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Taxcut com 3. Taxcut com   Limit on Annual Additions Table of Contents Ministers and church employees. Taxcut com Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. Taxcut com This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. Taxcut com The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. Taxcut com More than one 403(b) account. Taxcut com If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. Taxcut com Ministers and church employees. Taxcut com   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. Taxcut com For more information, see chapter 5. Taxcut com Participation in a qualified plan. Taxcut com If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Taxcut com You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. Taxcut com Includible Compensation for Your Most Recent Year of Service Definition. Taxcut com   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. Taxcut com When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. Taxcut com This can happen if your tax year is not the same as your employer's annual work period. Taxcut com When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. Taxcut com Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. Taxcut com Tax year different from employer's annual work period. Taxcut com   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. Taxcut com Example. Taxcut com A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). Taxcut com To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. Taxcut com Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. Taxcut com A full year of service is equal to full-time employment for your employer's annual work period. Taxcut com After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. Taxcut com Part-time or employed only part of the year. Taxcut com   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. Taxcut com To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. Taxcut com Example. Taxcut com You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). Taxcut com Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). Taxcut com Not yet employed for 1 year. Taxcut com   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. Taxcut com Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. Taxcut com Includible compensation is not the same as income included on your tax return. Taxcut com Compensation is a combination of income and benefits received in exchange for services provided to your employer. Taxcut com Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. Taxcut com Includible compensation includes the following amounts. Taxcut com Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). Taxcut com Amounts contributed or deferred by your employer under a section 125 cafeteria plan. Taxcut com Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). Taxcut com  Note. Taxcut com For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. Taxcut com Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. Taxcut com Income otherwise excluded under the foreign earned income exclusion. Taxcut com Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. Taxcut com Includible compensation does not include the following items. Taxcut com Your employer's contributions to your 403(b) account. Taxcut com Compensation earned while your employer was not an eligible employer. Taxcut com Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. Taxcut com The cost of incidental life insurance. Taxcut com See Cost of Incidental Life Insurance, later. Taxcut com If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. Taxcut com Contributions after retirement. Taxcut com   Nonelective contributions may be made for an employee for up to 5 years after retirement. Taxcut com These contributions would be based on includible compensation for the last year of service before retirement. Taxcut com Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. Taxcut com If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. Taxcut com If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. Taxcut com If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Taxcut com Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. Taxcut com Not all annuity contracts include life insurance. Taxcut com Contact your plan administrator to determine if your contract includes incidental life insurance. Taxcut com If it does, you will need to figure the cost of life insurance each year the policy is in effect. Taxcut com Figuring the cost of incidental life insurance. Taxcut com If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. Taxcut com To determine the amount of the life insurance premiums, you will need to know the following information. Taxcut com The value of your life insurance contract, which is the amount payable upon your death. Taxcut com The cash value of your life insurance contract at the end of the tax year. Taxcut com Your age on your birthday