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Turbo Tax 2010

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Turbo Tax 2010

Turbo tax 2010 Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Turbo tax 2010 Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. Turbo tax 2010 Method 2. Turbo tax 2010 How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. Turbo tax 2010 In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Turbo tax 2010 You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Turbo tax 2010 Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. Turbo tax 2010 If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Turbo tax 2010 These wages must be included on line 7 of Form 1040. Turbo tax 2010 See Form 8919 for more information. Turbo tax 2010 Childcare providers. Turbo tax 2010   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Turbo tax 2010 If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Turbo tax 2010 You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Turbo tax 2010 Babysitting. Turbo tax 2010   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Turbo tax 2010 Bankruptcy. Turbo tax 2010   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Turbo tax 2010 Your W-2 will show your total wages and withheld income tax for the year. Turbo tax 2010 On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Turbo tax 2010 Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Turbo tax 2010 If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. Turbo tax 2010   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Turbo tax 2010 For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. Turbo tax 2010   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Turbo tax 2010 The statement must show the allocation and describe the method used to make the allocation. Turbo tax 2010 For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Turbo tax 2010 R. Turbo tax 2010 B. Turbo tax 2010 596, available at www. Turbo tax 2010 irs. Turbo tax 2010 gov/irb/2006-40_IRB/ar12. Turbo tax 2010 html. Turbo tax 2010 Miscellaneous Compensation This section discusses many types of employee compensation. Turbo tax 2010 The subjects are arranged in alphabetical order. Turbo tax 2010 Advance commissions and other earnings. Turbo tax 2010   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Turbo tax 2010    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Turbo tax 2010 If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. Turbo tax 2010 See Repayments , later. Turbo tax 2010 Allowances and reimbursements. Turbo tax 2010    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Turbo tax 2010 If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Turbo tax 2010 Back pay awards. Turbo tax 2010   Include in income amounts you are awarded in a settlement or judgment for back pay. Turbo tax 2010 These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Turbo tax 2010 They should be reported to you by your employer on Form W-2. Turbo tax 2010 Bonuses and awards. Turbo tax 2010    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Turbo tax 2010 These include prizes such as vacation trips for meeting sales goals. Turbo tax 2010 If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Turbo tax 2010 However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Turbo tax 2010 Employee achievement award. Turbo tax 2010   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Turbo tax 2010 However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Turbo tax 2010 Your employer can tell you whether your award is a qualified plan award. Turbo tax 2010 Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Turbo tax 2010   However, the exclusion does not apply to the following awards. Turbo tax 2010 A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Turbo tax 2010 A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Turbo tax 2010 Example. Turbo tax 2010 Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Turbo tax 2010 Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Turbo tax 2010 However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. Turbo tax 2010 Differential wage payments. Turbo tax 2010   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. Turbo tax 2010 These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Turbo tax 2010 The payments are reported as wages on Form W-2. Turbo tax 2010 Government cost-of-living allowances. Turbo tax 2010   Most payments received by U. Turbo tax 2010 S. Turbo tax 2010 Government civilian employees for working abroad are taxable. Turbo tax 2010 However, certain cost-of-living allowances are tax free. Turbo tax 2010 Publication 516, U. Turbo tax 2010 S. Turbo tax 2010 Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Turbo tax 2010 Nonqualified deferred compensation plans. Turbo tax 2010   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Turbo tax 2010 This amount is shown on Form W-2, box 12, using code Y. Turbo tax 2010 This amount is not included in your income. Turbo tax 2010   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Turbo tax 2010 This amount is included in your wages shown on Form W-2, box 1. Turbo tax 2010 It is also shown on Form W-2, box 12, using code Z. Turbo tax 2010 Nonqualified deferred compensation plans of nonqualified entities. Turbo tax 2010   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Turbo tax 2010 For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. Turbo tax 2010 A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. Turbo tax 2010 Note received for services. Turbo tax 2010   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Turbo tax 2010 When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Turbo tax 2010 Do not include that part again in your income. Turbo tax 2010 Include the rest of the payment in your income in the year of payment. Turbo tax 2010   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Turbo tax 2010 Severance pay. Turbo tax 2010   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Turbo tax 2010 Accrued leave payment. Turbo tax 2010   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Turbo tax 2010   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Turbo tax 2010 You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Turbo tax 2010 Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. Turbo tax 2010 Outplacement services. Turbo tax 2010   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Turbo tax 2010    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Turbo tax 2010 Sick pay. Turbo tax 2010   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Turbo tax 2010 In addition, you must include in your income sick pay benefits received from any of the following payers. Turbo tax 2010 A welfare fund. Turbo tax 2010 A state sickness or disability fund. Turbo tax 2010 An association of employers or employees. Turbo tax 2010 An insurance company, if your employer paid for the plan. Turbo tax 2010 However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Turbo tax 2010 For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Turbo tax 2010 Social security and Medicare taxes paid by employer. Turbo tax 2010   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Turbo tax 2010 The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Turbo tax 2010 However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Turbo tax 2010 Stock appreciation rights. Turbo tax 2010   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Turbo tax 2010 When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Turbo tax 2010 You include the cash payment in income in the year you use the right. Turbo tax 2010 Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Turbo tax 2010 Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Turbo tax 2010 See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Turbo tax 2010 Recipient of fringe benefit. Turbo tax 2010   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Turbo tax 2010 You are considered to be the recipient even if it is given to another person, such as a member of your family. Turbo tax 2010 An example is a car your employer gives to your spouse for services you perform. Turbo tax 2010 The car is considered to have been provided to you and not to your spouse. Turbo tax 2010   You do not have to be an employee of the provider to be a recipient of a fringe benefit. Turbo tax 2010 If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Turbo tax 2010 Provider of benefit. Turbo tax 2010   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. Turbo tax 2010 The provider can be a client or customer of an independent contractor. Turbo tax 2010 Accounting period. Turbo tax 2010   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Turbo tax 2010 Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Turbo tax 2010 The general rule: benefits are reported for a full calendar year (January 1–December 31). Turbo tax 2010 The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Turbo tax 2010 For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Turbo tax 2010 Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Turbo tax 2010   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Turbo tax 2010 Form W-2. Turbo tax 2010   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Turbo tax 2010 Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Turbo tax 2010 However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Turbo tax 2010 Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Turbo tax 2010 Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Turbo tax 2010 For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Turbo tax 2010 Long-term care coverage. Turbo tax 2010   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Turbo tax 2010 However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Turbo tax 2010 This amount will be reported as wages in box 1 of your Form W-2. Turbo tax 2010 Archer MSA contributions. Turbo tax 2010    Contributions by your employer to your Archer MSA