr block You accurately complete all the Form W-4 worksheets that apply to you. Tax cut hr block You give your employer a new Form W-4 when changes occur. Tax cut hr block But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. Tax cut hr block This is most likely to happen in the following situations. Tax cut hr block You are married and both you and your spouse work. Tax cut hr block You have more than one job at a time. Tax cut hr block You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. Tax cut hr block You will owe additional amounts with your return, such as self-employment tax. Tax cut hr block Your withholding is based on obsolete Form W-4 information for a substantial part of the year. Tax cut hr block Your earnings are more than $130,000 if you are single or $180,000 if you are married. Tax cut hr block You work only part of the year. Tax cut hr block You change the number of your withholding allowances during the year. Tax cut hr block You are subject to Additional Medicare Tax or Net Investment Income Tax. Tax cut hr block If you anticipate liability for Additional Medicare Tax or Net Investment Income Tax, you may request that your employer withhold an additional amount of income tax withholding on Form W-4. Tax cut hr block Part-Year Method If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. Tax cut hr block To be eligible for the part-year method, you must meet both of the following requirements. Tax cut hr block You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. Tax cut hr block You cannot use a fiscal year. Tax cut hr block You must not expect to be employed for more than 245 days during the year. Tax cut hr block To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. Tax cut hr block If you are temporarily laid off for 30 days or less, count those days too. Tax cut hr block If you are laid off for more than 30 days, do not count those days. Tax cut hr block You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year. Tax cut hr block How to apply for the part-year method. Tax cut hr block   You must ask your employer in writing to use this method. Tax cut hr block The request must state all three of the following. Tax cut hr block The date of your last day of work for any prior employer during the current calendar year. Tax cut hr block That you do not expect to be employed more than 245 days during the current calendar year. Tax cut hr block That you use the calendar year as your tax year. Tax cut hr block Cumulative Wage Method If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. Tax cut hr block You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. Tax cut hr block You must ask your employer in writing to use this method. Tax cut hr block To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. Tax cut hr block ) since the beginning of the year. Tax cut hr block Aids for Figuring Your Withholding IRS Withholding Calculator. Tax cut hr block   If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. Tax cut hr block Go to www. Tax cut hr block irs. Tax cut hr block gov/Individuals/IRS-Withholding-Calculator. Tax cut hr block It can help you determine the correct amount to be withheld any time during the year. Tax cut hr block Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. Tax cut hr block These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. Tax cut hr block New Form W-4. Tax cut hr block   When you start a new job, your employer should give you a Form W-4 to fill out. Tax cut hr block Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. Tax cut hr block   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. Tax cut hr block The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. Tax cut hr block No Form W-4. Tax cut hr block   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. Tax cut hr block Repaying withheld tax. Tax cut hr block   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Tax cut hr block Your employer cannot repay any of the tax previously withheld. Tax cut hr block Instead, claim the full amount withheld when you file your tax return. Tax cut hr block   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Tax cut hr block Your employer can repay the amount that was withheld incorrectly. Tax cut hr block If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. Tax cut hr block IRS review of your withholding. Tax cut hr block   Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. Tax cut hr block Your employer may be required to send a copy of the Form W-4 to the IRS. Tax cut hr block There is a penalty for supplying false information on Form W-4. Tax cut hr block See Penalties , later. Tax cut hr block   If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a “lock-in letter”) to both you and your employer. Tax cut hr block   The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. Tax cut hr block If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. Tax cut hr block Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. Tax cut hr block At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter. Tax cut hr block   After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter. Tax cut hr block   If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. Tax cut hr block Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise. Tax cut hr block   At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. Tax cut hr block Your employer must then withhold tax based on this new Form W-4. Tax cut hr block   Additional information is available at IRS. Tax cut hr block gov. Tax cut hr block Enter “withholding compliance questions” in the search box. Tax cut hr block Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. Tax cut hr block The exemption applies only to income tax, not to social security or Medicare tax. Tax cut hr block You can claim exemption from withholding for 2014 only if both of the following situations apply. Tax cut hr block For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. Tax cut hr block For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. Tax cut hr block Use Figure 1-A to help you decide whether you can