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Turbotax 2011 Free Edition

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Turbotax 2011 Free Edition

Turbotax 2011 free edition 3. Turbotax 2011 free edition   Savings Incentive Match Plans for Employees (SIMPLE) Table of Contents Introduction What Is a SIMPLE Plan?Eligible Employees How Are Contributions Made? How Much Can Be Contributed on Your Behalf?Matching contributions less than 3%. Turbotax 2011 free edition Traditional IRA mistakenly moved to SIMPLE IRA. Turbotax 2011 free edition When Can You Withdraw or Use Assets?Are Distributions Taxable? Introduction This chapter is for employees who need information about savings incentive match plans for employees (SIMPLE plans). Turbotax 2011 free edition It explains what a SIMPLE plan is, contributions to a SIMPLE plan, and distributions from a SIMPLE plan. Turbotax 2011 free edition Under a SIMPLE plan, SIMPLE retirement accounts for participating employees can be set up either as: Part of a 401(k) plan, or A plan using IRAs (SIMPLE IRA). Turbotax 2011 free edition This chapter only discusses the SIMPLE plan rules that relate to SIMPLE IRAs. Turbotax 2011 free edition See chapter 3 of Publication 560 for information on any special rules for SIMPLE plans that do not use IRAs. Turbotax 2011 free edition If your employer maintains a SIMPLE plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution. Turbotax 2011 free edition See Rollovers and Transfers Exception, later under When Can You Withdraw or Use Assets. Turbotax 2011 free edition What Is a SIMPLE Plan? A SIMPLE plan is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Turbotax 2011 free edition See chapter 3 of Publication 560 for information on the requirements employers must satisfy to set up a SIMPLE plan. Turbotax 2011 free edition A SIMPLE plan is a written agreement (salary reduction agreement) between you and your employer that allows you, if you are an eligible employee (including a self-employed individual), to choose to: Reduce your compensation (salary) by a certain percentage each pay period, and Have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. Turbotax 2011 free edition These contributions are called salary reduction contributions. Turbotax 2011 free edition All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA. Turbotax 2011 free edition The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described in chapter 1. Turbotax 2011 free edition Contributions are made on behalf of eligible employees. Turbotax 2011 free edition (See Eligible Employees below. Turbotax 2011 free edition ) Contributions are also subject to various limits. Turbotax 2011 free edition (See How Much Can Be Contributed on Your Behalf , later. Turbotax 2011 free edition ) In addition to salary reduction contributions, your employer must make either matching contributions or nonelective contributions. Turbotax 2011 free edition See How Are Contributions Made , later. Turbotax 2011 free edition You may be able to claim a credit for contributions to your SIMPLE plan. Turbotax 2011 free edition For more information, see chapter 4. Turbotax 2011 free edition Eligible Employees You must be allowed to participate in your employer's SIMPLE plan if you: Received at least $5,000 in compensation from your employer during any 2 years prior to the current year, and Are reasonably expected to receive at least $5,000 in compensation during the calendar year for which contributions are made. Turbotax 2011 free edition Self-employed individual. Turbotax 2011 free edition   For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income. Turbotax 2011 free edition Excludable employees. Turbotax 2011 free edition   Your employer can exclude the following employees from participating in the SIMPLE plan. Turbotax 2011 free edition Employees whose retirement benefits are covered by a collective bargaining agreement (union contract). Turbotax 2011 free edition Employees who are nonresident aliens and received no earned income from sources within the United States. Turbotax 2011 free edition Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year. Turbotax 2011 free edition Compensation. Turbotax 2011 free edition   For purposes of the SIMPLE plan rules, your compensation for a year generally includes the following amounts. Turbotax 2011 free edition Wages, tips, and other pay from your employer that is subject to income tax withholding. Turbotax 2011 free edition Deferred amounts elected under any 401(k) plans, 403(b) plans, government (section 457) plans, SEP plans, and SIMPLE plans. Turbotax 2011 free edition Self-employed individual compensation. Turbotax 2011 free edition   For purposes of the SIMPLE plan rules, if you are self-employed, your compensation for a year is your net earnings from self-employment (Schedule SE (Form 1040), Section A, line 4, or Section B, line 6) before subtracting any contributions made to a SIMPLE IRA on your behalf. Turbotax 2011 free edition   For these purposes, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits. Turbotax 2011 free edition How Are Contributions Made? Contributions under a salary reduction agreement are called salary reduction contributions. Turbotax 2011 free edition They are made on your behalf by your employer. Turbotax 2011 free edition Your employer must also make either matching contributions or nonelective contributions. Turbotax 2011 free edition Salary reduction contributions. Turbotax 2011 free edition   During the 60-day period before the beginning of any year, and during the 60-day period before you are eligible, you can choose salary reduction contributions expressed either as a percentage of compensation, or as a specific dollar amount (if your employer offers this choice). Turbotax 2011 free edition You can choose to cancel the election at any time during the year. Turbotax 2011 free edition   Salary reduction contributions are also referred