generally are not included in your income. Turbo tax 2010 Their total will be reported in box 12 of Form W-2, with code R. Turbo tax 2010 You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Turbo tax 2010 File the form with your return. Turbo tax 2010 Health flexible spending arrangement (health FSA). Turbo tax 2010   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Turbo tax 2010   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Turbo tax 2010 The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Turbo tax 2010 For more information, see Notice 2012-40, 2012-26 I. Turbo tax 2010 R. Turbo tax 2010 B. Turbo tax 2010 1046, available at www. Turbo tax 2010 irs. Turbo tax 2010 gov/irb/2012-26 IRB/ar09. Turbo tax 2010 html. Turbo tax 2010 Health reimbursement arrangement (HRA). Turbo tax 2010   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Turbo tax 2010 Health savings accounts (HSA). Turbo tax 2010   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Turbo tax 2010 Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Turbo tax 2010 Contributions made by your employer are not included in your income. Turbo tax 2010 Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Turbo tax 2010 Distributions not used for qualified medical expenses are included in your income. Turbo tax 2010 See Publication 969 for the requirements of an HSA. Turbo tax 2010   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Turbo tax 2010 The contributions are treated as a distribution of money and are not included in the partner's gross income. Turbo tax 2010 Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Turbo tax 2010 In both situations, the partner can deduct the contribution made to the partner's HSA. Turbo tax 2010   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Turbo tax 2010 The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Turbo tax 2010 Qualified HSA funding distribution. Turbo tax 2010   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Turbo tax 2010 See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Turbo tax 2010 Failure to maintain eligibility. Turbo tax 2010   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Turbo tax 2010 If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Turbo tax 2010 This income is also subject to an additional 10% tax. Turbo tax 2010 Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Turbo tax 2010 See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Turbo tax 2010 Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Turbo tax 2010 They also are included as social security and Medicare wages in boxes 3 and 5. Turbo tax 2010 However, they are not included as wages in box 1. Turbo tax 2010 To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Turbo tax 2010 File the form with your return. Turbo tax 2010 Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. Turbo tax 2010 The gym must be used primarily by employees, their spouses, and their dependent children. Turbo tax 2010 If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. Turbo tax 2010 De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Turbo tax 2010 In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Turbo tax 2010 Also see Employee Discounts , later. Turbo tax 2010 Holiday gifts. Turbo tax 2010   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Turbo tax 2010 However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Turbo tax 2010 Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Turbo tax 2010 Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. Turbo tax 2010 The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Turbo tax 2010 Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. Turbo tax 2010 Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. Turbo tax 2010 To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Turbo tax 2010 See the Instructions for Form 2441 for more information. Turbo tax 2010 Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Turbo tax 2010 For more information, see Publication 970. Turbo tax 2010 Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. Turbo tax 2010 The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. Turbo tax 2010 However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Turbo tax 2010 The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Turbo tax 2010 For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. Turbo tax 2010 (Ask your employer for this percentage. Turbo tax 2010 ) For a discount on services, 20%. Turbo tax 2010 Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. Turbo tax 2010 If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). Turbo tax 2010 Qualified retirement planning services paid for you by your employer may be excluded from your income. Turbo tax 2010 For more information, see Retirement Planning Services , later. Turbo tax 2010 Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Turbo tax 2010 However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Turbo tax 2010 For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Turbo tax 2010 If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Turbo tax 2010 Also, it is shown separately in box 12 with code C. Turbo tax 2010 Group-term life insurance. Turbo tax 2010   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Turbo tax 2010 Permanent benefits. Turbo tax 2010   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Turbo tax 2010 Your employer should be able to tell you the amount to include in your income. Turbo tax 2010 Accidental death benefits. Turbo tax 2010   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Turbo tax 2010 Former employer. Turbo tax 2010   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Turbo tax 2010 Also, it is shown separately in box 12 with code C. Turbo tax 2010 Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Turbo tax 2010 You must pay these taxes with your income tax return. Turbo tax 2010 Include them on line 60, Form 1040, and follow the instructions forline 60. Turbo tax 2010 For more information, see the Instructions for Form 1040. Turbo tax 2010 Two or more employers. Turbo tax 2010   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Turbo tax 2010 If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Turbo tax 2010 You must figure how much to include in your income. Turbo tax 2010 Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Turbo tax 2010 Figuring the taxable cost. Turbo tax 2010    Use the following worksheet to figure the amount to include in your income. Turbo tax 2010   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. Turbo tax 2010 However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . Turbo tax 2010 Worksheet 1. Turbo tax 2010 Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Turbo tax 2010 Enter the total amount of your insurance coverage from your employer(s) 1. Turbo tax 2010   2. Turbo tax 2010 Limit on exclusion for employer-provided group-term life insurance coverage 2. Turbo tax 2010 50,000 3. Turbo tax 2010 Subtract line 2 from line 1 3. Turbo tax 2010   4. Turbo tax 2010 Divide line 3 by $1,000. Turbo tax 2010 Figure to the nearest tenth 4. Turbo tax 2010   5. Turbo tax 2010 Go to Table 1. Turbo tax 2010 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Turbo tax 2010   6. Turbo tax 2010 Multiply line 4 by line 5 6. Turbo tax 2010     7. Turbo tax 2010 Enter the number of full months of coverage at this cost 7. Turbo tax 2010   8. Turbo tax 2010 Multiply line 6 by line 7 8. Turbo tax 2010   9. Turbo tax 2010 Enter the premiums you paid per month 9. Turbo tax 2010       10. Turbo tax 2010 Enter the number of months you paid the  premiums 10. Turbo tax 2010       11. Turbo tax 2010 Multiply line 9 by line 10. Turbo tax 2010 11. Turbo tax 2010   12. Turbo tax 2010 Subtract line 11 from line 8. Turbo tax 2010 Include this amount in your income as wages 12. Turbo tax 2010   Table 1. Turbo tax 2010 Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . Turbo tax 2010 05     25 through 29 . Turbo tax 2010 06     30 through 34 . Turbo tax 2010 08     35 through 39 . Turbo tax 2010 09     40 through 44 . Turbo tax 2010 10     45 through 49 . Turbo tax 2010 15     50 through 54 . Turbo tax 2010 23     55 through 59 . Turbo tax 2010 43     60 through 64 . Turbo tax 2010 66     65 through 69 1. Turbo tax 2010 27     70 and older 2. Turbo tax 2010 06   Example. Turbo tax 2010 You are 51 years old and work for employers A and B. Turbo tax 2010 Both employers provide group-term life insurance coverage for you for the entire year. Turbo tax 2010 Your coverage is $35,000 with employer A and $45,000 with employer B. Turbo tax 2010 You pay premiums of $4. Turbo tax 2010 15 a month under the employer B group plan. Turbo tax 2010 You figure the amount to include in your income as follows. Turbo tax 2010   Worksheet 1. Turbo tax 2010 Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Turbo tax 2010 Enter the total amount of your insurance coverage from your employer(s) 1. Turbo tax 2010 80,000 2. Turbo tax 2010 Limit on exclusion for employer-provided group-term life insurance coverage 2. Turbo tax 2010 50,000 3. Turbo tax 2010 Subtract line 2 from line 1 3. Turbo tax 2010 30,000 4. Turbo tax 2010 Divide line 3 by $1,000. Turbo tax 2010 Figure to the nearest tenth 4. Turbo tax 2010 30. Turbo tax 2010 0 5. Turbo tax 2010 Go to Table 1. Turbo tax 2010 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Turbo tax 2010 . Turbo tax 2010 23 6. Turbo tax 2010 Multiply line 4 by line 5 6. Turbo tax 2010 6. Turbo tax 2010 90 7. Turbo tax 2010 Enter the number of full months of coverage at this cost. Turbo tax 2010 7. Turbo tax 2010 12 8. Turbo tax 2010 Multiply line 6 by line 7 8. Turbo tax 2010 82. Turbo tax 2010 80 9. Turbo tax 2010 Enter the premiums you paid per month 9. Turbo tax 2010 4. Turbo tax 2010 15     10. Turbo tax 2010 Enter the number of months you paid the premiums 10. Turbo tax 2010 12     11. Turbo tax 2010 Multiply line 9 by line 10. Turbo tax 2010 11. Turbo tax 2010 49. Turbo tax 