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Taxes online free 11. Taxes online free   Other Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Reimbursement of Travel, Meals, and EntertainmentReimbursements Miscellaneous ExpensesMeaning of generally enforced. Taxes online free Kickbacks. Taxes online free Form 1099-MISC. Taxes online free Exception. Taxes online free Tax preparation fees. Taxes online free Covered executive branch official. Taxes online free Exceptions to denial of deduction. Taxes online free Indirect political contributions. Taxes online free Type of deduction. Taxes online free Repayment—$3,000 or less. Taxes online free Repayment—over $3,000. Taxes online free Method 1. Taxes online free Method 2. Taxes online free Repayment does not apply. Taxes online free Year of deduction (or credit). Taxes online free Telephone. Taxes online free What's New Standard mileage rate. Taxes online free  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. Taxes online free 5 cents per mile. Taxes online free For more information, see Car and truck expenses under Miscellaneous Expenses. Taxes online free Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. Taxes online free Topics - This chapter discusses: Travel, meals, and entertainment Bribes and kickbacks Charitable contributions Education expenses Lobbying expenses Penalties and fines Repayments (claim of right) Other miscellaneous expenses Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 463 Travel, Entertainment, Gift, and Car Expenses 526 Charitable Contributions 529 Miscellaneous Deductions 544 Sales and Other Dispositions of Assets 970 Tax Benefits for Education 1542 Per Diem Rates See chapter 12 for information about getting publications and forms. Taxes online free Reimbursement of Travel, Meals, and Entertainment The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel, meals, and entertainment expenses. Taxes online free If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. Taxes online free To be deductible for tax purposes, expenses incurred for travel, meals, and entertainment must be ordinary and necessary expenses incurred while carrying on your trade or business. Taxes online free Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. Taxes online free For more information on travel, meals, and entertainment, including deductibility, see Publication 463. Taxes online free Reimbursements A “reimbursement or allowance arrangement” provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. Taxes online free If the expenses are substantiated, you can deduct the allowable amount on your tax return. Taxes online free Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. Taxes online free For example, you can deduct 100% of the cost of meals on your business books and records. Taxes online free However, only 50% of these costs are allowed by law as a tax deduction. Taxes online free How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. Taxes online free If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. Taxes online free If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, Wage and Tax Statement, and deduct them as wages on the appropriate line of your tax return. Taxes online free If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement and report it accordingly. Taxes online free See Table 11-1 , Reporting Reimbursements. Taxes online free Accountable Plans An accountable plan requires your employees to meet all of the following requirements. Taxes online free Each employee must: Have paid or incurred deductible expenses while performing services as your employee, Adequately account to you for these expenses within a reasonable period of time, and Return any excess reimbursement or allowance within a reasonable period of time. Taxes online free An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. Taxes online free The advance is reasonably calculated not to exceed the amount of anticipated expenses. Taxes online free You make the advance within a reasonable period of time of your employee paying or incurring the expense. Taxes online free If any expenses reimbursed under this arrangement are not substantiated, or an excess reimbursement is not returned within a reasonable period of time by an employee, you cannot treat these expenses as reimbursed under an accountable plan. Taxes online free Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. Taxes online free Adequate accounting. Taxes online free   Your employees must adequately account to you for their travel, meals, and entertainment expenses. Taxes online free They must give you documentary evidence of their travel, mileage, and other employee business expenses. Taxes online free This evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred. Taxes online free Excess reimbursement or allowance. Taxes online free   An excess reimbursement or allowance is any amount you pay to an employee that is more than the business-related expenses for which the employee adequately accounted. Taxes online free The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. Taxes online free Reasonable period of time. Taxes online free   A reasonable period of time depends on the facts and circumstances. Taxes online free Generally, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Taxes online free You give an advance within 30 days of the time the employee pays or incurs the expense. Taxes online free Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. Taxes online free Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. Taxes online free You give a periodic statement (at least quarterly) to your employees that asks them to either return or adequately account for outstanding advances and they comply within 120 days of the date of the statement. Taxes online free How to deduct. Taxes online free   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. Taxes online free Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. Taxes online free If you are a sole proprietor, or are filing as a single member limited liability company, deduct the travel reimbursement on line 24a and the deductible part of the meals and entertainment reimbursement on line 24b, Schedule C (Form 1040) or line 2, Schedule C-EZ (Form 1040). Taxes online free   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. Taxes online free S. Taxes online free Corporation Income Tax Return. Taxes online free If you are filing any other business income tax return, such as a partnership or S corporation return, deduct the reimbursement on the appropriate line of the return as provided in the instructions for that return. Taxes online free Table 11-1. Taxes online free Reporting Reimbursements IF the type of reimbursement (or other expense allowance) arrangement is under THEN the employer reports on Form W-2 An accountable plan with: Actual expense reimbursement:  Adequate accounting made and excess returned No amount. Taxes online free Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Taxes online free Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. Taxes online free Per diem or mileage allowance up to the federal rate:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Taxes online free The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Taxes online free Per diem or mileage allowance exceeds the federal rate:  Adequate accounting made up to the federal rate only and excess not returned The excess amount as wages in box 1. Taxes online free The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Taxes online free A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan The entire amount as wages in box 1. Taxes online free No reimbursement plan The entire amount as wages in box 1. Taxes online free Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. Taxes online free In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. Taxes online free Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. Taxes online free Federal rate. Taxes online free   The federal rate can be figured using any one of the following methods. Taxes online free For car expenses: The standard mileage rate. Taxes online free A fixed and variable rate (FAVR). Taxes online free For per diem amounts: The regular federal per diem rate. Taxes online free The standard meal