claim exemption from withholding. Tax cut hr block Do not use Figure 1-A if you: Are 65 or older, Are blind, Will itemize deductions on your 2014 return, Will claim an exemption for a dependent on your 2014 return, or Will claim any tax credits on your 2014 return. Tax cut hr block These situations are discussed later. Tax cut hr block Students. Tax cut hr block   If you are a student, you are not automatically exempt. Tax cut hr block If you work only part time or during the summer, you may qualify for exemption from withholding. Tax cut hr block Example 1. Tax cut hr block You are a high school student and expect to earn $2,500 from a summer job. Tax cut hr block You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. Tax cut hr block You worked last summer and had $375 federal income tax withheld from your pay. Tax cut hr block The entire $375 was refunded when you filed your 2013 return. Tax cut hr block Using Figure 1-A, you find that you can claim exemption from withholding. Tax cut hr block Please click here for the text description of the image. Tax cut hr block Figure 1-A: Exemption From Withholding on Form W-4 Example 2. Tax cut hr block The facts are the same as in Example 1, except that you also have a savings account and expect to have $400 interest income during the year. Tax cut hr block Using Figure 1-A, you find that you cannot claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,000. Tax cut hr block    You may have to file a tax return, even if you are exempt from withholding. Tax cut hr block See Publication 501 to see whether you must file a return. Tax cut hr block    Age 65 or older or blind. Tax cut hr block If you are 65 or older or blind, use Worksheet 1-3 or Worksheet 1-4, to help you decide whether you can claim exemption from withholding. Tax cut hr block Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. Tax cut hr block Instead, see Itemizing deductions or claiming exemptions or credits, next. Tax cut hr block Itemizing deductions or claiming exemptions or credits. Tax cut hr block   If you had no tax liability for 2013, and you will: Itemize deductions, Claim an exemption for a dependent, or Claim a tax credit, use the 2014 Estimated Tax Worksheet (also see chapter 2), to figure your 2014 expected tax liability. Tax cut hr block You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero. Tax cut hr block Claiming exemption from withholding. Tax cut hr block   To claim exemption, you must give your employer a Form W-4. Tax cut hr block Do not complete lines 5 and 6. Tax cut hr block Enter “Exempt” on line 7. Tax cut hr block   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. Tax cut hr block If you claim exemption in 2014 but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. Tax cut hr block   Your claim of exempt status may be reviewed by the IRS. Tax cut hr block See IRS review of your withholding , earlier. Tax cut hr block An exemption is good for only 1 year. Tax cut hr block   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. Tax cut hr block Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. Tax cut hr block The payer can figure withholding on supplemental wages using the same method used for your regular wages. Tax cut hr block However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. Tax cut hr block Expense allowances. Tax cut hr block   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. Tax cut hr block A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses. Tax cut hr block   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. Tax cut hr block Accountable plan. Tax cut hr block   To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules. Tax cut hr block Your expenses must have a business connection. Tax cut hr block That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Tax cut hr block You must adequately account to your employer for these expenses within a reasonable period of time. Tax cut hr block You must return any excess reimbursement or allowance within a reasonable period of time. Tax cut hr block    An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Tax cut hr block   The definition of reasonable period of time depends on the facts and circumstances of your situation. Tax cut hr block However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Tax cut hr block You receive an advance within 30 days of the time you have an expense. Tax cut hr block You adequately account for your expenses within 60 days after they were paid or incurred. Tax cut hr block You return any excess reimbursement within 120 days after the expense was paid or incurred. Tax cut hr block You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Tax cut hr block Nonaccountable plan. Tax cut hr block   Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. Tax cut hr block For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. Tax cut hr block Penalties You may have to pay a penalty of $500 if both of the following apply. Tax cut hr block You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. Tax cut hr block You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. Tax cut hr block There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. Tax cut hr block The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. Tax cut hr block These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. Tax cut hr block A simple error or an honest mistake will not result in one of these penalties. Tax cut hr block For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. Tax cut hr block However, see chapter 4 for information on the penalty for underpaying your tax. Tax cut hr block Tips The tips you receive while working on your job are considered part of your pay. Tax cut hr block You must include your tips on your tax return on the same line as your regular pay. Tax cut hr block However, tax is not withheld directly from tip income, as it is from your regular pay. Tax cut hr block Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. Tax cut hr block Reporting tips to your employer. Tax cut hr block   If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. Tax