2010 80 12. Turbo tax 2010 Subtract line 11 from line 8. Turbo tax 2010 Include this amount in your income as wages 12. Turbo tax 2010 33. Turbo tax 2010 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Turbo tax 2010 Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. Turbo tax 2010 You must add it to the wages shown on your Forms W-2 and include the total on your return. Turbo tax 2010 Entire cost excluded. Turbo tax 2010   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Turbo tax 2010 You are permanently and totally disabled and have ended your employment. Turbo tax 2010 Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Turbo tax 2010 A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Turbo tax 2010 (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Turbo tax 2010 ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Turbo tax 2010 Entire cost taxed. Turbo tax 2010   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Turbo tax 2010 The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Turbo tax 2010 You are a key employee and your employer's plan discriminates in favor of key employees. Turbo tax 2010 Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Turbo tax 2010 The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Turbo tax 2010 The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. Turbo tax 2010 (You must accept it in order to be able to properly perform your duties. Turbo tax 2010 ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Turbo tax 2010 See De Minimis (Minimal) Benefits , earlier. Turbo tax 2010 Faculty lodging. Turbo tax 2010   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. Turbo tax 2010 However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Turbo tax 2010 Academic health center. Turbo tax 2010   This is an organization that meets the following conditions. Turbo tax 2010 Its principal purpose or function is to provide medical or hospital care or medical education or research. Turbo tax 2010 It receives payments for graduate medical education under the Social Security Act. Turbo tax 2010 One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Turbo tax 2010 Qualified campus lodging. Turbo tax 2010   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. Turbo tax 2010 The lodging must be located on or near a campus of the educational institution or academic health center. Turbo tax 2010 Adequate rent. Turbo tax 2010   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. Turbo tax 2010 If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Turbo tax 2010   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Turbo tax 2010 Example. Turbo tax 2010 Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Turbo tax 2010 The house is appraised at $200,000. Turbo tax 2010 The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Turbo tax 2010 Carl pays an annual rent of $11,000. Turbo tax 2010 Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). Turbo tax 2010 If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Turbo tax 2010 Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. Turbo tax 2010 See Publication 521 for more information. Turbo tax 2010 No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). Turbo tax 2010 In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Turbo tax 2010 Example. Turbo tax 2010 You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Turbo tax 2010 Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. Turbo tax 2010 The value of the personal flight is not included in your income. Turbo tax 2010 However, the value of the hotel room is included in your income because you do not work in the hotel business. Turbo tax 2010 Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Turbo tax 2010 Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Turbo tax 2010 You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Turbo tax 2010 Also, see Financial Counseling Fees , earlier. Turbo tax 2010 Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Turbo tax 2010 A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Turbo tax 2010 Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Turbo tax 2010 However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Turbo tax 2010 Exclusion limit. Turbo tax 2010   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Turbo tax 2010   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Turbo tax 2010   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Turbo tax 2010   If the benefits have a value that is more than these limits, the excess must be included in your income. Turbo tax 2010 You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Turbo tax 2010 Commuter highway vehicle. Turbo tax 2010   This is a highway vehicle that seats at least six adults (not including the driver). Turbo tax 2010 At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Turbo tax 2010 Transit pass. Turbo tax 2010   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Turbo tax 2010 Qualified parking. Turbo tax 2010   This is parking provided to an employee at or near the employer's place of business. Turbo tax 2010 It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Turbo tax 2010 It does not include parking at or near the employee's home. Turbo tax 2010 Qualified bicycle commuting. Turbo tax 2010   This is reimbursement based on the number of qualified bicycle commuting months for the year. Turbo tax 2010 A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Turbo tax 2010 The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Turbo tax 2010 Tuition Reduction You can exclude a qualified tuition reduction from your income. Turbo tax 2010 This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. Turbo tax 2010 For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. Turbo tax 2010 Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. Turbo tax 2010 For more information, see Publication 970. Turbo tax 2010 Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. Turbo tax 2010 Example. Turbo tax 2010 You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Turbo tax 2010 The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. Turbo tax 2010 Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. Turbo tax 2010 For an exception, see Group-Term Life Insurance , earlier. Turbo tax 2010 General valuation rule. Turbo tax 2010   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. Turbo tax 2010 If you pay fair market value for a fringe benefit, no amount is included in your income. Turbo tax 2010 Fair market value. Turbo tax 2010   The fair market value of a fringe benefit is determined by all the facts and circumstances. Turbo tax 2010 It is the amount you would have to pay a third party to buy or lease the benefit. Turbo tax 2010 This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Turbo tax 2010 Employer-provided vehicles. Turbo tax 2010   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. Turbo tax 2010   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. Turbo tax 2010 An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. Turbo tax 2010 The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. Turbo tax 2010 Flights on employer-provided aircraft. Turbo tax 2010   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. Turbo tax 2010   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Turbo tax 2010 The division must be based on all the facts, including which employee or employees control the use of the aircraft. Turbo tax 2010 Special valuation rules. Turbo tax 2010   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Turbo tax 2010 If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Turbo tax 2010 You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Turbo tax 2010   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. Turbo tax 2010 The special valuation rules are the following. Turbo tax 2010 The automobile lease rule. Turbo tax 2010 The vehicle cents-per-mile rule. Turbo tax 2010 The commuting rule. Turbo tax 2010 The unsafe conditions commuting rule. Turbo tax 2010 The employer-operated eating-facility rule. Turbo tax 2010   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Turbo tax 2010    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Turbo tax 2010 61-21(g) and 1. Turbo tax 2010 61-21(h) of the regulations. Turbo tax 2010 Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Turbo tax 2010 (Your employer can tell you whether your retirement plan is qualified. Turbo tax 2010 ) However, the cost of life insurance coverage included in the plan may have to be included. Turbo tax 2010 See Group-Term Life Insurance , earlier, under Fringe Benefits. Turbo tax 2010 If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Turbo tax 2010 However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Turbo tax 2010 For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Turbo tax 2010 S. Turbo tax 2010 Civil Service Retirement Benefits, if you are a federal employee or retiree). Turbo tax 2010 Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Turbo tax 2010 The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Turbo tax 2010 An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Turbo tax 2010 However, it is included in wages subject to social security and Medicare taxes. Turbo tax 2010 Elective deferrals include elective contributions to the following retirement plans. Turbo tax 2010 Cash or deferred arrangements (section 401(k) plans). Turbo tax 2010 The Thrift Savings Plan for federal employees. Turbo tax 2010 Salary reduction simplified employee pension plans (SARSEP). Turbo tax 2010 Savings incentive match plans for employees (SIMPLE plans). Turbo tax 2010 Tax-sheltered annuity plans (403(b) plans). Turbo tax 2010 Section 501(c)(18)(D) plans. Turbo tax 2010 (But see Reporting by employer , later. Turbo tax 2010 ) Section 457 plans. Turbo tax 2010 Qualified automatic contribution arrangements. Turbo tax 2010   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Turbo tax 2010 You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Turbo