nearest the beginning of the policy year. Taxcut com Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. Taxcut com You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. Taxcut com Example. Taxcut com Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Taxcut com Your cash value in the contract at the end of the first year is zero. Taxcut com Your current life insurance protection for the first year is $10,000 ($10,000 − 0). Taxcut com The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). Taxcut com The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . Taxcut com The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. Taxcut com Figure 3-1. Taxcut com Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. Taxcut com 70   35 $0. Taxcut com 99   70 $20. Taxcut com 62 1 0. Taxcut com 41   36 1. Taxcut com 01   71 22. Taxcut com 72 2 0. Taxcut com 27   37 1. Taxcut com 04   72 25. Taxcut com 07 3 0. Taxcut com 19   38 1. Taxcut com 06   73 27. Taxcut com 57 4 0. Taxcut com 13   39 1. Taxcut com 07   74 30. Taxcut com 18 5 0. Taxcut com 13   40 1. Taxcut com 10   75 33. Taxcut com 05 6 0. Taxcut com 14   41 1. Taxcut com 13   76 36. Taxcut com 33 7 0. Taxcut com 15   42 1. Taxcut com 20   77 40. Taxcut com 17 8 0. Taxcut com 16   43 1. Taxcut com 29   78 44. Taxcut com 33 9 0. Taxcut com 16   44 1. Taxcut com 40   79 49. Taxcut com 23 10 0. Taxcut com 16   45 1. Taxcut com 53   80 54. Taxcut com 56 11 0. Taxcut com 19   46 1. Taxcut com 67   81 60. Taxcut com 51 12 0. Taxcut com 24   47 1. Taxcut com 83   82 66. Taxcut com 74 13 0. Taxcut com 28   48 1. Taxcut com 98   83 73. Taxcut com 07 14 0. Taxcut com 33   49 2. Taxcut com 13   84 80. Taxcut com 35 15 0. Taxcut com 38   50 2. Taxcut com 30   85 88. Taxcut com 76 16 0. Taxcut com 52   51 2. Taxcut com 52   86 99. Taxcut com 16 17 0. Taxcut com 57   52 2. Taxcut com 81   87 110. Taxcut com 40 18 0. Taxcut com 59   53 3. Taxcut com 20   88 121. Taxcut com 85 19 0. Taxcut com 61   54 3. Taxcut com 65   89 133. Taxcut com 40 20 0. Taxcut com 62   55 4. Taxcut com 15   90 144. Taxcut com 30 21 0. Taxcut com 62   56 4. Taxcut com 68   91 155. Taxcut com 80 22 0. Taxcut com 64   57 5. Taxcut com 20   92 168. Taxcut com 75 23 0. Taxcut com 66   58 5. Taxcut com 66   93 186. Taxcut com 44 24 0. Taxcut com 68   59 6. Taxcut com 06   94 206. Taxcut com 70 25 0. Taxcut com 71   60 6. Taxcut com 51   95 228. Taxcut com 35 26 0. Taxcut com 73   61 7. Taxcut com 11   96 250. Taxcut com 01 27 0. Taxcut com 76   62 7. Taxcut com 96   97 265. Taxcut com 09 28 0. Taxcut com 80   63 9. Taxcut com 08   98 270. Taxcut com 11 29 0. Taxcut com 83   64 10. Taxcut com 41   99 281. Taxcut com 05 30 0. Taxcut com 87   65 11. Taxcut com 90       31 0. Taxcut com 90   66 13. Taxcut com 51       32 0. Taxcut com 93   67 15. Taxcut com 20       33 0. Taxcut com 96   68 16. Taxcut com 92       34 0. Taxcut com 98   69 18. Taxcut com 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. Taxcut com Example 1. Taxcut com Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. Taxcut com The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Taxcut com Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. Taxcut com Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. Taxcut com When figuring her includible compensation for this year, Lynne will subtract $28. Taxcut com Table 3-1. Taxcut com Worksheet A. Taxcut com Cost of Incidental Life Insurance Note. Taxcut com Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Taxcut com This amount will be used to figure includible compensation for your most recent year of service. Taxcut com 1. Taxcut com Enter the value of the contract (amount payable upon your death) 1. Taxcut com $20,000. Taxcut com 00 2. Taxcut com Enter the cash value in the contract at the end of the year 2. Taxcut com 0. Taxcut com 00 3. Taxcut com Subtract line 2 from line 1. Taxcut com This is the value of your current life insurance protection 3. Taxcut com $20,000. Taxcut com 00 4. Taxcut com Enter your age on your birthday nearest the beginning of the policy year 4. Taxcut com 44 5. Taxcut com Enter the 1-year term premium for $1,000 of life insurance based on your age. Taxcut com (From Figure 3-1) 5. Taxcut com $1. Taxcut com 40 6. Taxcut com Divide line 3 by $1,000 6. Taxcut com 20 7. Taxcut com Multiply line 6 by line 5. Taxcut com This is the cost of your incidental life insurance 7. Taxcut com $28. Taxcut com 00 Example 2. Taxcut com Lynne's cash value in the contract at the end of the second year is $1,000. Taxcut com In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. Taxcut com In year two, Lynne's employer will include $29. Taxcut com 07 in her current year's income. Taxcut com Lynne will subtract this amount when figuring her includible compensation. Taxcut com Table 3-2. Taxcut com Worksheet A. Taxcut com Cost of Incidental Life Insurance Note. Taxcut com Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Taxcut com This amount will be