allowance. Taxes online free The high-low rate. Taxes online free Car allowance. Taxes online free   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. Taxes online free Beginning in 2013, the standard business mileage rate is 56. Taxes online free 5 cents per mile. Taxes online free   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. Taxes online free This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc. Taxes online free ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. Taxes online free ). Taxes online free For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. Taxes online free irs. Taxes online free gov/irb/2010-51_IRB/ar14. Taxes online free html and Notice 2012-72, available at www. Taxes online free irs. Taxes online free gov/irb/2012-50_IRB/ar10. Taxes online free html. Taxes online free Per diem allowance. Taxes online free   If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate. Taxes online free Regular federal per diem rate. Taxes online free   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. Taxes online free It has two components: Lodging expense, and Meal and incidental expense (M&IE). Taxes online free The rates are different for different locations. Taxes online free Publication 1542 lists the rates in the continental United States. Taxes online free Standard meal allowance. Taxes online free   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. Taxes online free You can pay only an M&IE allowance to employees who travel away from home if: You pay the employee for actual expenses for lodging based on receipts submitted to you, You provide for the lodging, You pay for the actual expense of the lodging directly to the provider, You do not have a reasonable belief that lodging expenses were incurred by the employee, or The allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled). Taxes online free Internet access. Taxes online free    Per diem rates are available on the Internet. Taxes online free You can access per diem rates at www. Taxes online free gsa. Taxes online free gov/perdiemrates. Taxes online free High-low method. Taxes online free   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Taxes online free It eliminates the need to keep a current list of the per diem rate for each city. Taxes online free   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 ($65 for M&IE) for certain high-cost locations. Taxes online free All other areas have a per diem amount of $163 ($52 for M&IE). Taxes online free The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. Taxes online free   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). Taxes online free The rate for all other locations increased to $170 ($52 for M&IE). Taxes online free For October, November, and December 2013, you can either continue to use the rates described in the preceding paragraph or change to the new rates. Taxes online free However, you must use the same rate for all employees reimbursed under the high-low method. Taxes online free   For more information about the high-low method, see Notice 2013-65, available at www. Taxes online free irs. Taxes online free gov/irb/2013-44_IRB/ar13. Taxes online free html. Taxes online free See Publication 1542 (available on the Internet at IRS. Taxes online free gov) for the current per diem rates for all locations. Taxes online free Reporting per diem and car allowances. Taxes online free   The following discussion explains how to report per diem and car allowances. Taxes online free The manner in which you report them depends on how the allowance compares to the federal rate. Taxes online free See Table 11-1. Taxes online free Allowance less than or equal to the federal rate. Taxes online free   If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. Taxes online free Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). Taxes online free See How to deduct under Accountable Plans, earlier. Taxes online free Allowance more than the federal rate. Taxes online free   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. Taxes online free   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Taxes online free Deduct it as travel expenses (as explained above). Taxes online free This part of the allowance is treated as reimbursed under an accountable plan. Taxes online free   Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. Taxes online free Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Taxes online free This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. Taxes online free Meals and Entertainment Under an accountable plan, you can generally deduct only 50% of any otherwise deductible business-related meal and entertainment expenses you reimburse your employees. Taxes online free The deduction limit applies even if you reimburse them for 100% of the expenses. Taxes online free Application of the 50% limit. Taxes online free   The 50% deduction limit applies to reimbursements you make to your employees for expenses they incur for meals while traveling away from home on business and for entertaining business customers at your place of business, a restaurant, or another location. Taxes online free It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. Taxes online free The deduction limit may also apply to meals you furnish on your premises to your employees. Taxes online free Related expenses. Taxes online free   Taxes and tips relating to a meal or entertainment activity you reimburse to your employee under an accountable plan are included in the amount subject to the 50% limit. Taxes online free Reimbursements you make for expenses, such as cover charges for admission to a nightclub, rent paid for a room to hold a dinner or cocktail party, or the amount you pay for parking at a sports arena, are all subject to the 50% limit. Taxes online free However, the cost of transportation to and from an otherwise allowable business meal or a business-related entertainment activity is not subject to the 50% limit. Taxes online free Amount subject to 50% limit. Taxes online free   If you provide your employees with a per diem allowance only for meal and incidental expenses, the amount treated as an expense for food and beverages is the lesser of the following. Taxes online free The per diem allowance. Taxes online free The federal rate for M&IE. Taxes online free   If you provide your employees with a per diem allowance that covers lodging, meals, and incidental expenses, you must treat an amount equal to the federal M&IE rate for the area of travel as an expense for food and beverages. Taxes online free If the per diem allowance you provide is less than the federal per diem rate for the area of travel, you can treat 40% of the per diem allowance as the amount for food and beverages. Taxes online free Meal expenses when subject to “hours of service” limits. Taxes online free   You can deduct 80% of the cost of reimbursed meals your employees consume while away from their tax home on business during, or incident to, any period subject to the Department of Transportation's “hours of service” limits. Taxes online free   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. Taxes online free De minimis (minimal) fringe benefit. Taxes online free   The 50% limit does not apply to an expense for food or beverage that is excluded from the gross income of an employee because it is a de minimis fringe benefit. Taxes online free See Publication 15-B for additional information on de minimis fringe benefits. Taxes online free Company cafeteria or executive dining room. Taxes online free   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. Taxes online free This includes the cost of maintaining the facilities for providing the food and beverages. Taxes online free These expenses are subject to the 50% limit unless they qualify as a de minimis fringe benefit, as just discussed, or unless they are compensation to your employees (explained later). Taxes online free Employee activities. Taxes online free   The expense of providing recreational, social, or similar activities (including the use of a facility) for your employees is deductible and is not subject to the 50% limit. Taxes online free The benefit must be primarily for your employees who are not highly compensated. Taxes online free   