cut hr block The report is due by the 10th day of the following month. Tax cut hr block   If you have more than one job, make a separate report to each employer. Tax cut hr block Report only the tips you received while working for that employer, and only if they total $20 or more for the month. Tax cut hr block How employer figures amount to withhold. Tax cut hr block   The tips you report to your employer are counted as part of your income for the month you report them. Tax cut hr block Your employer can figure your withholding in either of two ways. Tax cut hr block By withholding at the regular rate on the sum of your pay plus your reported tips. Tax cut hr block By withholding at the regular rate on your pay plus a percentage of your reported tips. Tax cut hr block Not enough pay to cover taxes. Tax cut hr block   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. Tax cut hr block   If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. Tax cut hr block If not enough tax is withheld, you may have to pay estimated tax. Tax cut hr block When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold. Tax cut hr block Tips not reported to your employer. Tax cut hr block   On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer (this includes the value of any noncash tips you received, such as tickets, passes, or other items of value). Tax cut hr block Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income. Tax cut hr block Allocated tips. Tax cut hr block   If you work in a large food or beverage establishment, your employer may have to report an allocated amount of tips on your Form W-2. Tax cut hr block   Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. Tax cut hr block Withholding is based only on your pay plus your reported tips. Tax cut hr block Your employer should refund to you any incorrectly withheld tax. Tax cut hr block More information. Tax cut hr block   For more information on the reporting and withholding rules for tip income and on tip allocation, see Publi
Español

Defense Security Cooperation Agency (DSCA)

The Defense Security Cooperation Agency works to improve the security capabilities of the United States' international allies and partners. As a part of that goal, the Defense Security Cooperation Agency also provides humanitarian aid during crises.

Contact the Agency or Department

Website: Defense Security Cooperation Agency (DSCA)

E-mail:

Address: 2800 Defense Pentagon
Wasington, DC 20301-2800

Phone Number: (703) 601-3670

The Tax Cut Hr Block

Tax cut hr block 2. Tax cut hr block   Accounting Periods and Methods Table of Contents Introduction Useful Items - You may want to see: Accounting Periods Accounting MethodsCash Method Accrual Method Combination Method Inventories Uniform Capitalization Rules Special Methods Change in Accounting Method Introduction You must figure your taxable income and file an income tax return for an annual accounting period called a tax year. Tax cut hr block Also, you must consistently use an accounting method that clearly shows your income and expenses for the tax year. Tax cut hr block Useful Items - You may want to see: Publication 538 Accounting Periods and Methods See chapter 12 for information about getting publications and forms. Tax cut hr block Accounting Periods When preparing a statement of income and expenses (generally your income tax return), you must use your books and records for a specific interval of time called an accounting period. Tax cut hr block The annual accounting period for your income tax return is called a tax year. Tax cut hr block You can use one of the following tax years. Tax cut hr block A calendar tax year. Tax cut hr block A fiscal tax year. Tax cut hr block Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Tax cut hr block A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Tax cut hr block Calendar tax year. Tax cut hr block   A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Tax cut hr block   You must adopt the calendar tax year if any of the following apply. Tax cut hr block You do not keep books. Tax cut hr block You have no annual accounting period. Tax cut hr block Your present tax year does not qualify as a fiscal year. Tax cut hr block Your use of the calendar tax year is required under the Internal Revenue Code or the Income Tax Regulations. Tax cut hr block   If you filed your first income tax return using the calendar tax year and you later begin business as a sole proprietor, you must continue to use the calendar tax year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Tax cut hr block For more information, see Change in tax year, later. Tax cut hr block   If you adopt the calendar tax year, you must maintain your books and records and report your income and expenses for the period from January 1 through December 31 of each year. Tax cut hr block Fiscal tax year. Tax cut hr block   A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Tax cut hr block A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Tax cut hr block   If you adopt a fiscal tax year, you must maintain your books and records and report your income and expenses using the same tax year. Tax cut hr block   For more information on a fiscal tax year, including a 52-53-week tax year, see Publication 538. Tax cut hr block Change in tax year. Tax cut hr block   Generally, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year, to request IRS approval to change your tax year. Tax cut hr block See the Instructions for Form 1128 for exceptions. Tax cut hr block If you qualify for an automatic approval request, a user fee is not required. Tax cut hr block If you do not qualify for automatic approval, a ruling must be requested. Tax cut hr block See the instructions for Form 1128 for information about user fees if you are requesting a ruling. Tax cut hr block Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Tax cut hr block Your accounting method includes not only the overall method of accounting you use, but also the accounting treatment you use for any material item. Tax cut hr block You choose an accounting method for your