to as “elective deferrals. Turbotax 2011 free edition ”   Your employer cannot place restrictions on the contributions amount (such as by limiting the contributions percentage), except to comply with the salary reduction contributions limit, discussed under How Much Can Be Contributed on Your Behalf, later. Turbotax 2011 free edition Matching contributions. Turbotax 2011 free edition   Unless your employer chooses to make nonelective contributions, your employer must make contributions equal to the salary reduction contributions you choose (elect), but only up to certain limits. Turbotax 2011 free edition See How Much Can Be Contributed on Your Behalf below. Turbotax 2011 free edition These contributions are in addition to the salary reduction contributions and must be made to the SIMPLE IRAs of all eligible employees (defined earlier) who chose salary reductions. Turbotax 2011 free edition These contributions are referred to as matching contributions. Turbotax 2011 free edition   Matching contributions on behalf of a self-employed individual are not treated as salary reduction contributions. Turbotax 2011 free edition Nonelective contributions. Turbotax 2011 free edition   Instead of making matching contributions, your employer may be able to choose to make nonelective contributions on behalf of all eligible employees. Turbotax 2011 free edition These nonelective contributions must be made on behalf of each eligible employee who has at least $5,000 of compensation from your employer, whether or not the employee chose salary reductions. Turbotax 2011 free edition   One of the requirements your employer must satisfy is notifying the employees that the election was made. Turbotax 2011 free edition For other requirements that your employer must satisfy, see chapter 3 of Publication 560. Turbotax 2011 free edition How Much Can Be Contributed on Your Behalf? The limits on contributions to a SIMPLE IRA vary with the type of contribution that is made. Turbotax 2011 free edition Salary reduction contributions limit. Turbotax 2011 free edition   Salary reduction contributions (employee-chosen contributions or elective deferrals) that your employer can make on your behalf under a SIMPLE plan are limited to $12,000 for 2013. Turbotax 2011 free edition The limitation remains at $12,000 for 2014. Turbotax 2011 free edition If you are a participant in any other employer plans during 2013 and you have elective salary reductions or deferred compensation under those plans, the salary reduction contributions under the SIMPLE plan also are included in the annual limit of $17,500 for 2013 on exclusions of salary reductions and other elective deferrals. Turbotax 2011 free edition You, not your employer, are responsible for monitoring compliance with these limits. Turbotax 2011 free edition Additional elective deferrals can be contributed to your SIMPLE plan if: You reached age 50 by the end of 2013, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit. Turbotax 2011 free edition The most that can be contributed in additional elective deferrals to your SIMPLE plan is the lesser of the following two amounts. Turbotax 2011 free edition $2,500 for 2013, or Your compensation for the year reduced by your other elective deferrals for the year. Turbotax 2011 free edition The additional deferrals are not subject to any other contribution limit and are not taken into account in applying other contribution limits. Turbotax 2011 free edition The additional deferrals are not subject to the nondiscrimination rules as long as all eligible participants are allowed to make them. Turbotax 2011 free edition Matching employer contributions limit. Turbotax 2011 free edition   Generally, your employer must make matching contributions to your SIMPLE IRA in an amount equal to your salary reduction contributions. Turbotax 2011 free edition These matching contributions cannot be more than 3% of your compensation for the calendar year. Turbotax 2011 free edition See Matching contributions less than 3% below. Turbotax 2011 free edition Example 1. Turbotax 2011 free edition In 2013, Joshua was a participant in his employer's SIMPLE plan. Turbotax 2011 free edition His compensation, before SIMPLE plan contributions, was $41,600 ($800 per week). Turbotax 2011 free edition Instead of taking it all in cash, Joshua elected to have 12. Turbotax 2011 free edition 5% of his weekly pay ($100) contributed to his SIMPLE IRA. Turbotax 2011 free edition For the full year, Joshua's salary reduction contributions were $5,200, which is less than the $12,000 limit on these contributions. Turbotax 2011 free edition Under the plan, Joshua's employer was required to make matching contributions to Joshua's SIMPLE IRA. Turbotax 2011 free edition Because his employer's matching contributions must equal Joshua's salary reductions, but cannot be more than 3% of his compensation (before salary reductions) for the year, his employer's matching contribution was limited to $1,248 (3% of $41,600). Turbotax 2011 free edition Example 2. Turbotax 2011 free edition Assume the same facts as in Example 1 , except that Joshua's compensation for the year was $408,163 and he chose to have 2. Turbotax 2011 free edition 94% of his weekly pay contributed to his SIMPLE IRA. Turbotax 2011 free edition In this example, Joshua's salary reduction contributions for the year (2. Turbotax 2011 free edition 94% × $408,163) were equal to the 2013 limit for salary reduction contributions ($12,000). Turbotax 2011 free edition Because 3% of Joshua's compensation ($12,245) is more than the amount his employer was required to match ($12,000), his employer's matching contributions were limited to $12,000. Turbotax 2011 free edition In this example, total contributions made on Joshua's behalf for the year were $24,000 ($12,000 (Joshua's contributions) + $12,000 (matching contributions)), the maximum contributions permitted under a SIMPLE IRA for 2013. Turbotax 