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. Taxes online free Owned a 10% or more interest in the business during the year or the preceding year. Taxes online free An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. Taxes online free Received more than $115,000 in pay for the preceding year. Taxes online free You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. Taxes online free   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. Taxes online free Meals or entertainment treated as compensation. Taxes online free   The 50% limit does not apply to either of the following. Taxes online free Expenses for meals or entertainment that you treat as: Compensation to an employee who was the recipient of the meals or entertainment, and Wages subject to withholding of federal income tax. Taxes online free Expenses for meals or entertainment if: A recipient of the meals or entertainment who is not your employee has to include the expenses in gross income as compensation for services or as a prize or award, and You include that amount on a Form 1099 issued to the recipient, if a Form 1099 is required. Taxes online free Sales of meals or entertainment. Taxes online free   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. Taxes online free For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is a business expense that is fully deductible. Taxes online free The 50% limit does not apply to this expense. Taxes online free Providing meals or entertainment to general public to promote goodwill. Taxes online free   You can deduct the cost of providing meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Taxes online free The 50% limit does not apply to this expense. Taxes online free Director, stockholder, or employee meetings. Taxes online free   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. Taxes online free You can provide some minor social activities, but the main purpose of the meeting must be your company's business. Taxes online free These expenses are subject to the 50% limit. Taxes online free Trade association meetings. Taxes online free   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. Taxes online free These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. Taxes online free Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. Taxes online free All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. Taxes online free The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Taxes online free You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. Taxes online free Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. Taxes online free Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. Taxes online free Advertising expenses. Taxes online free   You generally can deduct reasonable advertising expenses that are directly related to your business activities. Taxes online free Generally, you cannot deduct amounts paid to influence legislation (i. Taxes online free e. Taxes online free , lobbying). Taxes online free See Lobbying expenses , later. Taxes online free   You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. Taxes online free For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. Taxes online free S. Taxes online free Savings Bonds, or to participate in similar causes is usually deductible. Taxes online free Anticipated liabilities. Taxes online free   Anticipated liabilities or reserves for anticipated liabilities are not deductible. Taxes online free For example, assume you sold 1-year TV service contracts this year totaling $50,000. Taxes online free From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. Taxes online free You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. Taxes online free You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. Taxes online free Bribes and kickbacks. Taxes online free   Engaging in the payment of bribes or kickbacks is a serious criminal matter. Taxes online free Such activity could result in criminal prosecution. Taxes online free Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law. Taxes online free   Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes. Taxes online free Meaning of “generally enforced. Taxes online free ”   A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. Taxes online free For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. Taxes online free Kickbacks. Taxes online free   A kickback is a payment for referring a client, patient, or customer. Taxes online free The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. Taxes online free In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment. Taxes online free   For example, the Yard Corporation is in the business of repairing ships. Taxes online free It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Taxes online free Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. Taxes online free These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Taxes online free Form 1099-MISC. Taxes online free   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. Taxes online free See Form 1099-MISC for more information. Taxes online free Car and truck expenses. Taxes online free   The costs of operating a car, truck, or other vehicle in your business are deductible. Taxes online free For more information on how to figure your deduction, see Publication 463. Taxes online free Charitable contributions. Taxes online free   Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Taxes online free If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. Taxes online free However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. Taxes online free See the Instructions for Form 1120 for more information. Taxes online free Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Taxes online free Example. Taxes online free You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. Taxes online free The purpose of the ad was to encourage readers to buy your products. Taxes online free Your payment is not a charitable contribution. Taxes online free You can deduct it as an advertising expense. Taxes online free Example. Taxes online free You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. Taxes online free Your payment is not a charitable contribution. Taxes online free You can deduct it as a business expense. Taxes online free See Publication 526 for a discussion of donated inventory, including capital gain property. Taxes online free Club dues and membership fees. Taxes online free   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. Taxes online free This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Taxes online free Exception. Taxes online free   The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Taxes online free Boards of trade. Taxes online free Business leagues. Taxes online free Chambers of commerce. Taxes online free Civic or public service organizations. Taxes online free Professional organizations such as bar associations and medical associations. Taxes online free Real estate boards. Taxes online free Trade associations. Taxes online free Credit card convenience fees. Taxes online free   Credit card companies charge a fee to businesses who accept their cards. Taxes online free This fee when paid or incurred by the business can be deducted as a business expense. Taxes online free Damages recovered. Taxes online free   Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. Taxes online free You must include this compensation in your income. Taxes online free However, you may be able to take a special deduction. Taxes online free The deduction applies only to amounts recovered for actual economic injury, not any additional amount. Taxes online free The deduction is the smaller of the following. Taxes online free The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. Taxes online free Your losses from the injury you have not deducted. Taxes online free Demolition expenses or losses. Taxes online free   Amounts paid or incurred to demolish a structure are not deductible. Taxes online free These amounts are added to the basis of the land where the demolished structure was located. Taxes online free Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. Taxes online free Education expenses. Taxes online free   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. Taxes online