used to figure includible compensation for your most recent year of service. Taxcut com 1. Taxcut com Enter the value of the contract (amount payable upon your death) 1. Taxcut com $20,000. Taxcut com 00 2. Taxcut com Enter the cash value in the contract at the end of the year 2. Taxcut com $1,000. Taxcut com 00 3. Taxcut com Subtract line 2 from line 1. Taxcut com This is the value of your current life insurance protection 3. Taxcut com $19,000. Taxcut com 00 4. Taxcut com Enter your age on your birthday nearest the beginning of the policy year 4. Taxcut com 45 5. Taxcut com Enter the 1-year term premium for $1,000 of life insurance based on your age. Taxcut com (From Figure 3-1) 5. Taxcut com $1. Taxcut com 53 6. Taxcut com Divide line 3 by $1,000 6. Taxcut com 19 7. Taxcut com Multiply line 6 by line 5. Taxcut com This is the cost of your incidental life insurance 7. Taxcut com $29. Taxcut com 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. Taxcut com Example. Taxcut com Floyd has been periodically working full-time for a local hospital since September 2011. Taxcut com He needs to figure his limit on annual additions for 2014. Taxcut com The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. Taxcut com During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Taxcut com Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. Taxcut com Floyd has never worked abroad and there is no life insurance provided under the plan. Taxcut com Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. Taxcut com Table 3-3. Taxcut com Floyd's Compensation Note. Taxcut com This table shows information Floyd will use to figure includible compensation for his most recent year of service. Taxcut com   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. Taxcut com Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. Taxcut com If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. Taxcut com He figures his most recent year of service shown in the following list. Taxcut com Time he will work in 2014 is 6/12 of a year. Taxcut com Time worked in 2013 is 4/12 of a year. Taxcut com All of this time will be used to determine Floyd's most recent year of service. Taxcut com Time worked in 2012 is 4/12 of a year. Taxcut com Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. Taxcut com Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. Taxcut com Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). Taxcut com His includible compensation for his most recent year of service is figured as shown in Table 3-4. Taxcut com After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. Taxcut com Table 3-4. Taxcut com Worksheet B. Taxcut com Includible Compensation for Your Most Recent Year of Service1 Note. Taxcut com Use this worksheet to figure includible compensation for your most recent year of service. Taxcut com 1. Taxcut com Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Taxcut com $66,000 2. Taxcut com Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Taxcut com 4,4753 3. Taxcut com Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Taxcut com -0- 4. Taxcut com Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. Taxcut com -0- 5. Taxcut com Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Taxcut com -0- 6. Taxcut com Enter your foreign earned income exclusion for your most recent year of service 6. Taxcut com -0- 7. Taxcut com Add lines 1, 2, 3, 4, 5, and 6 7. Taxcut com 70,475 8. Taxcut com Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Taxcut com -0- 9. Taxcut com Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Taxcut com -0- 10. Taxcut com Add lines 8 and 9 10. Taxcut com -0- 11. Taxcut com Subtract line 10 from line 7. Taxcut com This is your includible compensation for your most recent year of service 11. Taxcut com 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. Taxcut com 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Taxcut com  3$4,475 ($2,000 + $1,650 + $825). Taxcut com Prev  Up  Next   Home   More Online Publications
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Taxcut com Publication 3402 - Main Content Table of Contents What is a Limited Liability Company? Classification of an LLC LLCs Classified as Partnerships LLCs Classified as Disregarded Entities LLCs Classified as Corporations Subsequent Elections How To Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What is a Limited Liability Company? For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Taxcut com Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Taxcut com An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Taxcut com 7701-3. Taxcut com The information in this publication applies to LLCs in general, and different rules may apply to special situations, including banks, insurance companies, or nonprofit organizations that are LLCs or that own LLCs. Taxcut com Check your state's requirements and the federal tax regulations for further information. Taxcut com Classification of an LLC