tax 2010 The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Turbo tax 2010   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Turbo tax 2010 Overall limit on deferrals. Turbo tax 2010   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. Turbo tax 2010 The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Turbo tax 2010 Amounts deferred under specific plan limits are part of the overall limit on deferrals. Turbo tax 2010   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Turbo tax 2010 However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Turbo tax 2010 Catch-up contributions. Turbo tax 2010   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. Turbo tax 2010 For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Turbo tax 2010   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. Turbo tax 2010 SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Turbo tax 2010 Section 457 plans, see Limit for deferrals under section 457 plans , later. Turbo tax 2010 Limit for deferrals under SIMPLE plans. Turbo tax 2010   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Turbo tax 2010 Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. Turbo tax 2010 Limit for tax-sheltered annuities. Turbo tax 2010   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. Turbo tax 2010 However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. Turbo tax 2010 $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Turbo tax 2010   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Turbo tax 2010   For more information, see Publication 571. Turbo tax 2010 Limit for deferral under section 501(c)(18) plans. Turbo tax 2010   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. Turbo tax 2010 Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. Turbo tax 2010 Limit for deferrals under section 457 plans. Turbo tax 2010   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. Turbo tax 2010 However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Turbo tax 2010 See Increased limit , later. Turbo tax 2010 Includible compensation. Turbo tax 2010   This is the pay you received for the year from the employer who maintained the section 457 plan. Turbo tax 2010 In most cases, it includes all the following payments. Turbo tax 2010 Wages and salaries. Turbo tax 2010 Fees for professional services. Turbo tax 2010 The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Turbo tax 2010 Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Turbo tax 2010 Commissions and tips. Turbo tax 2010 Fringe benefits. Turbo tax 2010 Bonuses. Turbo tax 2010 Employer contributions (elective deferrals) to: The section 457 plan. Turbo tax 2010 Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Turbo tax 2010 A salary reduction simplified employee pension (SARSEP). Turbo tax 2010 A tax-sheltered annuity (section 403(b) plan). Turbo tax 2010 A savings incentive match plan for employees (SIMPLE plan). Turbo tax 2010 A section 125 cafeteria plan. Turbo tax 2010   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Turbo tax 2010 Your wages as defined for income tax withholding purposes. Turbo tax 2010 Your wages as reported in box 1 of Form W-2. Turbo tax 2010 Your wages that are subject to social security withholding (including elective deferrals). Turbo tax 2010 Increased limit. Turbo tax 2010   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). Turbo tax 2010 Catch-up contributions. Turbo tax 2010   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. Turbo tax 2010 If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Turbo tax 2010 However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. Turbo tax 2010 Designated Roth contributions. Turbo tax 2010   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Turbo tax 2010 Designated Roth contributions are treated as elective deferrals, except that they are included in income. Turbo tax 2010 Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Turbo tax 2010   Qualified distributions from a Roth plan are not included in income. Turbo tax 2010 In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. Turbo tax 2010 Reporting by employer. Turbo tax 2010   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Turbo tax 2010 Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Turbo tax 2010 Section 501(c)(18)(D) contributions. Turbo tax 2010   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. Turbo tax 2010 The amount you contributed should be identified with code “H” in box 12. Turbo tax 2010 You may deduct the amount deferred subject to the limits that apply. Turbo tax 2010 Include your deduction in the total on Form 1040, line 36. Turbo tax 2010 Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Turbo tax 2010 Designated Roth contributions. Turbo tax 2010    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Turbo tax 2010 Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. Turbo tax 2010 Excess deferrals. Turbo tax 2010   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Turbo tax 2010 If the plan permits, the excess amount will be distributed to you. Turbo tax 2010 If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. Turbo tax 2010 You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Turbo tax 2010 The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. Turbo tax 2010   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. Turbo tax 2010 File Form 1040 to add the excess deferral amount to your wages on line 7. Turbo tax 2010 Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Turbo tax 2010 Excess not distributed. Turbo tax 2010   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. Turbo tax 2010 Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. Turbo tax 2010 Excess distributed to you. Turbo tax 2010   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. Turbo tax 2010 If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Turbo tax 2010 Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Turbo tax 2010 If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. Turbo tax 2010    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Turbo tax 2010 Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Turbo tax 2010 If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Turbo tax 2010 Add the excess deferral amount to your wages on your 2013 tax return. Turbo tax 2010 If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. Turbo tax 2010 Do not add this amount to your wages on your 2013 return. Turbo tax 2010 If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Turbo tax 2010 If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. Turbo tax 2010 S. Turbo tax 2010 Individual Income Tax Return. Turbo tax 2010 If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. Turbo tax 2010 If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. Turbo tax 2010 Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Turbo tax 2010 Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Turbo tax 2010 Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Turbo tax 2010 ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Turbo tax 2010 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Turbo tax 2010 Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. Turbo tax 2010 If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. Turbo tax 2010 You must include the excess contributions in your income as wages on Form 1040, line 7. Turbo tax 2010 You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Turbo tax 2010 If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. Turbo tax 2010 The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. Turbo tax 2010 You should receive a Form 1099-R for the year the excess contributions are distributed to you. Turbo tax 2010 Add the distribution to your wages for that year. Turbo tax 2010 Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Turbo tax 2010 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Turbo tax 2010 Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. Turbo tax 2010 Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. Turbo tax 2010 A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. Turbo tax 2010 A corrective payment consisting of your after-tax contributions is not taxable. Turbo tax 2010 If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. Turbo tax 2010 Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. Turbo tax 2010 Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. Turbo tax 2010 Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Turbo tax 2010 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Turbo tax 2010 Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. Turbo tax 2010 The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Turbo tax 2010 Your employer can tell you which kind of option you hold. Turbo tax 2010 Nonstatutory Stock Options Grant of option. Turbo tax 2010   If you are granted a nonstatutory stock option, you may have income when you receive the option. Turbo tax 2010 The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. Turbo tax 2010 The fair market value of an option can be readily determined if it is actively traded on an established market. Turbo tax 2010    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. Turbo tax 2010 You can transfer the option. Turbo tax 2010 You can exercise the option immediately in full. Turbo tax 2010 The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. Turbo tax 2010 The fair market value of the option privilege can be readily determined. Turbo tax 2010 The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. Turbo tax 2010 For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. Turbo tax 2010 The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. Turbo tax 2010 If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. Turbo tax 2010 For more information on the excise tax, see Internal Revenue Code section 4985. Turbo tax 2010 Option with readily determinable value. Turbo tax 2010   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. Turbo tax 2010 See Restricted Property , later, for rules on how much income to include and when to include it. Turbo tax 2010 However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. Turbo tax 2010 Option without readily determinable value. Turbo tax 2010   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. Turbo tax 2010    Exercise or transfer of option. Turbo tax 2010   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. Turbo tax 2010 Option with readily determinable value. Turbo tax 2010   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. Turbo tax 2010 Option without readily determinable value. Turbo tax 2010   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope
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The Turbo Tax 2010

Turbo tax 2010 Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Turbo tax 2010 Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. Turbo tax 2010 An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. Turbo tax 2010 In general, an executor and an administrator perform the same duties and have the same responsibilities. Turbo tax 2010 For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. Turbo tax 2010 It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. Turbo tax 2010 Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. Turbo tax 2010 The personal representative also must perform the following duties. Turbo tax 2010 Apply for an employer identification number (EIN) for the estate. Turbo tax 2010 File all tax returns, including income, estate and gift tax returns, when due. Turbo tax 2010 Pay the tax determined up to the date of discharge from duties. Turbo tax 2010 Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. Turbo tax 2010 If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. Turbo tax 2010 Penalty. Turbo tax 2010   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. Turbo tax 2010 Reliance on an agent (attorney, accountant, etc. Turbo tax 2010 ) is not reasonable cause for late filing. Turbo tax 2010 It is the personal representative's duty to file the returns for the decedent and the estate when due. Turbo tax 2010 Identification number. Turbo tax 2010   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. Turbo tax 2010 You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. Turbo tax 2010 You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. Turbo tax 2010   You can get an EIN by applying online at www. Turbo tax 2010 irs. Turbo tax 2010 gov (click on "Apply for an EIN Online" under the Tools heading). Turbo tax 2010 Generally, if you apply online, you will receive your EIN immediately upon completing the application. Turbo tax 2010 You can also apply using Form SS-4, Application for Employer Identification Number. Turbo tax 2010 Generally, if you apply by mail, it takes about 4 weeks to get your EIN. Turbo tax 2010 See the form instructions for other ways to apply. Turbo tax 2010   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. Turbo tax 2010 After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. Turbo tax 2010 As the personal representative handling the estate, you must furnish this identification number to the payer. Turbo tax 2010 For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. Turbo tax 2010 If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. Turbo tax 2010   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). Turbo tax 2010 Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. Turbo tax 2010    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. Turbo tax 2010 Also do not use it to make estimated tax payments for a tax year after the year of death. Turbo tax 2010 Penalty. Turbo tax 2010   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. Turbo tax 2010 You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. Turbo tax 2010 Notice of fiduciary relationship. Turbo tax 2010   The term fiduciary means any person acting for another person. Turbo tax 2010 It applies to persons who have positions of trust on behalf of others. Turbo tax 2010 A personal representative for a decedent's estate is a fiduciary. Turbo tax 2010 Form 56. Turbo tax 2010   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Turbo tax 2010 Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. Turbo tax 2010 See the Instructions for Form 56 for filing requirements and other information. Turbo tax 2010   File Form 56 as soon as all the necessary information (including the EIN) is available. Turbo tax 2010 It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. Turbo tax 2010 The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. Turbo tax 2010 Termination of fiduciary relationship. Turbo tax 2010   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. Turbo tax 2010 See Form 56 and its instructions for more information. Turbo tax 2010   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. Turbo tax 2010 See below for a discussion of these forms. Turbo tax 2010 Request for prompt assessment (charge) of tax. Turbo tax 2010   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. Turbo tax 2010 However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. Turbo tax 2010 This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. Turbo tax 2010 This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. Turbo tax 2010 This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. Turbo tax 2010 Form 4810. Turbo tax 2010   Form 4810 can be used for making this request. Turbo tax 2010 It must be filed separately from any other document. Turbo tax 2010   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. Turbo tax 2010 You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. Turbo tax 2010 This applies even though the returns were filed before the decedent's death. Turbo tax 2010 Failure to report income. Turbo tax 2010   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. Turbo tax 2010 However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. Turbo tax 2010 Request for discharge from personal liability for tax. Turbo tax 2010   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. Turbo tax 2010 The request must be made after the returns for those taxes are filed. Turbo tax 2010 To make the request, file Form 5495. Turbo tax 2010 For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. Turbo tax 2010   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. Turbo tax 2010 If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. Turbo tax 2010 If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. Turbo tax 2010    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. Turbo tax 2010 Insolvent estate. Turbo tax 2010   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Turbo tax 2010 Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. Turbo tax 2010 The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. Turbo tax 2010 The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Turbo tax 2010 Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. Turbo tax 2010 Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. Turbo tax 2010 If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. Turbo tax 2010 If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. Turbo tax 2010 If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. Turbo tax 2010 Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. Turbo tax 2010 A surviving spouse, under certain circumstances, may have to file the returns for the decedent. Turbo tax 2010 See Joint Return, later. Turbo tax 2010 Return for preceding year. Turbo tax 2010   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. Turbo tax 2010 The return for that year will be a regular return and the personal representative must file it. Turbo tax 2010 Example. Turbo tax 2010 Samantha Smith died on March 21, 2013, before filing her 2012 tax return. Turbo tax 2010 Her personal representative must file her 2012 return by April 15, 2013. Turbo tax 2010 Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. Turbo tax 2010 Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Turbo tax 2010 If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. Turbo tax 2010 If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. Turbo tax 2010 Third party designee. Turbo tax 2010   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. Turbo tax 2010 This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. Turbo tax 2010 It also allows the designee to perform certain actions. Turbo tax 2010 See the Instructions for Form 1040 for details. Turbo tax 2010 Signature. Turbo tax 2010   If a personal representative has been appointed, that person must sign the return. Turbo tax 2010 If it is a joint return, the surviving spouse must also sign it. Turbo tax 2010 If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. Turbo tax 2010 ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Turbo tax 2010 ” Paid preparer. Turbo tax 2010   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. Turbo tax 2010 See the Form 1040 instructions for details. Turbo tax 2010 When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. Turbo tax 2010 A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. Turbo tax 2010 However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. Turbo tax 2010 The tax return must be prepared for the year of death regardless of when during the year death occurred. Turbo tax 2010 Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. Turbo tax 2010 A tax return for a decedent can be electronically filed. Turbo tax 2010 A personal representative may also obtain an income tax filing extension on behalf of a decedent. Turbo tax 2010 Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Turbo tax 2010 Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. Turbo tax 2010 It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. Turbo tax 2010 In general, filing status depends on whether the decedent was considered single or married at the time of death. Turbo tax 2010 See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. Turbo