free See Education Expenses in chapter 2. Taxes online free   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. Taxes online free You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. Taxes online free For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law. Taxes online free   Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. Taxes online free This is true even if the education maintains or improves skills presently required in your business. Taxes online free For more information on education expenses, see Publication 970. Taxes online free Franchise, trademark, trade name. Taxes online free   If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: Contingent on productivity, use, or disposition of the item, Payable at least annually for the entire term of the transfer agreement, and Substantially equal in amount (or payable under a fixed formula). Taxes online free   When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed. Taxes online free   A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area. Taxes online free Impairment-related expenses. Taxes online free   If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense. Taxes online free   You are disabled if you have either of the following. Taxes online free A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. Taxes online free A physical or mental impairment that substantially limits one or more of your major life activities. Taxes online free   The expense qualifies as a business expense if all the following apply. Taxes online free Your work clearly requires the expense for you to satisfactorily perform that work. Taxes online free The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. Taxes online free Their treatment is not specifically provided for under other tax law provisions. Taxes online free Example. Taxes online free You are blind. Taxes online free You must use a reader to do your work, both at and away from your place of work. Taxes online free The reader's services are only for your work. Taxes online free You can deduct your expenses for the reader as a business expense. Taxes online free Internet-related expenses. Taxes online free   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. Taxes online free If you are starting a business you may have to amortize these expenses as start-up costs. Taxes online free For more information about amortizing start-up and organizational costs, see chapter 8. Taxes online free Interview expense allowances. Taxes online free   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. Taxes online free You can deduct the reimbursements as a business expense. Taxes online free However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. Taxes online free Legal and professional fees. Taxes online free   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. Taxes online free However, usually legal fees you pay to acquire business assets are not deductible. Taxes online free These costs are added to the basis of the property. Taxes online free   Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. Taxes online free If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. Taxes online free The result is the portion of the invoice attributable to business expenses. Taxes online free The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). Taxes online free   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. Taxes online free However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. Taxes online free See Publication 529, Miscellaneous Deductions. Taxes online free Tax preparation fees. Taxes online free   The cost of hiring a tax professional, such as a C. Taxes online free P. Taxes online free A. Taxes online free , to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. Taxes online free Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. Taxes online free   You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. Taxes online free Licenses and regulatory fees. Taxes online free   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Taxes online free Some licenses and fees may have to be amortized. Taxes online free See chapter 8 for more information. Taxes online free Lobbying expenses. Taxes online free   Generally, lobbying expenses are not deductible. Taxes online free Lobbying expenses include amounts paid or incurred for any of the following activities. Taxes online free Influencing legislation. Taxes online free Participating in or intervening in any political campaign for, or against, any candidate for public office. Taxes online free Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. Taxes online free Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. Taxes online free Researching, preparing, planning, or coordinating any of the preceding activities. Taxes online free   Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. Taxes online free For information on making this allocation, see section 1. Taxes online free 162-28 of the regulations. Taxes online free   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. Taxes online free The organization conducts lobbying activities on matters of direct financial interest to your business. Taxes online free A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. Taxes online free   If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues. Taxes online free Covered executive branch official. Taxes online free   For purposes of this discussion, a covered executive branch official is any of the following. Taxes online free The President. Taxes online free The Vice President. Taxes online free Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office. Taxes online free Any individual who: Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code, Has been designated by the President as having Cabinet-level status, or Is an immediate deputy of an individual listed in item (a) or (b). Taxes online free Exceptions to denial of deduction. Taxes online free   The general denial of the deduction does not apply to the following. Taxes online free Expenses of appearing before, or communicating with, any committee or member of any local council or similar governing body concerning its legislation (local legislation) if the legislation is of direct interest to you or to you and an organization of which you are a member. Taxes online free An Indian tribal government is treated as a local council or similar governing body. Taxes online free Any in-house expenses for influencing legislation and communicating directly with a covered executive branch official if those expenses for the tax year do not exceed $2,000 (excluding overhead expenses). Taxes online free Expenses incurred by taxpayers engaged in the trade or business of lobbying (professional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). Taxes online free Moving machinery. Taxes online free   Generally, the cost of moving machinery from one city to another is a deductible expense. Taxes online free So is the cost of moving machinery from one plant to another, or from one part of your plant to another. Taxes online free You can deduct the cost of installing the machinery in the new location. Taxes online free However, you must capitalize the costs of installing or moving newly purchased machinery. Taxes online free Outplacement services. Taxes online free   The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. Taxes online free are deductible. Taxes online free   The costs of outplacement services may cover more than one deduction category. Taxes online free For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service. Taxes online free   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. Taxes online free Penalties and fines. Taxes online free   Penalties paid for late performance or nonperformance of a contract are generally deductible. Taxes online free For instance, you own and operate a construction company. Taxes online free Under a contract, you are to finish construction of a building by a certain date. Taxes online free Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. Taxes online free You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. Taxes online free These additional costs are deductible business expenses. Taxes online free   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. Taxes