business when you file your first income tax return that includes a Schedule C for the business. Tax cut hr block After that, if you want to change your accounting method, you must generally get IRS approval. Tax cut hr block See Change in Accounting Method, later. Tax cut hr block Kinds of methods. Tax cut hr block   Generally, you can use any of the following accounting methods. Tax cut hr block Cash method. Tax cut hr block An accrual method. Tax cut hr block Special methods of accounting for certain items of income and expenses. Tax cut hr block Combination method using elements of two or more of the above. Tax cut hr block You must use the same accounting method to figure your taxable income and to keep your books. Tax cut hr block Also, you must use an accounting method that clearly shows your income. Tax cut hr block Business and personal items. Tax cut hr block   You can account for business and personal items under different accounting methods. Tax cut hr block For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Tax cut hr block Two or more businesses. Tax cut hr block   If you have two or more separate and distinct businesses, you can use a different accounting method for each if the method clearly reflects the income of each business. Tax cut hr block They are separate and distinct only if you maintain complete and separate books and records for each business. Tax cut hr block Cash Method Most individuals and many sole proprietors with no inventory use the cash method because they find it easier to keep cash method records. Tax cut hr block However, if an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases. Tax cut hr block For more information, see Inventories, later. Tax cut hr block Income Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year. Tax cut hr block If you receive property or services, you must include their fair market value in income. Tax cut hr block Example. Tax cut hr block On December 30, 2012, Mrs. Tax cut hr block Sycamore sent you a check for interior decorating services you provided to her. Tax cut hr block You received the check on January 2, 2013. Tax cut hr block You must include the amount of the check in income for 2013. Tax cut hr block Constructive receipt. Tax cut hr block   You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. Tax cut hr block You do not need to have possession of it. Tax cut hr block If you authorize someone to be your agent and receive income for you, you are treated as having received it when your agent received it. Tax cut hr block Example. Tax cut hr block Interest is credited to your bank account in December 2013. Tax cut hr block You do not withdraw it or enter it into your passbook until 2014. Tax cut hr block You must include it in your gross income for 2013. Tax cut hr block Delaying receipt of income. Tax cut hr block   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Tax cut hr block You must report the income in the year the property is received or made available to you without restriction. Tax cut hr block Example. Tax cut hr block Frances Jones, a service contractor, was entitled to receive a $10,000 payment on a contract in December 2013. Tax cut hr block She was told in December that her payment was available. Tax cut hr block At her request, she was not paid until January 2014. Tax cut hr block She must include this payment in her 2013 income because it was constructively received in 2013. Tax cut hr block Checks. Tax cut hr block   Receipt of a valid check by the end of the tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year. Tax cut hr block Example. Tax cut hr block Dr. Tax cut hr block Redd received a check for $500 on December 31, 2013, from a patient. Tax cut hr block She could not deposit the check in her business account until January 2, 2014. Tax cut hr block She must include this fee in her income for 2013. Tax cut hr block Debts paid by another person or canceled. Tax cut hr block   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Tax cut hr block If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Tax cut hr block For more information, see Canceled Debt under Kinds of Income in chapter 5. Tax cut hr block Repayment of income. Tax cut hr block   If you include an amount in income and in a later year you have to repay all or part of it, you can usually deduct the repayment in the year in which you make it. Tax cut hr block If the amount you repay is over $3,000, a special rule applies. Tax cut hr block For details about the special rule, see Repayments in chapter 11 of Publication 535, Business Expenses. Tax cut hr block Expenses Under the cash method, you generally deduct expenses in the tax year in which you actually pay them. Tax cut hr block This includes business expenses for which you contest liability. Tax cut hr block However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Tax cut hr block Expenses paid in advance. Tax cut hr block   You can deduct an expense you pay in advance only in the year to which it applies. Tax cut hr block Example. Tax cut hr block You are a calendar year taxpayer and you pay $1,000 in 2013 for a business insurance policy effective for one year, beginning July 1. Tax cut hr block You can deduct $500 in 2013 and $500 in 2014. Tax cut hr block Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Tax cut hr block The purpose of an accrual method of accounting is to match income and expenses in the correct year. Tax cut hr block Income—General Rule Under an accrual method, you generally include an amount in your gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Tax cut hr block Example. Tax cut hr block You are a calendar year accrual method taxpayer. Tax cut hr block You sold a computer on December 28, 2013. Tax cut hr block You billed the customer in the first week of January 2014, but you did not receive payment until February 2014. Tax cut hr block You must include the amount received for the computer in your 2013 income. Tax cut hr block Income—Special Rules The following are special rules that apply to advance payments, estimating income, and changing a payment