tax 2010 Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. Turbo tax 2010 Also, the decedent may be entitled to other credits that result in a refund. Turbo tax 2010 These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. Turbo tax 2010 Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Turbo tax 2010   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. Turbo tax 2010   If the personal representative is filing a claim for refund on Form 1040X, Amended U. Turbo tax 2010 S. Turbo tax 2010 Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. Turbo tax 2010 Example. Turbo tax 2010 Edward Green died before filing his tax return. Turbo tax 2010 You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. Turbo tax 2010 You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. Turbo tax 2010    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. Turbo tax 2010 Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. Turbo tax 2010 A new check will be issued in your name and mailed to you. Turbo tax 2010 Death certificate. Turbo tax 2010   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. Turbo tax 2010 Instead, keep it for your records and provide it if requested. Turbo tax 2010 Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. Turbo tax 2010 S. Turbo tax 2010 Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. Turbo tax 2010 See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. Turbo tax 2010 Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. Turbo tax 2010 However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. Turbo tax 2010 This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. Turbo tax 2010 The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. Turbo tax 2010 A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. Turbo tax 2010 The filing status of the decedent in this instance is married filing a separate return. Turbo tax 2010 For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. Turbo tax 2010 Personal representative may revoke joint return election. Turbo tax 2010   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. Turbo tax 2010 This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). Turbo tax 2010 The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. Turbo tax 2010 Relief from joint liability. Turbo tax 2010   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Turbo tax 2010 If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. Turbo tax 2010 For information on requesting this relief, see Publication 971, Innocent Spouse Relief. Turbo tax 2010 Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. Turbo tax 2010 The method of accounting regularly used by the decedent before death also determines the income includible on the final return. Turbo tax 2010 This section explains how some types of income are reported on the final return. Turbo tax 2010 For more information about accounting methods, see Publication 538, Accounting Periods and Methods. Turbo tax 2010 Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. Turbo tax 2010 Constructive receipt of income. Turbo tax 2010   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. Turbo tax 2010 Include the interest income on the final return. Turbo tax 2010   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. Turbo tax 2010 If the corporation customarily mailed its dividend checks, the dividend was includible when received. Turbo tax 2010 If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. Turbo tax 2010 Do not include the dividend in the final return. Turbo tax 2010 Accrual Method Generally, under an accrual method of accounting, income is reported when earned. Turbo tax 2010 If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. Turbo tax 2010 Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. Turbo tax 2010 A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. Turbo tax 2010 You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. Turbo tax 2010 For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). Turbo tax 2010 For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. Turbo tax 2010 If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. Turbo tax 2010 See U. Turbo tax 2010 S. Turbo tax 2010 savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. Turbo tax 2010 How to report. Turbo tax 2010   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Turbo tax 2010 Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Turbo tax 2010 Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Turbo tax 2010 Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. Turbo tax 2010   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. Turbo tax 2010    Note. Turbo tax 2010 If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. Turbo tax 2010 See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. Turbo tax 2010 Partnership Income The death of a partner closes the partnership's tax year for that partner. Turbo tax 2010 Generally, it does not close the partnership's tax year for the remaining partners. Turbo tax 2010 The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. Turbo tax 2010 To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. Turbo tax 2010 On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. Turbo tax 2010 The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Turbo tax 2010 The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. Turbo tax 2010 Example. Turbo tax 2010 Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. Turbo tax 2010 The partnership uses a tax year ending June 30. Turbo tax 2010 Mary died August 31, 2013, and her estate established its tax year through August 31. Turbo tax 2010 The distributive share of partnership items based on the decedent's partnership interest is reported as follows. Turbo tax 2010 Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). Turbo tax 2010 Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. Turbo tax 2010 S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. Turbo tax 2010 The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Turbo tax 2010 The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. Turbo tax 2010 Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. Turbo tax 2010 For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. Turbo tax 2010 For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. Turbo tax 2010 Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. Turbo tax 2010 For more information, see Publication 555, Community Property. Turbo tax 2010 HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. Turbo tax 2010 If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. Turbo tax 2010 The estate tax deduction, discussed later, does not apply to this amount. Turbo tax 2010 If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Turbo tax 2010 For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Turbo tax 2010 Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. Turbo tax 2010 The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. Turbo tax 2010 If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. Turbo tax 2010 The estate tax deduction, discussed later, does not apply to this amount. Turbo tax 2010 If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Turbo tax 2010 The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. Turbo tax 2010 This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. Turbo tax 2010 For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. Turbo tax 2010 Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. Turbo tax 2010 These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. Turbo tax 2010 Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. Turbo tax 2010 For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. Turbo tax 2010 Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Turbo tax 2010 Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. Turbo tax 2010 This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. Turbo tax 2010 See Medical Expenses, later. Turbo tax 2010 Exemptions You can claim the decedent's personal exemption on the final income tax return. Turbo tax 2010 If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. Turbo tax 2010 Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. Turbo tax 2010 For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. Turbo tax 2010 Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. Turbo tax 2010 This includes expenses for the decedent, as well as for the decedent's spouse and dependents. Turbo tax 2010 Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. Turbo tax 2010 In that case medical expenses exceeding 7. Turbo tax 2010 5% of AGI may be deducted. Turbo tax 2010 Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. Turbo tax 2010 Election for decedent's expenses. Turbo tax 2010   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). Turbo tax 2010 However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. Turbo tax 2010   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). Turbo tax 2010 You can deduct expenses incurred in the year of death on the final income tax return. Turbo tax 2010 You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. Turbo tax 2010   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. Turbo tax 2010 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). Turbo tax 2010 Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. Turbo tax 2010 Making the election. Turbo tax 2010   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. Turbo tax 2010 The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. Turbo tax 2010 This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. Turbo tax 2010 Example. Turbo tax 2010 Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Turbo tax 2010 Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. Turbo tax 2010 Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. Turbo tax 2010 Richard itemized his deductions when he filed his 2012 income tax return. Turbo tax 2010 The personal