online free These fines or penalties include the following amounts. Taxes online free Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. Taxes online free Paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and additional amounts and assessable penalties imposed by the Internal Revenue Code. Taxes online free Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. Taxes online free Forfeited as collateral posted for a proceeding that could result in a fine or penalty. Taxes online free   Examples of nondeductible penalties and fines include the following. Taxes online free Fines for violating city housing codes. Taxes online free Fines paid by truckers for violating state maximum highway weight laws. Taxes online free Fines for violating air quality laws. Taxes online free Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. Taxes online free   A fine or penalty does not include any of the following. Taxes online free Legal fees and related expenses to defend yourself in a prosecution or civil action for a violation of the law imposing the fine or civil penalty. Taxes online free Court costs or stenographic and printing charges. Taxes online free Compensatory damages paid to a government. Taxes online free Political contributions. Taxes online free   Contributions or gifts paid to political parties or candidates are not deductible. Taxes online free In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. Taxes online free Indirect political contributions. Taxes online free   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Taxes online free Examples of nondeductible expenses include the following. Taxes online free Advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Taxes online free Admission to a dinner or program (including, but not limited to, galas, dances, film presentations, parties, and sporting events) if any of the proceeds from the function are for, or intended for, the use of a political party or candidate. Taxes online free Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. Taxes online free Repairs. Taxes online free   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Taxes online free Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. Taxes online free Otherwise, the cost must be capitalized and depreciated. Taxes online free See Form 4562 and its instructions for how to compute and claim the depreciation deduction. Taxes online free   The cost of repairs includes the costs of labor, supplies, and certain other items. Taxes online free The value of your own labor is not deductible. Taxes online free Examples of repairs include: Reconditioning floors (but not replacement), Repainting the interior and exterior walls of a building, Cleaning and repairing roofs and gutters, and Fixing plumbing leaks (but not replacement of fixtures). Taxes online free Repayments. Taxes online free   If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. Taxes online free Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Taxes online free Type of deduction. Taxes online free   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Taxes online free For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. Taxes online free If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Taxes online free   If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. Taxes online free However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation. Taxes online free Repayment—$3,000 or less. Taxes online free   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Taxes online free Repayment—over $3,000. Taxes online free   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. Taxes online free However, you can instead choose to take a tax credit for the year of repayment if you included the income under a “claim of right. Taxes online free ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. Taxes online free If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. Taxes online free Method 1. Taxes online free   Figure your tax for 2013 claiming a deduction for the repaid amount. Taxes online free Method 2. Taxes online free   Figure your tax for 2013 claiming a credit for the repaid amount. Taxes online free Follow these steps. Taxes online free Figure your tax for 2013 without deducting the repaid amount. Taxes online free Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Taxes online free Subtract the tax in (2) from the tax shown on your return for the earlier year. Taxes online free This is the amount of your credit. Taxes online free Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). Taxes online free   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. Taxes online free   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. Taxes online free R. Taxes online free C. Taxes online free 1341” next to line 71. Taxes online free Example. Taxes online free For 2012, you filed a return and reported your income on the cash method. Taxes online free In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. Taxes online free Your filing status in 2013 and 2012 is single. Taxes online free Your income and tax for both years are as follows:   2012  With Income 2012  Without Income Taxable Income $15,000 $10,000 Tax $ 1,819 $ 1,069   2013  Without Deduction 2013  With Deduction Taxable Income $49,950 $44,950 Tax $8,423 $7,173 Your tax under Method 1 is $7,173. Taxes online free Your tax under Method 2 is $7,673, figured as follows: Tax previously determined for 2012 $ 1,819 Less: Tax as refigured − 1,069 Decrease in 2012 tax $ 750 Regular tax liability for 2013 $8,423 Less: Decrease in 2012 tax − 750 Refigured tax for 2013 $ 7,673 Because you pay less tax under Method 1, you should take a deduction for the repayment in 2013. Taxes online free Repayment does not apply. Taxes online free   This discussion does not apply to the following. Taxes online free Deductions for bad debts. Taxes online free Deductions from sales to customers, such as returns and allowances, and similar items. Taxes online free Deductions for legal and other expenses of contesting the repayment. Taxes online free Year of deduction (or credit). Taxes online free   If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. Taxes online free If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. Taxes online free For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues. Taxes online free Subscriptions. Taxes online free   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. Taxes online free Supplies and materials. Taxes online free   Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year. Taxes online free   If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met. Taxes online free You do not keep a record of when they are used. Taxes online free You do not take an inventory of the amount on hand at the beginning and end of the tax year. Taxes online free This method does not distort your income. Taxes online free   You can also deduct the cost of books, professional instruments, equipment, etc. Taxes online free , if you normally use them within a year. Taxes online free However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. Taxes online free For more information regarding depreciation see Publication 946, How To Depreciate Property. Taxes online free Utilities. Taxes online free   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. Taxes online free However, any part due to personal use is not deductible. Taxes online free Telephone. Taxes online free   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Taxes online free However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Taxes online free Prev  Up  Next   Home   More Online Publications
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IRS Alerta sobre Nueva Estafa de “Phishing” Que Falsamente Alega Venir del Servicio del Defensor del Contribuyente

Video de YouTube del IRS : 
Consejo Tributario: Phishing-Malware

IR-2014-39SP, 28 de marzo de 2014

WASHINGTON — El Servicio de Impuestos Internos (IRS) alertó hoy al público de una nueva estafa por correo electrónico que pesca información usando la práctica conocida como "phishing".  Los correos electrónicos parecen provenir del Servicio del Defensor del Contribuyente (TAS, por sus siglas en inglés), e incluyen números de casos ficticios.