Default classification rules. Taxcut com   An LLC with at least two members is classified as a partnership for federal income tax purposes. Taxcut com An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Taxcut com Also, an LLC's federal tax classification can subsequently change under certain default rules discussed later. Taxcut com Elected classification. Taxcut com   If an LLC does not choose to be classified under the above default classifications, it can elect to be classified as an association taxable as a corporation or as an S corporation. Taxcut com After an LLC has determined its federal tax classification, it can later elect to change that classification. Taxcut com For details, see Subsequent Elections, later. Taxcut com LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. Taxcut com S. Taxcut com Return of Partnership Income. Taxcut com Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. Taxcut com For certain purposes, members of an LLC are treated as limited partners in a limited partnership. Taxcut com For example, LLC members are treated as limited partners for purposes of material participation under the passive activity limitation rules (see Temporary Regulation section 1. Taxcut com 469-5T(e)). Taxcut com See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs. Taxcut com Member manager. Taxcut com   Only a member manager of an LLC can sign the partnership tax return. Taxcut com And only a member manager can represent the LLC as the tax matters partner under the consolidated audit proceedings in sections 6221 through 6234. Taxcut com A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed. Taxcut com If there are no elected or designated member managers, each owner is treated as a member manager. Taxcut com Change in default classification. Taxcut com   If the number of members in an LLC classified as a partnership is reduced to only one member, it becomes an entity disregarded as separate from its owner under Regulations section 301. Taxcut com 7701-3(f)(2). Taxcut com However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a disregarded entity will not apply. Taxcut com   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Taxcut com If a partnership that becomes a disregarded entity as a result of a decrease in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed under Subsequent Elections, later, apply. Taxcut com Example 1. Taxcut com Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. Taxcut com Each holds an equal membership interest. Taxcut com The LLC does not hold any unrealized receivables or substantially appreciated inventory. Taxcut com Ethel sells her entire interest in the LLC to Francis for $10,000. Taxcut com After the sale, the business is continued by the LLC, which is owned solely by Francis. Taxcut com No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Taxcut com The partnership terminates when Francis buys Ethel's entire interest. Taxcut com Ethel must treat the transaction as the sale of a partnership interest and must report gain or loss, if any, resulting from the sale of her partnership interest. Taxcut com For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest. Taxcut com Francis's basis in the assets attributable to Ethel's one-half interest in the partnership is $10,000, the purchase price for Ethel's partnership interest. Taxcut com Upon the termination of the partnership, Francis is considered to receive a distribution of those assets attributable to Francis's former interest in the partnership. Taxcut com Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by Internal Revenue Code section 731(a). Taxcut com See Partnership Distributions in Publication 541. Taxcut com Example 2. Taxcut com George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. Taxcut com Each holds an equal membership interest. Taxcut com The LLC does not hold any unrealized receivables or substantially appreciated inventory. Taxcut com George and Henrietta each sell their entire interests in the LLC to Ian, an unrelated person, in exchange for $10,000. Taxcut com After the sale, the business is continued by the LLC, which is owned solely by Ian. Taxcut com No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Taxcut com The partnership terminates when Ian purchases the entire interests of George and Henrietta in the LLC. Taxcut com George and Henrietta must report gain or loss, if any, resulting from the sale of their partnership interests. Taxcut com For purposes of classifying the acquisition by Ian, the partnership is deemed to make a liquidating distribution of its assets to George and Henrietta. Taxcut com Immediately following this distribution, Ian is deemed to acquire, by purchase, all of the former partnership's assets. Taxcut com   For more details on the preceding two examples, see Revenue Ruling 99-6, 1999-6 I. Taxcut com R. Taxcut com B. Taxcut com 6. Taxcut com You can find Revenue Ruling 99-6 at www. Taxcut com irs. Taxcut com gov/pub/irs-irbs/irb99-06. Taxcut com pdf. Taxcut com LLCs Classified as Disregarded Entities If an LLC has only one member and is classified as an entity disregarded as separate from its owner, its income, deductions, gains, losses, and credits are reported on the owner's income tax return. Taxcut com For example, if the owner of the LLC is an individual, the LLC's income and expenses would be reported on the following schedules filed with the owner's Form 1040: Schedule C, Profit or Loss from Business (Sole Proprietorship); Schedule C-EZ, Net Profit From Business (Sole Proprietorship); Schedule E, Supplemental Income and Loss; or Schedule F, Profit or Loss From Farming. Taxcut com Employment tax and certain excise taxes. Taxcut com   A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. Taxcut com For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. Taxcut com A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849. Taxcut com See the employment and excise tax returns for more information. Taxcut com Self-employment tax rule for disregarded entity LLCs. Taxcut com   An individual owner of a single-member LLC classified as a disregarded entity is not an employee of the LLC. Taxcut com Instead, the owner is subject to tax on the net earnings from self-employment of the LLC which is treated in the same manner as a sole-proprietorship. Taxcut com Example 3. Taxcut com LLC is a disregarded entity owned by Irene. Taxcut com LLC has three employees (Kent, Patricia, and Tex) and pays wages. Taxcut com LLC is treated as an entity separate from its owner for purposes of employment taxes. Taxcut com For the wages paid to Kent, Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. Taxcut com In addition, LLC must file under its name and EIN the applicable employment tax returns; make timely employment tax deposits; and file with the Social Security Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms W-2, Wage and Tax Statement. Taxcut com Irene is self-employed for purposes of the self-employment tax. Taxcut com Thus, Irene is subject to self-employment tax on her net earnings from self-employment with respect to LLC's activities. Taxcut com Irene is not an employee of LLC for purposes of employment taxes. Taxcut com Because LLC is treated as a sole proprietorship of Irene for income tax purposes, Irene must report the income and expenses from LLC on her Schedule C. Taxcut com Irene will figure the tax due on her net earnings from self-employment on Schedule SE. Taxcut com Irene can also deduct one-half of her self-employment tax on line 27 of her Form 1040. Taxcut com Taxpayer identification number. Taxcut com   For all income tax purposes, a single-member LLC classified as a disregarded entity must use the owner's social security number (SSN) or EIN. Taxcut com This includes all information returns and reporting related to income tax. Taxcut com For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN. Taxcut com   However, most new single-member LLCs classified as a disregarded entity will need to obtain an EIN for the LLC. Taxcut com An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed above (see Employment tax and certain excise taxes earlier). Taxcut com See Form SS-4, Application for Employer Identification Number, for information on applying for an EIN. Taxcut com Change in default classification. Taxcut com   If a single-member LLC classified as a disregarded entity for income tax purposes acquires an additional member, it becomes a partnership under Regulations section 301. Taxcut com 7701-3(f)(2). Taxcut com However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a partnership will not apply. Taxcut com   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Taxcut com If a disregarded entity that becomes a partnership as a result of an increase in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed in Subsequent Elections, later, apply. Taxcut com Example 4. Taxcut com Bart, who is not related to Alain, buys 50% of Alain's interest in an LLC that is a disregarded entity for $5,000. Taxcut com Alain does not contribute any portion of the $5,000 to the LLC. Taxcut com Alain and Bart continue to operate the business of the LLC as co-owners of the LLC. Taxcut com The LLC is converted to a partnership when the new member, Bart, buys an interest in the disregarded entity from the owner, Alain. Taxcut com Bart's buying a 50% interest in Alain's ownership interest in the LLC is treated as Bart's buying a 50% interest in each of the LLC's assets, which are treated as owned directly by Alain for federal income tax purposes. Taxcut com Immediately thereafter, Alain and Bart are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership. Taxcut com Alain recognizes gain or loss from the deemed sale to Bart of the 50% interest in the assets. Taxcut com Neither Alain nor Bart recognizes any gain or loss as a result of the deemed contribution of the assets to the partnership. Taxcut com Example 5. Taxcut com Charles, who is not related to Danielle, contributes $10,000 to an LLC owned by Danielle for a 50% ownership interest in the LLC. Taxcut com The LLC uses all of the contributed cash in its business. Taxcut com Charles and Danielle continue to operate the business of the LLC as co-owners of the LLC. Taxcut com The LLC is converted from a disregarded entity to a partnership when Charles contributes cash to the LLC. Taxcut com Charles's contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. Taxcut com Danielle is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest. Taxcut com Neither Charles nor Danielle recognizes gain or loss as a result of the conversion of the disregarded entity to a partnership. Taxcut com   For more details on the preceding two examples, see Revenue Ruling 99-5, 1999-6 I. Taxcut com R. Taxcut com B. Taxcut com 8. Taxcut com You can find Revenue Ruling 99-5 at www. Taxcut com irs. Taxcut com gov/pub/irs-irbs/irb99-06. Taxcut com pdf. Taxcut com LLCs Classified as Corporations An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. Taxcut com File Form 8832, Entity Classification Election, to elect classification as a C corporation. Taxcut com File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. Taxcut com LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. Taxcut com By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Taxcut com If the LLC elects to be classified as a corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect. Taxcut com Example 6. Taxcut com Classification as a corporation without an S election. Taxcut com Wanda and Sylvester are members of an LLC. Taxcut com They agree that the LLC should be classified as a corporation but do not want to elect to have the LLC be treated as an S corporation. Taxcut com The LLC must file Form 8832. Taxcut com Example 7. Taxcut com Classification as a corporation with an S election. Taxcut com Evelyn and Carol are members of an LLC. Taxcut com They agree that the LLC should be classified as an S corporation. Taxcut com The LLC must file Form 2553 instead of Form 8832. Taxcut com If the LLC is classified as a corporation, it must file a corporation income tax return. Taxcut com If it is a C corporation, it is taxed on its taxable income and distributions to the members are includible in the members' gross income to the extent of the corporation's earnings and profits (double taxation). Taxcut com If it is an S corporation, the corporation is generally not subject to any income tax and the income, deductions, gains, losses, and credits of the corporation “pass through” to the members. Taxcut com Corporations generally file either: Form 1120, U. Taxcut com S. Taxcut com Corporation Income Tax Return; or Form 1120S, U. Taxcut com S. Taxcut com Income Tax Return for an S Corporation. Taxcut com For more information on the income taxation of corporations and their shareholders, see Publication 542, Corporations. Taxcut com For more information on the income taxation of S corporations and their shareholders, see the Instructions for Form 1120S, U. Taxcut com S. Taxcut com Income Tax Return for an S Corporation. Taxcut com Subsequent Elections An LLC can elect to change its classification. Taxcut com Generally, once an LLC has elected to change its classification, it cannot elect again to change it classification during the 60 months after the effective date of the election. Taxcut com An election by a newly formed LLC that is effective on the date of formation is not considered a change for purposes of this limitation. Taxcut com For more information and exceptions, see Regulations section 301. Taxcut com 7701-3(c) and the Form 8832 instructions. Taxcut com An election to change classification can have significant tax consequences based on the following transactions that are deemed to occur as a result of the election. Taxcut com Partnership to corporation. Taxcut com   An election to change classification from a partnership to a corporation will be treated as if the partnership contributed all of its assets and liabilities to the corporation in exchange for stock and the partnership then immediately liquidated by distributing the stock to its partners. Taxcut com   For more information, see Partnership Distributions in Publication 541 and Property Exchanged for Stock in Publication 542. Taxcut com Corporation to partnership. Taxcut com   An election to change classification from a corporation to a partnership will be treated as if the corporation distributed all of its assets and liabilities to its shareholders in liquidation and the shareholders then immediately contributed all of the distributed assets and liabilities to a new partnership. Taxcut com   For more information, see Contribution of Property in Publication 541 and Distributions to Shareholders in Publication 542. Taxcut com Corporation to disregarded entity. Taxcut com   An election to change classification from a corporation to a disregarded entity will be treated as if the corporation distributed all of its assets and liabilities to its single owner in liquidation. Taxcut com   For more information, see Distributions to Shareholders in Publication 542. Taxcut com Disregarded entity to corporation. Taxcut com   An election to change classification from a disregarded entity to a corporation will be treated as if the owner of the disregarded entity contributed all of the assets and liabilities to the corporation in exchange for stock. Taxcut com   For more information, see Property Exchanged for Stock in Publication 542. Taxcut com How To Get More Information This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Taxcut com Internal Revenue Service You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Taxcut com By selecting the method that is best for you, you will have quick and easy access to tax help. Taxcut com Contacting your Taxpayer Advocate. Taxcut com   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Taxcut com   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Taxcut com You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Taxcut com You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Taxcut com For more information, go to www. Taxcut com irs. Taxcut com gov/advocate. Taxcut com Low Income Taxpayer Clinics (LITCs). Taxcut com   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Taxcut com The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Taxcut com Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Taxcut com It is available at www. Taxcut com irs. Taxcut com gov or at your local IRS office. Taxcut com Small business workshops. Taxcut com   Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Taxcut com Workshops are sponsored and presented by IRS partners who are federal tax specialists. Taxcut com Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Taxcut com Although most are free, some workshops have fees associated with them. Taxcut com Any fees charged for a workshop are paid to the sponsoring organization, not the IRS. Taxcut com   For more information, visit www. Taxcut com irs. Taxcut com gov/businesses/small. Taxcut com Subscribe to e-news for small businesses. Taxcut com   Join the e-News for Small Businesses mailing list to receive updates, reminders, and other information useful to small business owners and self employed individuals. Taxcut com Visit the website at www. Taxcut com irs. Taxcut com gov/businesses/small and click on “Subscribe to e-News. Taxcut com ” Free tax services. Taxcut com   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Taxcut com It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Taxcut com   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Taxcut com Internet. Taxcut com You can access the IRS website at www. Taxcut com irs. Taxcut com gov 24 hours a day, 7 days a week, to: E-file your return. Taxcut com Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Taxcut com Check the status of your refund. Taxcut com Go to www. Taxcut com irs. Taxcut com gov and click on Where's My Refund. Taxcut com Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Taxcut com If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Taxcut com Have your tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Taxcut com Download forms, instructions, and publications. Taxcut com Order IRS products online. Taxcut com Research your tax questions online. Taxcut com Search publications online by topic or keyword. Taxcut com View Internal Revenue Bulletins (IRBs) published in the last few years. Taxcut com Figure your withholding allowances using the withholding calculator online at www. Taxcut com irs. Taxcut com gov/individuals. Taxcut com Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Taxcut com Sign up to receive local and national tax news by email. Taxcut com Get information on starting and operating a small business. Taxcut com Phone. Taxcut com Many services are available by phone. Taxcut com Ordering forms, instructions, and publications. Taxcut com Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Taxcut com You should receive your order within 10 days. Taxcut com Asking tax questions. Taxcut com Call the IRS with your tax questions at 1-800-829-1040. Taxcut com Solving problems. Taxcut com You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Taxcut com An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Taxcut com Call your local Taxpayer Assistance Center for an appointment. Taxcut com To find the number, go to www. Taxcut com irs. Taxcut com gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Taxcut com TTY/TDD equipment. Taxcut com If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Taxcut com TeleTax topics. Taxcut com Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Taxcut com Refund information. Taxcut com To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Taxcut com Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Taxcut com If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Taxcut com Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Taxcut com Refunds are sent out weekly on Fridays. Taxcut com If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Taxcut com Evaluating the quality of our telephone services. Taxcut com To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Taxcut com One method is for a second IRS representative to listen in on or record random telephone calls. Taxcut com Another is to ask some callers to complete a short survey at the end of the call. Taxcut com Walk-in. Taxcut com Many products and services are available on a walk-in basis. Taxcut com Products. Taxcut com You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Taxcut com Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Taxcut com Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Taxcut com Services. Taxcut com You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Taxcut com An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Taxcut com If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Taxcut com No appointment is necessary—just walk in. Taxcut com If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Taxcut com A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Taxcut com If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Taxcut com All other issues will be handled without an appointment. Taxcut com To find the number of your local office, go to www. Taxcut com irs. Taxcut com gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Taxcut com Mail. Taxcut com You can send your order for forms, instructions, and publications to the address below. Taxcut com You should receive a response within 10 days after your request is received. Taxcut com Internal Revenue Service1201 N. Taxcut com Mitsubishi MotorwayBloomington, IL 61705–6613 DVD for tax products. Taxcut com You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Taxcut com Prior-year forms, instructions, and publications. Taxcut com Tax Map: an electronic research tool and finding aid. Taxcut com Tax law frequently asked questions. Taxcut com Tax Topics from the IRS telephone response system. Taxcut com Internal Revenue Code—Title 26 of the U. Taxcut com S. Taxcut com Code. Taxcut com Fill-in, print, and save features for most tax forms. Taxcut com Internal Revenue Bulletins. Taxcut com Toll-free and email technical support. Taxcut com Two releases during the year. Taxcut com – The first release will ship the beginning of January. Taxcut com – The final release will ship the beginning of March. Taxcut com Purchase the DVD from National Technical Information Service (NTIS) at www. Taxcut com irs. Taxcut com gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $6 handling fee). Taxcut com Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Taxcut com The SBA also has publications and videos on a variety of business topics. Taxcut com The following briefly describes assistance provided by the SBA. Taxcut com Small Business Development Centers (SBDCs). Taxcut com   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Taxcut com Help is available when beginning, improving, or expanding a small business. Taxcut com Business Information Centers (BICs). Taxcut com   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Taxcut com BICs also offer one-on-one assistance. Taxcut com Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Taxcut com Service Corps of Retired Executives (SCORE). Taxcut com   SCORE provides small business counseling and training to current and prospective small business owners. Taxcut com SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Taxcut com SCORE also offers a variety of small business workshops. Taxcut com    Internet. Taxcut com You can visit the SBA website at www. Taxcut com sba. Taxcut com gov. Taxcut com While visiting the SBA website, you can find a variety of information of interest to small business owners. Taxcut com    Phone. Taxcut com Call the SBA Answer Desk at 1-800-UASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Taxcut com    Walk-in. Taxcut com You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Taxcut com To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Taxcut com Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Taxcut com Most of these are available from the Superintendent of Documents at the Government Printing Office. Taxcut com You can get information and order these publications and pamphlets in several ways. Taxcut com Internet. Taxcut com You can visit the GPO website at www. Taxcut com access. Taxcut com gpo. Taxcut com gov. Taxcut com Mail. Taxcut com Write to the GPO at the following address. Taxcut com Superintendent of DocumentsU. Taxcut com S. Taxcut com Government Printing OfficeP. Taxcut com O. Taxcut com Box 979050St. Taxcut com Louis, MO 63917-9000 Phone. Taxcut com Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC area. Taxcut com Prev  Up  Next   Home   More Online Publications