representative of the estate paid the entire $800 liability in August 2013. Turbo tax 2010 The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. Turbo tax 2010 5% limit. Turbo tax 2010 The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. Turbo tax 2010 5% limit. Turbo tax 2010 The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. Turbo tax 2010 Medical expenses not paid by estate. Turbo tax 2010   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. Turbo tax 2010 If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. Turbo tax 2010 Insurance reimbursements. Turbo tax 2010   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. Turbo tax 2010 The reimbursements are also includible in the decedent's gross estate. Turbo tax 2010 No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. Turbo tax 2010 These expenses may be deductible for estate tax purposes on Form 706. Turbo tax 2010 Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. Turbo tax 2010 A net operating loss on the decedent's final income tax return can be carried back to prior years. Turbo tax 2010 (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Turbo tax 2010 ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. Turbo tax 2010 At-risk loss limits. Turbo tax 2010   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. Turbo tax 2010   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. Turbo tax 2010 An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. Turbo tax 2010 An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. Turbo tax 2010 The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. Turbo tax 2010 For more information, see Publication 925, Passive Activity and At-Risk Rules. Turbo tax 2010 Passive activity rules. Turbo tax 2010   A passive activity is any trade or business activity in which the taxpayer does not materially participate. Turbo tax 2010 To determine material participation, see Publication 925. Turbo tax 2010 Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. Turbo tax 2010   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. Turbo tax 2010 Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. Turbo tax 2010   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. Turbo tax 2010 Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. Turbo tax 2010 The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. Turbo tax 2010   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. Turbo tax 2010 For more information, see Publication 925. Turbo tax 2010 Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. Turbo tax 2010 Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. Turbo tax 2010 Some of these credits are discussed next. Turbo tax 2010 Earned income credit. Turbo tax 2010   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. Turbo tax 2010 If the allowable credit is more than the tax liability for the year, the excess is refunded. Turbo tax 2010   For more information, see Publication 596, Earned Income Credit (EIC). Turbo tax 2010 Credit for the elderly or the disabled. Turbo tax 2010   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. Turbo tax 2010 The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. Turbo tax 2010   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. Turbo tax 2010 Child tax credit. Turbo tax 2010   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. Turbo tax 2010 You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. Turbo tax 2010 For more information, see the Instructions for Form 1040. Turbo tax 2010 Adoption credit. Turbo tax 2010   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. Turbo tax 2010   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. Turbo tax 2010 See Form 8839, Qualified Adoption Expenses, and its instructions for more details. Turbo tax 2010 General business tax credit. Turbo tax 2010   The general business credit available to a taxpayer is limited. Turbo tax 2010 Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. Turbo tax 2010 Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. Turbo tax 2010   After the carryforward period, a deduction may be allowed for any unused business credit. Turbo tax 2010 If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. Turbo tax 2010   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. Turbo tax 2010 Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. Turbo tax 2010 Self-employment tax. Turbo tax 2010   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. Turbo tax 2010 28 or more. Turbo tax 2010 Alternative minimum tax (AMT). Turbo tax 2010   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. Turbo tax 2010 The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. Turbo tax 2010 In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. Turbo tax 2010 Form 6251. Turbo tax 2010    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. Turbo tax 2010 See the form instructions for information on when you must attach Form 6251 to Form 1040. Turbo tax 2010 Form 8801. Turbo tax 2010   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. Turbo tax 2010 See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. Turbo tax 2010 Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. Turbo tax 2010 Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. Turbo tax 2010 Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. Turbo tax 2010 For this purpose, a qualified hazardous duty area is treated as a combat zone. Turbo tax 2010 If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. Turbo tax 2010 If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. Turbo tax 2010 Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. Turbo tax 2010 If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Turbo tax 2010 Also, if any tax was collected after the date of death, that amount will be credited or refunded. Turbo tax 2010 The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. Turbo tax 2010 This is true even if death actually occurred earlier. Turbo tax 2010 For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. Turbo tax 2010 Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. Turbo tax 2010 S. Turbo tax 2010 employee, and In a military or terrorist action. Turbo tax 2010 The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. Turbo tax 2010 Example. Turbo tax 2010 The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. Turbo tax 2010 S. Turbo tax 2010 employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. Turbo tax 2010 Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. Turbo tax 2010 Military or terrorist action defined. Turbo tax 2010   A military or terrorist action means the following. Turbo tax 2010 Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. Turbo tax 2010 Any military action involving the U. Turbo tax 2010 S. Turbo tax 2010 Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. Turbo tax 2010   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. Turbo tax 2010 Military action does not include training exercises. Turbo tax 2010 Any multinational force in which the United States is participating is treated as an ally of the United States. Turbo tax 2010 Determining if a terrorist activity or military action has occurred. Turbo tax 2010   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. Turbo tax 2010 Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Turbo tax 2010 Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. Turbo tax 2010 The April 19, 1995, terrorist attack on the Alfred P. Turbo tax 2010 Murrah Federal Building (Oklahoma City). Turbo tax 2010 The September 11, 2001, terrorist attacks. Turbo tax 2010 The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. Turbo tax 2010 The Act also exempts from federal income tax the following types of income. Turbo tax 2010 Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. Turbo tax 2010 Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. Turbo tax 2010 Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. Turbo tax 2010 Payments from the September 11th Victim Compensation Fund 2001. Turbo tax 2010 The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. Turbo tax 2010 See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. Turbo tax 2010 Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. Turbo tax 2010 The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. Turbo tax 2010 For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. Turbo tax 2010 However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). Turbo tax 2010 For more information on the Act, see Publication 3920. Turbo tax 2010 Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. Turbo tax 2010 If any tax is still due, it will be canceled. Turbo tax 2010 The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. Turbo tax 2010 If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. Turbo tax 2010 Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. Turbo tax 2010 This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. Turbo tax 2010 Filing a claim. Turbo tax 2010   Use the following procedures to file a claim. Turbo tax 2010 If a U. Turbo tax 2010 S. Turbo tax 2010 individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Turbo tax 2010 Form W-2, Wage and Tax Statement, must accompany all returns. Turbo tax 2010 If a U. Turbo tax 2010 S. Turbo tax 2010 individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. Turbo tax 2010 You must file a separate Form 1040X for each year in question. Turbo tax 2010   You must file these returns and claims at the following address for regular mail (U. Turbo tax 2010 S. Turbo tax 2010 Postal Service). Turbo tax 2010    Internal Revenue Service 333 W. Turbo tax 2010 Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. Turbo tax 2010 On the applicable return, write the same phrase on the line for total tax. Turbo tax 2010 If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. Turbo tax 2010   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. Turbo tax 2010 On joint returns, make an