Los emails falsos pudieran incluir el siguiente mensaje: Su ingreso reportado del 2013 ha sido seleccionado para una revisión debido a un error del procesamiento de documentos. Su caso ha sido referido al Servicio del Defensor del Contribuyente para asistencia con su resolución. Para evitar demoras en el procesamiento de su presentación del 2013, contacte al Servicio del Defensor del Contribuyente para asistencia con la resolución.

Al destinatario se le indica que haga clic en enlaces que supuestamente proveen información sobre el "defensor" asignado al caso o donde se les permite "revisar el ingreso reportado". Los enlaces conllevan a páginas web que solicitan información personal.

Los contribuyentes que reciben estos mensajes no deben responder al correo electrónico ni hacer clic en los enlaces. Sin embargo, deben reenviar las estafas por correo electrónico a phishing@irs.gov. Para más información, visite la página del IRS acerca de Phishing.

El Servicio del Defensor del Contribuyente es una organización legítima del IRS que ayuda a los contribuyentes a resolver asuntos de impuestos federales que no han sido resueltos mediante los canales normales de la agencia.  El IRS, incluyendo al Servicio del Defensor al Contribuyente no inicia contacto con los contribuyentes a través de correo electrónico, textos, ni mediante ningún tipo de red social.

‪Para más información acerca de estafas a las que estar alerta vea la lista de la “Docena Sucia” en IRS.gov.

Page Last Reviewed or Updated: 28-Mar-2014

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Taxes online free 3. Taxes online free   Savings Incentive Match Plans for Employees (SIMPLE) Table of Contents Introduction What Is a SIMPLE Plan?Eligible Employees How Are Contributions Made? How Much Can Be Contributed on Your Behalf?Matching contributions less than 3%. Taxes online free Traditional IRA mistakenly moved to SIMPLE IRA. Taxes online free When Can You Withdraw or Use Assets?Are Distributions Taxable? Introduction This chapter is for employees who need information about savings incentive match plans for employees (SIMPLE plans). Taxes online free It explains what a SIMPLE plan is, contributions to a SIMPLE plan, and distributions from a SIMPLE plan. Taxes online free Under a SIMPLE plan, SIMPLE retirement accounts for participating employees can be set up either as: Part of a 401(k) plan, or A plan using IRAs (SIMPLE IRA). Taxes online free This chapter only discusses the SIMPLE plan rules that relate to SIMPLE IRAs. Taxes online free See chapter 3 of Publication 560 for information on any special rules for SIMPLE plans that do not use IRAs. Taxes online free If your employer maintains a SIMPLE plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution. Taxes online free See Rollovers and Transfers Exception, later under When Can You Withdraw or Use Assets. Taxes online free What Is a SIMPLE Plan? A SIMPLE plan is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Taxes online free See chapter 3 of Publication 560 for information on the requirements employers must satisfy to set up a SIMPLE plan. Taxes online free A SIMPLE plan is a written agreement (salary reduction agreement) between you and your employer that allows you, if you are an eligible employee (including a self-employed individual), to choose to: Reduce your compensation (salary) by a certain percentage each pay period, and Have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. Taxes online free These contributions are called salary reduction contributions. Taxes online free All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA. Taxes online free The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described in chapter 1. Taxes online free Contributions are made on behalf of eligible employees. Taxes online free (See Eligible Employees below. Taxes online free ) Contributions are also subject to various limits. Taxes online free (See How Much Can Be Contributed on Your Behalf , later. Taxes online free ) In addition to salary reduction contributions, your employer must make either matching contributions or nonelective contributions. Taxes online free See How Are Contributions Made , later. Taxes online free You may be able to claim a credit for contributions to your SIMPLE plan. Taxes online free For more information, see chapter 4. Taxes online free Eligible Employees You must be allowed to participate in your employer's SIMPLE plan if you: Received at least $5,000 in compensation from your employer during any 2 years prior to the current year, and Are reasonably expected to receive at least $5,000 in compensation during the calendar year for which contributions are made. Taxes online free Self-employed individual. Taxes online free   For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income. Taxes online free Excludable employees. Taxes online free   Your employer can exclude the following employees from participating in the SIMPLE plan. Taxes online free Employees whose retirement benefits are covered by a collective bargaining agreement (union contract). Taxes online free Employees who are nonresident aliens and received no earned income from sources within the United States. Taxes online free Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year. Taxes online free Compensation. Taxes online free   For purposes of the SIMPLE plan rules, your compensation for a year generally includes the following amounts. Taxes online free Wages, tips, and other pay from your employer that is subject to income tax withholding. Taxes online free Deferred amounts elected under any 401(k) plans, 403(b) plans, government (section 457) plans, SEP plans, and SIMPLE plans. Taxes online free Self-employed individual compensation. Taxes online free   For purposes of the SIMPLE plan rules, if you are self-employed, your compensation for a year is your net earnings from self-employment (Schedule SE (Form 1040), Section A, line 4, or Section B, line 6) before subtracting