2011 free edition Matching contributions less than 3%. Turbotax 2011 free edition   Your employer can reduce the 3% limit on matching contributions for a calendar year, but only if: The limit is not reduced below 1%, The limit is not reduced for more than 2 years out of the 5-year period that ends with (and includes) the year for which the election is effective, and Employees are notified of the reduced limit within a reasonable period of time before the 60-day election period during which they can enter into salary reduction agreements. Turbotax 2011 free edition   For purposes of applying the rule in item (2) in determining whether the limit was reduced below 3% for the year, any year before the first year in which your employer (or a former employer) maintains a SIMPLE IRA plan will be treated as a year for which the limit was 3%. Turbotax 2011 free edition If your employer chooses to make nonelective contributions for a year, that year also will be treated as a year for which the limit was 3%. Turbotax 2011 free edition Nonelective employer contributions limit. Turbotax 2011 free edition   If your employer chooses to make nonelective contributions, instead of matching contributions, to each eligible employee's SIMPLE IRA, contributions must be 2% of your compensation for the entire year. Turbotax 2011 free edition For 2013, only $255,000 of your compensation can be taken into account to figure the contribution limit. Turbotax 2011 free edition   Your employer can substitute the 2% nonelective contribution for the matching contribution for a year if both of the following requirements are met. Turbotax 2011 free edition Eligible employees are notified that a 2% nonelective contribution will be made instead of a matching contribution. Turbotax 2011 free edition This notice is provided within a reasonable period during which employees can enter into salary reduction agreements. Turbotax 2011 free edition Example 3. Turbotax 2011 free edition Assume the same facts as in Example 2 , except that Joshua's employer chose to make nonelective contributions instead of matching contributions. Turbotax 2011 free edition Because his employer's nonelective contributions are limited to 2% of up to $255,000 of Joshua's compensation, his employer's contribution to Joshua's SIMPLE IRA was limited to $5,100. Turbotax 2011 free edition In this example, total contributions made on Joshua's behalf for the year were $17,100 (Joshua's salary reductions of $12,000 plus his employer's contribution of $5,100). Turbotax 2011 free edition Traditional IRA mistakenly moved to SIMPLE IRA. Turbotax 2011 free edition   If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Turbotax 2011 free edition For more information, see Recharacterizations in chapter 1. Turbotax 2011 free edition Recharacterizing employer contributions. Turbotax 2011 free edition   You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. Turbotax 2011 free edition SEPs are discussed in chapter 2 of Publication 560. Turbotax 2011 free edition SIMPLE plans are discussed in this chapter. Turbotax 2011 free edition Converting from a SIMPLE IRA. Turbotax 2011 free edition   Generally, you can convert an amount in your SIMPLE IRA to a Roth IRA under the same rules explained in chapter 1 under Converting From Any Traditional IRA Into a Roth IRA . Turbotax 2011 free edition    However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer. Turbotax 2011 free edition When Can You Withdraw or Use Assets? Generally, the same distribution (withdrawal) rules that apply to traditional IRAs apply to SIMPLE IRAs. Turbotax 2011 free edition These rules are discussed in chapter 1. Turbotax 2011 free edition Your employer cannot restrict you from taking distributions from a SIMPLE IRA. Turbotax 2011 free edition Are Distributions Taxable? Generally, distributions from a SIMPLE IRA are fully taxable as ordinary income. Turbotax 2011 free edition If the distribution is an early distribution (discussed in chapter 1), it may be subject to the additional tax on early distributions. Turbotax 2011 free edition See Additional Tax on Early Distributions, later. Turbotax 2011 free edition Rollovers and Transfers Exception Generally, rollovers and trustee-to-trustee transfers are not taxable distributions. Turbotax 2011 free edition Two-year rule. Turbotax 2011 free edition   To qualify as a tax-free rollover (or a tax-free trustee-to-trustee transfer), a rollover distribution (or a transfer) made from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer's SIMPLE plan must be contributed (or transferred) to another SIMPLE IRA. Turbotax 2011 free edition The 2-year period begins on the first day on which contributions made by your employer are deposited in your SIMPLE IRA. Turbotax 2011 free edition   After the 2-year period, amounts in a SIMPLE IRA can be rolled over or transferred tax free to an IRA other than a SIMPLE IRA, or to a qualified plan, a tax-sheltered annuity plan (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan). Turbotax 2011 free edition Additional Tax on Early Distributions The additional tax on early distributions (discussed in chapter 1) applies to SIMPLE IRAs. Turbotax 2011 free edition If a distribution is an early distribution and occurs during the 2-year period following the date on which you first participated in your employer's SIMPLE plan, the additional tax on early distributions is increased from 10% to 25%. Turbotax 2011 free edition If a rollover distribution (or transfer) from a SIMPLE IRA does not satisfy the 2-year rule, and is otherwise an early distribution, the additional tax imposed because of the early distribution is increased from 10% to 25% of the amount distributed. Turbotax 2011 free edition Prev  Up  Next   Home   More Online Publications
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Offshore Voluntary Disclosure Initiative: Passive Foreign Income Company Investment Computations

