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Taxact.com 2012

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Taxact.com 2012

Taxact. Taxact.com 2012 com 2012 Internal Revenue Bulletin:  2012-14  April 2, 2012  Rev. Taxact.com 2012 Proc. Taxact.com 2012 2012-23 Table of Contents SECTION 1. Taxact.com 2012 PURPOSE SECTION 2. Taxact.com 2012 BACKGROUND SECTION 3. Taxact.com 2012 SCOPE SECTION 4. Taxact.com 2012 APPLICATION. Taxact.com 2012 01 Limitations on Depreciation Deductions for Certain Automobiles. Taxact.com 2012 . Taxact.com 2012 02 Inclusions in Income of Lessees of Passenger Automobiles. Taxact.com 2012 SECTION 5. Taxact.com 2012 EFFECTIVE DATE SECTION 6. Taxact.com 2012 DRAFTING INFORMATION SECTION 1. Taxact.com 2012 PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2012, including separate tables of limitations on depreciation deductions for trucks and vans; and (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2012, including a separate table of inclusion amounts for lessees of trucks and vans. Taxact.com 2012 The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. Taxact.com 2012 SECTION 2. Taxact.com 2012 BACKGROUND . Taxact.com 2012 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. Taxact.com 2012 For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. Taxact.com 2012 The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Taxact.com 2012 This change reflects the higher rate of price inflation for trucks and vans since 1988. Taxact.com 2012 . Taxact.com 2012 02 Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. Taxact.com 2012 L. Taxact.com 2012 No. Taxact.com 2012 111-312, 124 Stat. Taxact.com 2012 3296 (Dec. Taxact.com 2012 17, 2010) (the “Act”) extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2013, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2013. Taxact.com 2012 Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. Taxact.com 2012 . Taxact.com 2012 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). Taxact.com 2012 Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. Taxact.com 2012 Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2010, that is round 2 extension property (as defined in § 168(k)(4)(I)(iv)). Taxact.com 2012 Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. Taxact.com 2012 This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2012 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. Taxact.com 2012 . Taxact.com 2012 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. Taxact.com 2012 The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Taxact.com 2012 Under § 1. Taxact.com 2012 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. Taxact.com 2012 One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Taxact.com 2012 Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Taxact.com 2012 SECTION 3. Taxact.com 2012 SCOPE . Taxact.com 2012 01 The limitations on depreciation deductions in section 4. Taxact.com 2012 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2012, and continue to apply for each taxable year that the passenger automobile remains in service. Taxact.com 2012 . Taxact.com 2012 02 The tables in section 4. Taxact.com 2012 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2012. Taxact.com 2012 Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Taxact.com 2012 See Rev. Taxact.com 2012 Proc. Taxact.com 2012 2007-30, 2007-1 C. Taxact.com 2012 B. Taxact.com 2012 1104, for passenger automobiles first leased during calendar year 2007; Rev. Taxact.com 2012 Proc. Taxact.com 2012 2008-22, 2008-1 C. Taxact.com 2012 B. Taxact.com 2012 658, for passenger automobiles first leased during calendar year 2008; Rev. Taxact.com 2012 Proc. Taxact.com 2012 2009-24, 2009-17 I. Taxact.com 2012 R. Taxact.com 2012 B. Taxact.com 2012 885, for passenger automobiles first leased during calendar year 2009; Rev. Taxact.com 2012 Proc. Taxact.com 2012 2010-18, 2010-9 I. Taxact.com 2012 R. Taxact.com 2012 B. Taxact.com 2012 427, as amplified and modified by section 4. Taxact.com 2012 03 of Rev. Taxact.com 2012 Proc. Taxact.com 2012 2011-21, 2011-12 I. Taxact.com 2012 R. Taxact.com 2012 B. Taxact.com 2012 560, for passenger automobiles first leased during calendar year 2010; and Rev. Taxact.com 