any contributions made to a SIMPLE IRA on your behalf. Taxes online free   For these purposes, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits. Taxes online free How Are Contributions Made? Contributions under a salary reduction agreement are called salary reduction contributions. Taxes online free They are made on your behalf by your employer. Taxes online free Your employer must also make either matching contributions or nonelective contributions. Taxes online free Salary reduction contributions. Taxes online free   During the 60-day period before the beginning of any year, and during the 60-day period before you are eligible, you can choose salary reduction contributions expressed either as a percentage of compensation, or as a specific dollar amount (if your employer offers this choice). Taxes online free You can choose to cancel the election at any time during the year. Taxes online free   Salary reduction contributions are also referred to as “elective deferrals. Taxes online free ”   Your employer cannot place restrictions on the contributions amount (such as by limiting the contributions percentage), except to comply with the salary reduction contributions limit, discussed under How Much Can Be Contributed on Your Behalf, later. Taxes online free Matching contributions. Taxes online free   Unless your employer chooses to make nonelective contributions, your employer must make contributions equal to the salary reduction contributions you choose (elect), but only up to certain limits. Taxes online free See How Much Can Be Contributed on Your Behalf below. Taxes online free These contributions are in addition to the salary reduction contributions and must be made to the SIMPLE IRAs of all eligible employees (defined earlier) who chose salary reductions. Taxes online free These contributions are referred to as matching contributions. Taxes online free   Matching contributions on behalf of a self-employed individual are not treated as salary reduction contributions. Taxes online free Nonelective contributions. Taxes online free   Instead of making matching contributions, your employer may be able to choose to make nonelective contributions on behalf of all eligible employees. Taxes online free These nonelective contributions must be made on behalf of each eligible employee who has at least $5,000 of compensation from your employer, whether or not the employee chose salary reductions. Taxes online free   One of the requirements your employer must satisfy is notifying the employees that the election was made. Taxes online free For other requirements that your employer must satisfy, see chapter 3 of Publication 560. Taxes online free How Much Can Be Contributed on Your Behalf? The limits on contributions to a SIMPLE IRA vary with the type of contribution that is made. Taxes online free Salary reduction contributions limit. Taxes online free   Salary reduction contributions (employee-chosen contributions or elective deferrals) that your employer can make on your behalf under a SIMPLE plan are limited to $12,000 for 2013. Taxes online free The limitation remains at $12,000 for 2014. Taxes online free If you are a participant in any other employer plans during 2013 and you have elective salary reductions or deferred compensation under those plans, the salary reduction contributions under the SIMPLE plan also are included in the annual limit of $17,500 for 2013 on exclusions of salary reductions and other elective deferrals. Taxes online free You, not your employer, are responsible for monitoring compliance with these limits. Taxes online free Additional elective deferrals can be contributed to your SIMPLE plan if: You reached age 50 by the end of 2013, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit. Taxes online free The most that can be contributed in additional elective deferrals to your SIMPLE plan is the lesser of the following two amounts. Taxes online free $2,500 for 2013, or Your compensation for the year reduced by your other elective deferrals for the year. Taxes online free The additional deferrals are not subject to any other contribution limit and are not taken into account in applying other contribution limits. Taxes online free The additional deferrals are not subject to the nondiscrimination rules as long as all eligible participants are allowed to make them. Taxes online free Matching employer contributions limit. Taxes online free   Generally, your employer must make matching contributions to your SIMPLE IRA in an amount equal to your salary reduction contributions. Taxes online free These matching contributions cannot be more than 3% of your compensation for the calendar year. Taxes online free See Matching contributions less than 3% below. Taxes online free Example 1. Taxes online free In 2013, Joshua was a participant in his employer's SIMPLE plan. Taxes online free His compensation, before SIMPLE plan contributions, was $41,600 ($800 per week). Taxes online free Instead of taking it all in cash, Joshua elected to have 12. Taxes online free 5% of his weekly pay ($100) contributed to his SIMPLE IRA. Taxes online free For the full year, Joshua's salary reduction contributions were $5,200, which is less than the $12,000 limit on these contributions. Taxes online free Under the plan, Joshua's employer was required to make matching contributions to Joshua's SIMPLE IRA. Taxes online free Because his employer's matching contributions must equal Joshua's salary reductions, but cannot be more than 3% of his compensation (before salary reductions) for the year, his employer's matching contribution was limited to $1,248 (3% of $41,600). Taxes online free Example 2. Taxes online free Assume the same facts as in Example 1 , except that Joshua's compensation for the year was $408,163 and he chose to have 2. Taxes online free 94% of his weekly pay contributed to his SIMPLE IRA. Taxes online free In this example, Joshua's salary reduction contributions for the year (2. Taxes online free 94% × $408,163) were equal to the 2013 limit for salary reduction contributions ($12,000). Taxes online free Because 3% of Joshua's compensation ($12,245) is more than the amount his employer was required to match ($12,000), his employer's matching contributions were limited to $12,000. Taxes online free In this example, total contributions made on Joshua's behalf for the year were $24,000 ($12,000 (Joshua's contributions) + $12,000 (matching contributions)), the maximum contributions permitted under a SIMPLE IRA for 2013. Taxes online free Matching contributions less than 3%. Taxes online free   Your employer can reduce the 3% limit on matching contributions for a calendar year, but only if: The limit is not reduced below 1%, The limit is not reduced for more than 2 years out of the 5-year period that ends with (and includes) the year for which the election is effective, and Employees are notified of the reduced limit within a reasonable period of time before the 60-day election period during which they can enter into salary reduction agreements. Taxes online free   For purposes of applying the rule in item (2) in determining whether the limit was reduced below 3% for the year, any year before the first year in which your employer (or a former employer) maintains a SIMPLE IRA plan will be treated as a year for which the limit was 3%. Taxes online free If your employer chooses to make nonelective contributions for a year, that year also will be treated as a year for which the limit was 3%. Taxes online free Nonelective employer contributions limit. Taxes online free   If your employer chooses to make nonelective contributions, instead of matching contributions, to each eligible employee's SIMPLE IRA, contributions must be 2% of your compensation for the entire year. Taxes online free For 2013, only $255,000 of your compensation can be taken into account to figure the contribution limit. Taxes online free   Your employer can substitute the 2% nonelective contribution for the matching contribution for a year if both of the following requirements are met. Taxes online free Eligible employees are notified that a 2% nonelective contribution will be made instead of a matching contribution. Taxes online free This notice is provided within a reasonable period during which employees can enter into salary reduction agreements. Taxes online free Example 3. Taxes online free Assume the same facts as in Example 2 , except that Joshua's employer chose to make nonelective contributions instead of matching contributions. Taxes online free Because his employer's nonelective contributions are limited to 2% of up to $255,000 of Joshua's compensation, his employer's contribution to Joshua's SIMPLE IRA was limited to $5,100. Taxes online free In this example, total contributions made on Joshua's behalf for the year were $17,100 (Joshua's salary reductions of $12,000 plus his employer's contribution of $5,100). Taxes online free Traditional IRA mistakenly moved to SIMPLE IRA. Taxes online free   If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Taxes online free For more information, see Recharacterizations in chapter 1. Taxes online free Recharacterizing employer contributions. Taxes online free   You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. Taxes online free SEPs are discussed in chapter 2 of Publication 560. Taxes online free SIMPLE plans are discussed in this chapter. Taxes online free Converting from a SIMPLE IRA. Taxes online free   Generally, you can convert an amount in your SIMPLE IRA to a Roth IRA under the same rules explained in chapter 1 under Converting From Any Traditional IRA Into a Roth IRA . Taxes online free    However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer. Taxes online free When Can You Withdraw or Use Assets? Generally, the same distribution (withdrawal) rules that apply to traditional IRAs apply to SIMPLE IRAs. Taxes online free These rules are discussed in chapter 1. Taxes online free Your employer cannot restrict you from taking distributions from a SIMPLE IRA. Taxes online free Are Distributions Taxable? Generally, distributions from a SIMPLE IRA are fully taxable as ordinary income. Taxes online free If the distribution is an early distribution (discussed in chapter 1), it may be subject to the additional tax on early distributions. Taxes online free See Additional Tax on Early Distributions, later. Taxes online free Rollovers and Transfers Exception Generally, rollovers and trustee-to-trustee transfers are not taxable distributions. Taxes online free Two-year rule. Taxes online free   To qualify as a tax-free rollover (or a tax-free trustee-to-trustee transfer), a rollover distribution (or a transfer) made from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer's SIMPLE plan must be contributed (or transferred) to another SIMPLE IRA. Taxes online free The 2-year period begins on the first day on which contributions made by your employer are deposited in your SIMPLE IRA. Taxes online free   After the 2-year period, amounts in a SIMPLE IRA can be rolled over or transferred tax free to an IRA other than a SIMPLE IRA, or to a qualified plan, a tax-sheltered annuity plan (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan). Taxes online free Additional Tax on Early Distributions The additional tax on early distributions (discussed in chapter 1) applies to SIMPLE IRAs. Taxes online free If a distribution is an early distribution and occurs during the 2-year period following the date on which you first participated in your employer's SIMPLE plan, the additional tax on early distributions is increased from 10% to 25%. Taxes online free If a rollover distribution (or transfer) from a SIMPLE IRA does not satisfy the 2-year rule, and is otherwise an early distribution, the additional tax imposed because of the early distribution is increased from 10% to 25% of the amount distributed. 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