September 2010

A significant number of Offshore Voluntary Disclosure Practice (VDP) cases involve Passive Foreign Investment Company (PFIC) investments.  A lack of historical information on the cost basis and holding period of many PFIC investments makes it difficult for taxpayers to prepare statutory PFIC computations and for the Service to verify them.  As a result, resolution of many VDP cases is being unduly delayed.  Therefore, for purposes of this initiative, the Service is offering taxpayers an alternative to the statutory PFIC computation that will resolve PFIC issues on a basis that is consistent with the Mark to Market (MTM) methodology authorized in Internal Revenue Code section 1296 but will not require complete reconstruction of historical data.

The terms of this alternative resolution are as follows:

  • If elected, the alternative resolution will apply to all PFIC investments in cases that have been accepted into the VDP and that qualify for the special civil penalty framework announced by the IRS on March 23, 2009.  The initial MTM computation of gain or loss under this methodology will be for the first year of the VDP application but could be made after 2003 depending on when the first PFIC investment was made.  Generally, under the terms of the March 23, 2009 framework, the first year of the VDP application will be for the calendar year ending December 31, 2003.   This will require a determination of the basis for every PFIC investment, which should be agreed between the taxpayer and the Service based on the best available evidence. 


  • A tax rate of 20% will be applied to the MTM gain(s), MTM net gain(s) and gains from all PFIC dispositions during the VDP period, in lieu of the rate contained in section 1291(a)(1)(B) for the amount allocable to the current year and section 1291(c)(2) for the deferred tax amount(s) allocable to any other taxable year.

  • A rate of 7% of the tax computed for PFIC investments marked to market in the first year of the VDP application will be added to the tax for that year, in lieu of the interest charge mechanism described in sections 1291(c) and 1296(j).

  • MTM losses will be limited to unreversed inclusions (generally, previously reported MTM gains less allowed MTM losses) on an investment-by-investment basis in the same manner as section 1296. During the VDP period, these MTM losses will be treated as  ordinary losses (IRC 1296[c][1][B]) and the tax benefit is limited to the tax rate applicable to the MTM gains derived during the VDP period (20%).  This limitation is accomplished by multiplying the MTM loss by 20% and applying the result as a credit against the tax liability for the year.
     
  • Regular and Alternative Minimum Tax are both to be computed without the PFIC dispositions or MTM gains and losses.  The tax from the PFIC transactions (20% plus the 7% for 2003, if applicable) is added to (or subtracted from) the applicable total tax (either regular or AMT, whichever is higher).  The tax and interest (i.e., the 7% for the first year of the VDP) computed under the VDP alternative MTM can be added to the applicable total tax (either regular or AMT, whichever is higher) and placed on the amended return in the margin, with a supporting schedule.

  • Underpayment interest and penalties on the deficiency are computed in accordance with the Internal Revenue Code and the terms of the VDP.

  • For any PFIC investment retained beyond 12/31/2008, the taxpayer must continue using the MTM method, but will apply the normal statutory rules of section 1296 as well as the provisions of sections 1291-1298, as applicable.

Taxpayers should direct questions regarding PFICs and how the alternative resolution will affect their cases to the examiners assigned to their cases.  Before electing the alternative PFIC resolution, taxpayers with PFIC investments should consult their tax advisors to ensure that the issue is material in their cases and that the alternative is in fact preferable to the statutory computation in their situation.  If the taxpayer does not elect to use the alternative PFIC computation, then the PFIC provisions of section 1291-1298 apply. 

Page Last Reviewed or Updated: 09-Jan-2014

The Turbotax 2011 Free Edition

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