2012 Proc. Taxact.com 2012 2011-21, for passenger automobiles first leased during calendar year 2011. Taxact.com 2012 SECTION 4. Taxact.com 2012 APPLICATION . Taxact.com 2012 01 Limitations on Depreciation Deductions for Certain Automobiles. Taxact.com 2012 (1) Amount of the inflation adjustment. Taxact.com 2012 (a) Passenger automobiles (other than trucks or vans). Taxact.com 2012 Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Taxact.com 2012 Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Taxact.com 2012 The new car component of the CPI was 115. Taxact.com 2012 2 for October 1987 and 143. Taxact.com 2012 419 for October 2011. Taxact.com 2012 The October 2011 index exceeded the October 1987 index by 28. Taxact.com 2012 219. Taxact.com 2012 Therefore, the automobile price inflation adjustment for 2012 for passenger automobiles (other than trucks and vans) is 24. Taxact.com 2012 5 percent (28. Taxact.com 2012 219/115. Taxact.com 2012 2 x 100%). Taxact.com 2012 The dollar limitations in § 280F(a) are multiplied by a factor of 0. Taxact.com 2012 245, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2012. Taxact.com 2012 This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2012. Taxact.com 2012 (b) Trucks and vans. Taxact.com 2012 To determine the dollar limitations for trucks and vans first placed in service during calendar year 2012, the Service uses the new truck component of the CPI instead of the new car component. Taxact.com 2012 The new truck component of the CPI was 112. Taxact.com 2012 4 for October 1987 and 146. Taxact.com 2012 607 for October 2011. Taxact.com 2012 The October 2011 index exceeded the October 1987 index by 34. Taxact.com 2012 207. Taxact.com 2012 Therefore, the automobile price inflation adjustment for 2012 for trucks and vans is 30. Taxact.com 2012 43 percent (34. Taxact.com 2012 207/112. Taxact.com 2012 4 x 100%). Taxact.com 2012 The dollar limitations in § 280F(a) are multiplied by a factor of 0. Taxact.com 2012 3043, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. Taxact.com 2012 This adjustment applies to all trucks and vans that are first placed in service in calendar year 2012. Taxact.com 2012 (2) Amount of the limitation. Taxact.com 2012 Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2012. Taxact.com 2012 Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction applies. Taxact.com 2012 Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction does not apply. Taxact.com 2012 REV. Taxact.com 2012 PROC. Taxact.com 2012 2012-23 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Taxact.com 2012 PROC. Taxact.com 2012 2012-23 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. Taxact.com 2012 PROC. Taxact.com 2012 2012-23 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Taxact.com 2012 PROC. Taxact.com 2012 2012-23 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 . Taxact.com 2012 02 Inclusions in Income of Lessees of Passenger Automobiles. Taxact.com 2012 A taxpayer must follow the procedures in § 1. Taxact.com 2012 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2012. Taxact.com 2012 In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. Taxact.com 2012 REV. Taxact.com 2012 PROC. Taxact.com 2012 2012-23 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 2 4 5 6 8 19,000 19,500 2 4 7 7 9 19,500 20,000 2 5 8 8 10 20,000 20,500 3 5 9 10 11 20,500 21,000 3 6 9 12 12 21,000 21,500 3 7 10 12 14 21,500 22,000 3 8 11 13 16 22,000 23,000 4 8 13 15 17 23,000 24,000 4 10 15 17 20 24,000 25,000 5 11 17 19 23 25,000 26,000 6 12 19 21 26 26,000 27,000 6 14 20 24 28 27,000 28,000 7 15 22 26 31 28,000 29,000 7 16 25 28 33 29,000 30,000 8 18 25 32 35 30,000 31,000 9 19 27 34 38 31,000 32,000 9 20 30 36 41 32,000 33,000 10 21 32 38 43 33,000 34,000 10 23 33 41 46 34,000 35,000 11 24 35 43 49 35,000 36,000 12 25 37 45 52 36,000 37,000 12 27 39 47 54 37,000 38,000 13 28 41 49 57 38,000 39,000 13 29 43 52 59 39,000 40,000 14 30 45 54 62 40,000 41,000 14 32 47 56 65 41,000 42,000 15 33 49 58 68 42,000 43,000 16 34 51 61 70 43,000 44,000 16 36 52 63 73 44,000 45,000 17 37 54 66 75 45,000 46,000 17 38 57 67 78 46,000 47,000 18 39 59 70 80 47,000 48,000 19 40 61 72 83 48,000 49,000 19 42 62 75 86 49,000 50,000 20 43 64 77 89 50,000 51,000 20 45 66 79 91 51,000 52,000 21 46 68 81 94 52,000 53,000 21 47 70 84 96 53,000 54,000 22 48 72 86 99 54,000 55,000 23 49 74 88 102 55,000 56,000 23 51 76 90 104 56,000 57,000 24 52 78 92 107 57,000 58,000 24 54 79 95 110 58,000 59,000 25 55 81 97 113 59,000 60,000 26 56 83 100 115 60,000 62,000 26 58 86 103 119 62,000 64,000 28 60 90 108 124 64,000 66,000 29 63 94 112 129 66,000 68,000 30 66 97 117 135 68,000 70,000 31 68 102 121 140 70,000 72,000 32 71 105 126 145 72,000 74,000 33 74 109 130 151 74,000 76,000 35 76 113 135 156 76,000 78,000 36 78 117 140 161 78,000 80,000 37 81 120 145 166 80,000 85,000 39 86 127 152 176 85,000 90,000 42 92 137 163 189 90,000 95,000 45 98 147 175 202 95,000 100,000 48 105 155 187 215 100,000 110,000 52 115 170 203 235 110,000 120,000 58 127 189 227 262 120,000 130,000 64 140 208 250 288 130,000 140,000 70 153 227 272 315 140,000 150,000 75 166 246 296 340 150,000 160,000 81 179 265 318 368 160,000 170,000 87 192 284 341 394 170,000 180,000 93 204 304 364 420 180,000 190,000 99 217 323 387 446 190,000 200,000 105 230 342 409 473 200,000 210,000 111 243 361 432 499 210,000 220,000 116 256 380 455 526 220,000 230,000 122 269 399 478 552 230,000 240,000 128 282 418 501 578 240,000 and up 134 294 437 524 605 REV. Taxact.com 2012 PROC. Taxact.com 2012 2012-23 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $19,000 $19,500 1 4 5 6 7 19,500 20,000 2 4 6 7 9 20,000 20,500 2 5 7 8 10 20,500 21,000 2 5 8 10 11 21,000 21,500 3 6 9 10 13 21,500 22,000 3 6 10 12 14 22,000 23,000 3 8 11 14 15 23,000 24,000 4 9 13 16 18 24,000 25,000 4 10 15 19 21 25,000 26,000 5 11 17 21 24 26,000 27,000 6 12 19 23 26 27,000 28,000 6 14 21 25 29 28,000 29,000 7 15 23 27 32 29,000 30,000 7 17 24 30 34 30,000 31,000 8 18 26 32 37 31,000 32,000 9 19 28 34 40 32,000 33,000 9 20 31 36 42 33,000 34,000 10 21 33 39 44 34,000 35,000 10 23 34 41 48 35,000 36,000 11 24 36 44 50 36,000 37,000 12 25 38 46 53 37,000 38,000 12 27 40 48 55 38,000 39,000 13 28 42 50 58 39,000 40,000 13 29 44 53 60 40,000 41,000 14 31 45 55 63 41,000 42,000 14 32 48 57 66 42,000 43,000 15 33 50 59 69 43,000 44,000 16 34 52 61 72 44,000 45,000 16 36 53 64 74 45,000 46,000 17 37 55 66 77 46,000 47,000 17 38 58 68 79 47,000 48,000 18 40 59 70 82 48,000 49,000 19 41 61 73 84 49,000 50,000 19 42 63 75 87 50,000 51,000 20 43 65 78 89 51,000 52,000 20 45 66 80 93 52,000 53,000 21 46 68 83 95 53,000 54,000 21 48 70 84 98 54,000 55,000 22 49 72 87 100 55,000 56,000 23 50 74 89 103 56,000 57,000 23 51 76 92 105 57,000 58,000 24 52 78 94 108 58,000 59,000 24 54 80 96 111 59,000 60,000 25 55 82 98 114 60,000 62,000 26 57 85 101 118 62,000 64,000 27 60 88 106 123 64,000 66,000 28 62 93 110 128 66,000 68,000 29 65 96 115 134 68,000 70,000 30 67 100 120 139 70,000 72,000 32 70 103 125 144 72,000 74,000 33 72 108 129 149 74,000 76,000 34 75 111 134 155 76,000 78,000 35 78 115 138 160 78,000 80,000 36 80 119 143 165 80,000 85,000 38 85 125 151 175 85,000 90,000 41 91 135 163 187 90,000 95,000 44 98 144 174 201 95,000 100,000 47 104 154 185 214 100,000 110,000 52 113 169 202 234 110,000 120,000 57 127 187 225 261 120,000 130,000 63 139 207 248 287 130,000 140,000 69 152 226 271 313 140,000 150,000 75 165 245 294 339 150,000 160,000 81 178 264 316 366 160,000 170,000 87 190 283 340 392 170,000 180,000 92 204 302 362 419 180,000 190,000 98 216 322 385 445 190,000 200,000 104 229 340 409 471 200,000 210,000 110 242 359 431 498 210,000 220,000 116 255 378 454 524 220,000 230,000 122 267 398 477 551 230,000 240,000 127 281 416 500 577 240,000 and up 133 294 435 523 603 SECTION 5. Taxact.com 2012 EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2012. Taxact.com 2012 SECTION 6. Taxact.com 2012 DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Taxact.com 2012 Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Taxact.com 2012 For further information regarding this revenue procedure, contact Mr. Taxact.com 2012 Harvey at (202) 622-4930 (not a toll-free call). Taxact.com 2012 Prev  Up  Next   Home   More Internal Revenue Bulletins
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The Taxact.com 2012

Taxact. Taxact.com 2012 com 2012 1. Taxact.com 2012   Definitions You Need To Know Table of Contents Other options. Taxact.com 2012 Exception. Taxact.com 2012 Certain terms used in this publication are defined below. Taxact.com 2012 The same term used in another publication may have a slightly different meaning. Taxact.com 2012 Annual additions. Taxact.com 2012   Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. Taxact.com 2012 Annual benefits. Taxact.com 2012   Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. Taxact.com 2012 Business. Taxact.com 2012   A business is an activity in which a profit motive is present and economic activity is involved. Taxact.com 2012 Service as a newspaper carrier under age 18 or as a public official is not a business. Taxact.com 2012 Common-law employee. Taxact.com 2012   A common-law employee is any individual who, under common law, would have the status of an employee. Taxact.com 2012 A leased employee can also be a common-law employee. Taxact.com 2012   A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. Taxact.com 2012 For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. Taxact.com 2012   Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. Taxact.com 2012 For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. Taxact.com 2012 S. Taxact.com 2012 citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. Taxact.com 2012   However, an individual may be a common-law employee and a self-employed person as well. Taxact.com 2012 For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. Taxact.com 2012 In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. Taxact.com 2012 However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. Taxact.com 2012 Compensation. Taxact.com 2012   Compensation for plan allocations is the pay a participant received from you for personal services for a year. Taxact.com 2012 You can generally define compensation as including all the following payments. Taxact.com 2012 Wages and salaries. Taxact.com 2012 Fees for professional services. Taxact.com 2012 Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. Taxact.com 2012 Commissions and tips. Taxact.com 2012 Fringe benefits. Taxact.com 2012 Bonuses. Taxact.com 2012   For a self-employed individual, compensation means the earned income, discussed later, of that individual. Taxact.com 2012   Compensation generally includes amounts deferred in the following employee benefit plans. Taxact.com 2012 These amounts are elective deferrals. Taxact.com 2012 Qualified cash or deferred arrangement (section 401(k) plan). Taxact.com 2012 Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. Taxact.com 2012 Section 457 nonqualified deferred compensation plan. Taxact.com 2012 Section 125 cafeteria plan. Taxact.com 2012   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. Taxact.com 2012 The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. Taxact.com 2012 Other options. Taxact.com 2012   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. Taxact.com 2012 The employee's wages as defined for income tax withholding purposes. Taxact.com 2012 The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. Taxact.com 2012 The employee's social security wages (including elective deferrals). Taxact.com 2012   Compensation generally cannot include either of the following items. Taxact.com 2012 Nontaxable reimbursements or other expense allowances. Taxact.com 2012 Deferred compensation (other than elective deferrals). Taxact.com 2012 SIMPLE plans. Taxact.com 2012   A special definition of compensation applies for SIMPLE plans. Taxact.com 2012 See chapter 3. Taxact.com 2012 Contribution. Taxact.com 2012   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. Taxact.com 2012 Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. Taxact.com 2012 Deduction. Taxact.com 2012   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. Taxact.com 2012 Limits apply to the amount deductible. Taxact.com 2012 Earned income. Taxact.com 2012   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. Taxact.com 2012   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. Taxact.com 2012 Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. Taxact.com 2012 It includes income from licensing the use of property other than goodwill. Taxact.com 2012   Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. Taxact.com 2012   If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. Taxact.com 2012 Employer. Taxact.com 2012   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. Taxact.com 2012 A sole proprietor is treated as his or her own employer for retirement plan purposes. Taxact.com 2012 However, a partner is not an employer for retirement plan purposes. Taxact.com 2012 Instead, the partnership is treated as the employer of each partner. Taxact.com 2012 Highly compensated employee. Taxact.com 2012   A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. Taxact.com 2012 Leased employee. Taxact.com 2012   A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. Taxact.com 2012 Provides services to you under an agreement between you and a leasing organization. Taxact.com 2012 Has performed services for you (or for you and related persons) substantially full time for at least 1 year. Taxact.com 2012 Performs services under your primary direction or control. Taxact.com 2012 Exception. Taxact.com 2012   A leased employee is not treated as your employee if all the following conditions are met. Taxact.com 2012 Leased employees are not more than 20% of your non-highly compensated work force. Taxact.com 2012 The employee is covered under the leasing organization's qualified pension plan. Taxact.com 2012 The leasing organization's plan is a money purchase pension plan that has all the following provisions. Taxact.com 2012 Immediate participation. Taxact.com 2012 (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. Taxact.com 2012 ) Full and immediate vesting. Taxact.com 2012 A nonintegrated employer contribution rate of at least 10% of compensation for each participant. Taxact.com 2012 However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. Taxact.com 2012 Net earnings from self-employment. Taxact.com 2012   For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. Taxact.com 2012 Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. Taxact.com 2012   Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. Taxact.com 2012   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. Taxact.com 2012 You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. Taxact.com 2012   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). Taxact.com 2012 It does not include income passed through to shareholders of S corporations. Taxact.com 2012 Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. Taxact.com 2012 Distributions of other income or loss to limited partners are not net earnings from self-employment. Taxact.com 2012   For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. Taxact.com 2012 Qualified plan. Taxact.com 2012   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. Taxact.com 2012 You can deduct contributions made to the plan for your employees. Taxact.com 2012 Earnings on these contributions are generally tax free until distributed at retirement. Taxact.com 2012 Profit-sharing, money purchase, and defined benefit plans are qualified plans. Taxact.com 2012 A 401(k) plan is also a qualified plan. Taxact.com 2012 Participant. Taxact.com 2012   A participant is an eligible employee who is covered by your retirement plan. Taxact.com 2012 See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. Taxact.com 2012 Partner. Taxact.com 2012   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. Taxact.com 2012 For retirement plans, a partner is treated as an employee of the partnership. Taxact.com 2012 Self-employed individual. Taxact.com 2012   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. Taxact.com 2012 Sole proprietors and partners are self-employed. Taxact.com 2012 Self-employment can include part-time work. Taxact.com 2012   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. Taxact.com 2012 See Common-law employee and Net earnings from self-employment , earlier. Taxact.com 2012   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. Taxact.com 2012 See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. Taxact.com 2012 Sole proprietor. Taxact.com 2012   A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. Taxact.com 2012 For retirement plans, a sole proprietor is treated as both an employer and an employee. Taxact.com 2012 Prev  Up  Next   Home   More Online Publications