schedule for services. Tax cut hr block Estimated income. Tax cut hr block   If you include a reasonably estimated amount in gross income, and later determine the exact amount is different, take the difference into account in the tax year in which you make the determination. Tax cut hr block Change in payment schedule for services. Tax cut hr block   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a lower rate until you complete the services and then receive the difference. Tax cut hr block Advance payments for services. Tax cut hr block   Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Tax cut hr block However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Tax cut hr block However, you cannot postpone including any payment beyond that tax year. Tax cut hr block   For more information, see Advance Payment for Services under Accrual Method in Publication 538. Tax cut hr block That publication also explains special rules for reporting the following types of income. Tax cut hr block Advance payments for service agreements. Tax cut hr block Prepaid rent. Tax cut hr block Advance payments for sales. Tax cut hr block   Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods you hold primarily for sale to your customers in the ordinary course of your business. Tax cut hr block If the advance payments are for contracts involving both the sale and service of goods, it may be necessary to treat them as two agreements. Tax cut hr block An agreement includes a gift certificate that can be redeemed for goods. Tax cut hr block Treat amounts that are due and payable as amounts you received. Tax cut hr block   You generally include an advance payment in income for the tax year in which you receive it. Tax cut hr block However, you can use an alternative method. Tax cut hr block For information about the alternative method, see Publication 538. Tax cut hr block Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Tax cut hr block The all-events test has been met. Tax cut hr block The test has been met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Tax cut hr block Economic performance has occurred. Tax cut hr block Economic performance. Tax cut hr block   You generally cannot deduct or capitalize a business expense until economic performance occurs. Tax cut hr block If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Tax cut hr block If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Tax cut hr block An exception allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Tax cut hr block For more information on economic performance, see Economic Performance under Accrual Method in Publication 538. Tax cut hr block Example. Tax cut hr block You are a calendar year taxpayer and use an accrual method of accounting. Tax cut hr block You buy office supplies in December 2013. Tax cut hr block You receive the supplies and the bill in December, but you pay the bill in January 2014. Tax cut hr block You can deduct the expense in 2013 because all events that fix the fact of liability have occurred, the amount of the liability could be reasonably determined, and economic performance occurred in that year. Tax cut hr block Your office supplies may qualify as a recurring expense. Tax cut hr block In that case, you can deduct them in 2013 even if the supplies are not delivered until 2014 (when economic performance occurs). Tax cut hr block Keeping inventories. Tax cut hr block   When the production, purchase, or sale of merchandise is an income-producing factor in your business, you must generally take inventories into account at the beginning and the end of your tax year. Tax cut hr block If you must account for an inventory, you must generally use an accrual method of accounting for your purchases and sales. Tax cut hr block For more information, see Inventories , later. Tax cut hr block Special rule for related persons. Tax cut hr block   You cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until you make the payment and the corresponding amount is includible in the related person's gross income. Tax cut hr block Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Tax cut hr block If a deduction is not allowed under this rule, the rule will continue to apply even if your relationship with the person ends before the expense or interest is includible in the gross income of that person. Tax cut hr block   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Tax cut hr block For a list of other related persons, see section 267 of the Internal Revenue Code. Tax cut hr block Combination Method You can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Tax cut hr block However, the following restrictions apply. Tax cut hr block If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales. Tax cut hr block (See, however, Inventories, later. Tax cut hr block ) You can use the cash method for all other items of income and expenses. Tax cut hr block If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Tax cut hr block If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Tax cut hr block If you use a combination method that includes the cash method, treat that combination method as the cash method. Tax cut hr block Inventories Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise. Tax cut hr block However, the following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Tax cut hr block These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Tax cut hr block A qualifying taxpayer under Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. Tax cut hr block A qualifying small business taxpayer under Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. Tax cut hr block Qualifying taxpayer. Tax cut hr block   You are a qualifying taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 17, 1998, is $1 million or less. Tax cut hr block (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing by 3. Tax cut hr block ) Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code. Tax cut hr block Qualifying small business taxpayer. Tax cut hr block   You are a qualifying small business taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 31, 2000, is more than $1 million but not more than $10 million. Tax cut hr block (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Tax cut hr block ) You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Tax cut hr block Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28). Tax cut hr block Business not owned or not in existence for 3 years. Tax cut hr block   If you did not own your business for all of the 3-tax-year period used in figuring your average annual gross receipts, include the period of any predecessor. Tax cut hr block If your business has not been in existence for the 3-tax-year period, base your average on the period it has existed including any short tax years, annualizing the short tax year's gross receipts. Tax cut hr block Materials and supplies that are not incidental. Tax cut hr block   If you account for inventoriable items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later. Tax cut hr block If you are a producer, you can use any reasonable method to estimate the raw material in your work in process and finished goods on hand at the end of the year to determine the raw material used to produce finished goods that were sold during the year. Tax cut hr block Changing accounting method. Tax cut hr block   If you are a qualifying taxpayer or qualifying small business taxpayer and want to change to the cash method or to account for inventoriable items as non-incidental materials and supplies, you must file Form 3115, Application for Change in Accounting Method. Tax cut hr block See Change in Accounting Method, later. Tax cut hr block More information. Tax cut hr block    For more information about the qualifying taxpayer exception, see Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. Tax cut hr block For more information about the qualifying small business taxpayer exception, see Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. Tax cut hr block Items included in inventory. Tax cut hr block   If you are required to account for inventories, include the following items when accounting for your inventory. Tax cut hr block Merchandise or stock in trade. Tax cut hr block Raw materials. Tax cut hr block Work in process. Tax cut hr block Finished products. Tax cut hr block Supplies that physically become a part of the item intended for sale. Tax cut hr block Valuing inventory. Tax cut hr block   You must value your inventory at the beginning and end of each tax year to determine your cost of goods sold (Schedule C, line 42). Tax cut hr block To determine the value of your inventory, you need a method for identifying the items in your inventory and a method for valuing these items. Tax cut hr block   Inventory valuation rules cannot be the same for all kinds of businesses. Tax cut hr block The method you use to value your inventory must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Tax cut hr block Your inventory practices must be consistent from year to year. Tax cut hr block More information. Tax cut hr block   For more information about inventories, see Publication 538. Tax cut hr block Uniform Capitalization Rules Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. Tax cut hr block Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Tax cut hr block You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Tax cut hr block Activities subject to the uniform capitalization rules. Tax cut hr block   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Tax cut hr block Produce real or tangible personal property. Tax cut hr block For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Tax cut hr block Acquire property for resale. Tax cut hr block Exceptions. Tax cut hr block   These rules do not apply to the following property. Tax cut hr block Personal property you acquire for resale if your average annual gross receipts are $10 million or less. Tax cut hr block Property you produce if you meet either of the following conditions. Tax cut hr block Your indirect costs of producing the property are $200,000 or less. Tax cut hr block You use the cash method of accounting and do not account for inventories. Tax cut hr block For more information, see Inventories, earlier. Tax cut hr block Special Methods There are special methods of accounting for certain items of income or expense. Tax cut hr block These include the following. Tax cut hr block Amortization, discussed in chapter 8 of Publication 535, Business Expenses. Tax cut hr block Bad debts, discussed in chapter 10 of Publication 535. Tax cut hr block Depletion, discussed in chapter 9 of Publication 535. Tax cut hr block Depreciation, discussed in Publication 946, How To Depreciate Property. Tax cut hr block Installment sales, discussed in Publication 537, Installment Sales. Tax cut hr block Change in Accounting Method Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Tax cut hr block A change in your accounting method includes a change in: Your overall method, such as from cash to an accrual method, and Your treatment of any material item. Tax cut hr block To get approval, you must file Form 3115, Application for Change in Accounting Method. Tax cut hr block You can get IRS approval to change an accounting method under either the automatic change procedures or the advance consent request procedures. Tax cut hr block You may have to pay a user fee. Tax cut hr block For more information, see the form instructions. Tax cut hr block Automatic change procedures. Tax cut hr block   Certain taxpayers can presume to have IRS approval to change their method of accounting. Tax cut hr block The approval is granted for the tax year for which the taxpayer requests a change (year of change), if the taxpayer complies with the provisions of the automatic change procedures. Tax cut hr block No user fee is required for an application filed under an automatic change procedure generally covered in Revenue Procedure 2002-9. Tax cut hr block   Generally, you must use Form 3115 to request an automatic change. Tax cut hr block For more information, see the Instructions for Form 3115. Tax cut hr block Prev  Up  Next   Home   More Online Publications