allocation of the tax as described below under Joint returns. Turbo tax 2010 If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. Turbo tax 2010   You must attach Form 1310 to all returns and claims for refund. Turbo tax 2010 However, for exceptions to filing Form 1310, see Form 1310. Turbo tax 2010 Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. Turbo tax 2010   You must also attach proof of death that includes a statement that the individual was a U. Turbo tax 2010 S. Turbo tax 2010 employee on the date of injury and on the date of death and died as the result of a military or terrorist action. Turbo tax 2010 For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. Turbo tax 2010 For other U. Turbo tax 2010 S. Turbo tax 2010 civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. Turbo tax 2010 For other U. Turbo tax 2010 S. Turbo tax 2010 civilian employees killed overseas, attach a certification from the Department of State. Turbo tax 2010   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Turbo tax 2010 Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. Turbo tax 2010 Joint returns. Turbo tax 2010   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. Turbo tax 2010 Determine the decedent's tax liability as follows. Turbo tax 2010 Figure the income tax for which the decedent would have been liable if a separate return had been filed. Turbo tax 2010 Figure the income tax for which the spouse would have been liable if a separate return had been filed. Turbo tax 2010 Multiply the joint tax liability by a fraction. Turbo tax 2010 The numerator of the fraction is the amount in (1), above. Turbo tax 2010 The denominator of the fraction is the total of (1) and (2). Turbo tax 2010   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. Turbo tax 2010 Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. Turbo tax 2010 Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Turbo tax 2010 If a personal representative has been appointed, the personal representative must sign the return. Turbo tax 2010 If it is a joint return, the surviving spouse must also sign it. Turbo tax 2010 If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. Turbo tax 2010 If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Turbo tax 2010 ” To claim a refund for the decedent, do the following. Turbo tax 2010 If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. Turbo tax 2010 If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. Turbo tax 2010 (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. Turbo tax 2010 ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). Turbo tax 2010 If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. Turbo tax 2010 Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. Turbo tax 2010 Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. Turbo tax 2010 Joint return by surviving spouse. Turbo tax 2010   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. Turbo tax 2010 Decedent as your dependent. Turbo tax 2010   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. Turbo tax 2010   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. Turbo tax 2010 To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. Turbo tax 2010 To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. Turbo tax 2010 Qualifying widows and widowers. Turbo tax 2010   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. Turbo tax 2010 Requirements. Turbo tax 2010   Generally, you qualify for this special benefit if you meet all of the following requirements. Turbo tax 2010 You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. Turbo tax 2010 You did not remarry before the end of the current tax year. Turbo tax 2010 You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. Turbo tax 2010 You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. Turbo tax 2010 Example. Turbo tax 2010 William Burns' wife died in 2010. Turbo tax 2010 William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. Turbo tax 2010 For 2010, he was entitled to file a joint return for himself and his deceased wife. Turbo tax 2010 For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. Turbo tax 2010 For later years, he may qualify to file as a head of household. Turbo tax 2010 Figuring your tax. Turbo tax 2010   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. Turbo tax 2010 Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. Turbo tax 2010   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. Turbo tax 2010 Joint return filing rules. Turbo tax 2010   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. Turbo tax 2010 See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. Turbo tax 2010 Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. Turbo tax 2010 If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. Turbo tax 2010 This exclusion does not apply to certain income. Turbo tax 2010 For more information, see Publication 3920. Turbo tax 2010 How To Report Income in respect of a decedent must be included in the income of one of the following. Turbo tax 2010 The decedent's estate, if the estate receives it. Turbo tax 2010 The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. Turbo tax 2010 Any person to whom the estate properly distributes the right to receive it. Turbo tax 2010 If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. Turbo tax 2010 See Estate Tax Deduction, later. Turbo tax 2010 Example 1. Turbo tax 2010 Frank Johnson owned and operated an apple orchard. Turbo tax 2010 He used the cash method of accounting. Turbo tax 2010 He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. Turbo tax 2010 The proceeds from the sale are income in respect of a decedent. Turbo tax 2010 When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. Turbo tax 2010 When Frank's widow collects the $2,000, she must include that amount in her return. Turbo tax 2010 It is not reported on the final return of the decedent or on the return of the estate. Turbo tax 2010 Example 2. Turbo tax 2010 Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. Turbo tax 2010 The amount accrued from the sale of the apples would be included on his final return. Turbo tax 2010 Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. Turbo tax 2010 Example 3. Turbo tax 2010 On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. Turbo tax 2010 His adjusted basis in the tractor was $2,000. Turbo tax 2010 George died on February 15, before receiving payment. Turbo tax 2010 The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. Turbo tax 2010 In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. Turbo tax 2010 Example 4. Turbo tax 2010 Cathy O'Neil was entitled to a large salary payment at the date of her death. Turbo tax 2010 The amount was to be paid in five annual installments. Turbo tax 2010 The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. Turbo tax 2010 The payments are income in respect of a decedent. Turbo tax 2010 None of the payments were includible on Cathy's final return. Turbo tax 2010 The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. Turbo tax 2010 Example 5. Turbo tax 2010 You inherited the right to receive renewal commissions on life insurance sold by your father before his death. Turbo tax 2010 You inherited the right from your mother, who acquired it by bequest from your father. Turbo tax 2010 Your mother died before she received all the commissions she had the right to receive, so you received the rest. Turbo tax 2010 The commissions are income in respect of a decedent. Turbo tax 2010 None of these commissions were includible in your father's final return. Turbo tax 2010 The commissions received by your mother were included in her income. Turbo tax 2010 The commissions you received are not includible in your mother's income, even on her final return. Turbo tax 2010 You must include them in your income. Turbo tax 2010 Character of income. Turbo tax 2010   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. Turbo tax 2010 If the income would have been a capital gain to the decedent, it will be a capital gain to you. Turbo tax 2010 Transfer of right to income. Turbo tax 2010   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. Turbo tax 2010   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. Turbo tax 2010   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. Turbo tax 2010 See Installment obligations, later. Turbo tax 2010 Transfer defined. Turbo tax 2010   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. Turbo tax 2010 Installment obligations. Turbo tax 2010   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Turbo tax 2010 Include in your income the same profit the decedent would have included had death not occurred. Turbo tax 2010 For more information, see Publication 537, Installment Sales. Turbo tax 2010   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. Turbo tax 2010 Transfer to obligor. Turbo tax 2010   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). Turbo tax 2010 A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. Turbo tax 2010 An obligation that becomes unenforceable is treated as having been canceled. Turbo tax 2010   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. Turbo tax 2010 The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. Turbo tax 2010   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. Turbo tax 2010 Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. Turbo tax 2010 Wages. Turbo tax 2010   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. Turbo tax 2010 The income is not reduced by any amounts withheld by the employer. Turbo tax 2010 If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. Turbo tax 2010   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. Turbo tax 2010 However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. Turbo tax 2010 These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. Turbo tax 2010 These wages are not included in box 1 of Form W-2. Turbo tax 2010   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe