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Www freetaxhelp com 4. Www freetaxhelp com   Underpayment Penalty for 2013 Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: General RuleFarmers and fishermen. Www freetaxhelp com Higher income taxpayers. Www freetaxhelp com Minimum required for higher income taxpayers. Www freetaxhelp com Estate or trust payments of estimated tax. Www freetaxhelp com Lowering or eliminating the penalty. Www freetaxhelp com ExceptionsLess Than $1,000 Due No Tax Liability Last Year Figuring Your Required Annual Payment (Part I) Short Method for Figuring the Penalty (Part III) Regular Method for Figuring the Penalty (Part IV)Figuring Your Underpayment (Part IV, Section A) Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Annualized Income Installment Method (Schedule AI) Farmers and Fishermen Waiver of PenaltyFarmers and fishermen. Www freetaxhelp com Introduction If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty. Www freetaxhelp com You may understand this chapter better if you can refer to a copy of your latest federal income tax return. Www freetaxhelp com No penalty. Www freetaxhelp com   Generally, you will not have to pay a penalty for 2013 if any of the following apply. Www freetaxhelp com The total of your withholding and timely estimated tax payments was at least as much as your 2012 tax. Www freetaxhelp com (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen. Www freetaxhelp com ) The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. Www freetaxhelp com Your total tax for 2013 (defined later) minus your withholding is less than $1,000. Www freetaxhelp com You did not have a tax liability for 2012. Www freetaxhelp com You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. Www freetaxhelp com IRS can figure the penalty for you. Www freetaxhelp com   If you think you owe the penalty, but you do not want to figure it yourself when you file your tax return, you may not have to. Www freetaxhelp com Generally, the IRS will figure the penalty for you and send you a bill. Www freetaxhelp com   You only need to figure your penalty in the following three situations. Www freetaxhelp com You are requesting a waiver of part, but not all, of the penalty. Www freetaxhelp com You are using the annualized income installment method to figure the penalty. Www freetaxhelp com You are treating the federal income tax withheld from your income as paid on the dates actually withheld. Www freetaxhelp com However, if these situations do not apply to you, and you think you can lower or eliminate your penalty, complete Form 2210 or Form 2210-F and attach it to your return. Www freetaxhelp com See Form 2210 , later. Www freetaxhelp com Topics - This chapter discusses: The general rule for the underpayment penalty, Special rules for certain individuals, Exceptions to the underpayment penalty, How to figure your underpayment and the amount of your penalty on Form 2210, and How to ask the IRS to waive the penalty. Www freetaxhelp com Useful Items - You may want to see: Form (and Instructions) 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 5 for information about getting these forms. Www freetaxhelp com General Rule In general, you may owe a penalty for 2013 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of: 90% of your 2013 tax, or 100% of your 2012 tax. Www freetaxhelp com (Your 2012 tax return must cover a 12-month period. Www freetaxhelp com ) Your 2013 tax, for this purpose, is defined under Total tax for 2013 , later. Www freetaxhelp com Special rules for certain individuals. Www freetaxhelp com   There are special rules for farmers and fishermen and certain higher income taxpayers. Www freetaxhelp com Farmers and fishermen. Www freetaxhelp com   If at least two-thirds of your gross income for 2012 or 2013 is from farming or fishing, substitute  662/3% for 90% in (1) above. Www freetaxhelp com   See Farmers and Fishermen , later. Www freetaxhelp com Higher income taxpayers. Www freetaxhelp com   If your AGI for 2012 was more than $150,000 ($75,000 if your 2013 filing status is married filing a separate return), substitute 110% for 100% in (2) under General Rule . Www freetaxhelp com This rule does not apply to farmers or fishermen. Www freetaxhelp com   For 2012, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. Www freetaxhelp com Penalty figured separately for each period. Www freetaxhelp com   Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. Www freetaxhelp com This is true even if you are due a refund when you file your income tax return. Www freetaxhelp com Example. Www freetaxhelp com You did not make estimated tax payments for 2013 because you thought you had enough tax withheld from your wages. Www freetaxhelp com Early in January 2014, you made an estimate of your total 2013 tax. Www freetaxhelp com Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax. Www freetaxhelp com On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. Www freetaxhelp com Your final return shows your total tax to be $50 less than your estimate, so you are due a refund. Www freetaxhelp com You do not owe a penalty for your payment due January 15, 2014. Www freetaxhelp com However, you may owe a penalty through January 10, 2014, the day you made the $3,000 payment, for your underpayments for the earlier payment periods. Www freetaxhelp com Minimum required each period. Www freetaxhelp com   You will owe a penalty for any 2013 payment period for which your estimated tax payment plus your withholding for the period and overpayments applied from previous periods was less than the smaller of: 22. Www freetaxhelp com 5% of your 2013 tax, or 25% of your 2012 tax. Www freetaxhelp com (Your 2012 tax return must cover a 12-month period. Www freetaxhelp com ) Minimum required for higher income taxpayers. Www freetaxhelp com   If you are subject to the rule for higher income taxpayers, discussed above, substitute 27. Www freetaxhelp com 5% for 25% in (2) under General Rule . Www freetaxhelp com When penalty is charged. Www freetaxhelp com   If you miss a payment or you paid less than the minimum required in a period, you may be charged an underpayment penalty from the date the amount was due to the date the payment is made. Www freetaxhelp com If a payment is mailed, the date of the U. Www freetaxhelp com S. Www freetaxhelp com postmark is considered the date of payment. Www freetaxhelp com   If a payment is made electronically, the date the payment is shown on your payment account (checking, savings, etc. Www freetaxhelp com ) is considered to be the date of payment. Www freetaxhelp com Estate or trust payments of estimated tax. Www freetaxhelp com   If you have estimated taxes credited to you from an estate or trust (Schedule K-1 (Form 1041)), treat the payment as made by you on January 15, 2014. Www freetaxhelp com Amended returns. Www freetaxhelp com    If you file an amended return by the due date of your original return, use the tax shown on your amended return to figure your required estimated tax payments. Www freetaxhelp com If you file an amended return after the due date of the original return, use the tax shown on the original return. Www freetaxhelp com   However, if you and your spouse file a joint return after the due date to replace separate returns you originally filed by the due date, use the tax shown on the joint return to figure your required estimated tax payments. Www freetaxhelp com This rule applies only if both original separate returns were filed on time. Www freetaxhelp com 2012 separate returns and 2013 joint return. Www freetaxhelp com    If you file a joint return with your spouse for 2013, but you filed separate returns for 2012, your 2012 tax is the total of the tax shown on your separate returns. Www freetaxhelp com You filed a separate return if you filed as single, head of household, or married filing separately. Www freetaxhelp com 2012 joint return and 2013 separate returns. Www freetaxhelp com    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, your 2012 tax is your share of the tax on the joint return. Www freetaxhelp com You are filing a separate return if you file as single, head of household, or married filing separately. Www freetaxhelp com   To figure your share of the taxes on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2012 using the same filing status as for 2013. Www freetaxhelp com Then multiply the tax on the joint return by the following fraction. Www freetaxhelp com   The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. Www freetaxhelp com Lisa and Paul filed a joint return for 2012 showing taxable income of $49,000 and a tax of $6,484. Www freetaxhelp com Of the $49,000 taxable income, $41,000 was Lisa's and the rest was Paul's. Www freetaxhelp com For 2013, they file married filing separately. Www freetaxhelp com Lisa figures her share of the tax on the 2012 joint return as follows. Www freetaxhelp com 2012 tax on $41,000 based on a separate return $ 6,286 2012 tax on $8,000 based on a  separate return 803 Total $ 7,089 Lisa's percentage of total tax  ($6,286 ÷ $ 7,089) 88. Www freetaxhelp com 67% Lisa's part of tax on joint return ($6,484 × 88. Www freetaxhelp com 67%) $ 5,749 Form 2210. Www freetaxhelp com   In most cases, you do not need to file Form 2210. Www freetaxhelp com The IRS will figure the penalty for you and send you a bill. Www freetaxhelp com If you want us to figure the penalty for you, leave the penalty line on your return blank. Www freetaxhelp com Do not file Form 2210. Www freetaxhelp com   To determine if you should file Form 2210, see Part II of Form 2210. Www freetaxhelp com If you decide to figure your penalty, complete Part I, Part II, and either Part III or Part IV of the form and the Penalty Worksheet in the Instructions for Form 2210. Www freetaxhelp com If you use Form 2210, you cannot file Form 1040EZ. Www freetaxhelp com   On Form 1040, enter the amount of your penalty on line 77. Www freetaxhelp com If you owe tax on line 76, add the penalty to your tax due and show your total payment on line 76. Www freetaxhelp com If you are due a refund, subtract the penalty from the overpayment and enter the result on line 73. Www freetaxhelp com   On Form 1040A, enter the amount of your penalty on line 46. Www freetaxhelp com If you owe tax on line 45, add the penalty to your tax due and show your total payment on line 45. Www freetaxhelp com If you are due a refund, subtract the penalty from the overpayment and enter the result on line 42. Www freetaxhelp com Lowering or eliminating the penalty. Www freetaxhelp com    You may be able to lower or eliminate your penalty if you file Form 2210. Www freetaxhelp com You must file Form 2210 with your return if any of the following applies. Www freetaxhelp com You request a waiver. Www freetaxhelp com See Waiver of Penalty , later. Www freetaxhelp com You use the annualized income installment method. Www freetaxhelp com See the explanation of this method under Annualized Income Installment Method (Schedule AI) . Www freetaxhelp com You use your actual withholding for each payment period for estimated tax purposes. Www freetaxhelp com See Actual withholding method under Figuring Your Underpayment (Part IV, Section A). Www freetaxhelp com You base any of your required installments on the tax shown on your 2012 return and you filed or are filing a joint return for either 2012 or 2013, but not for both years. Www freetaxhelp com Exceptions Generally, you do not have to pay an underpayment penalty if either: Your total tax is less than $1,000, or You had no tax liability last year. Www freetaxhelp com Less Than $1,000 Due You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000. Www freetaxhelp com Total tax for 2013. Www freetaxhelp com   For 2013, your total tax on Form 1040 is the amount on line 61 reduced by the following. Www freetaxhelp com    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Www freetaxhelp com Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Www freetaxhelp com The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Www freetaxhelp com Any refundable credit amounts listed on lines 64a, 65, 66, 70, and any credit from Form 8885 included on line 71. Www freetaxhelp com   If you filed Form 1040A, your 2013 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Www freetaxhelp com   If you filed Form 1040EZ, your 2013 total tax is the amount on line 10 reduced by the amount on line 8a. Www freetaxhelp com Note. Www freetaxhelp com When figuring the amount on line 60, include household employment taxes only if you had federal income tax withheld from your income or you would owe the penalty even if you did not include those taxes. Www freetaxhelp com Paid through withholding. Www freetaxhelp com    For 2013, the amount you paid through withholding on Form 1040 is the amount on line 62 plus any excess social security or tier 1 RRTA tax withholding on line 69. Www freetaxhelp com Add to that any write-in amount on line 72 identified as “Form 8689. Www freetaxhelp com ” On Form 1040A, the amount you paid through withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included on line 41. Www freetaxhelp com On Form 1040EZ, it is the amount on line 7. Www freetaxhelp com No Tax Liability Last Year You do not owe a penalty if you had no tax liability last year and you were a U. Www freetaxhelp com S. Www freetaxhelp com citizen or resident for the whole year. Www freetaxhelp com For this rule to apply, your tax year must have included all 12 months of the year. Www freetaxhelp com You had no tax liability for 2012 if your total tax was zero or you were not required to file an income tax return. Www freetaxhelp com Example. Www freetaxhelp com Ray, who is single and 22 years old, was unemployed for a few months during 2012. Www freetaxhelp com He earned $6,700 in wages before he was laid off, and he received $1,400 in unemployment compensation afterwards. Www freetaxhelp com He had no other income. Www freetaxhelp com Even though he had gross income of $8,100, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($9,750 for 2012). Www freetaxhelp com He filed a return only to have his withheld income tax refunded to him. Www freetaxhelp com In 2013, Ray began regular work as an independent contractor. Www freetaxhelp com Ray made no estimated tax payments in 2013. Www freetaxhelp com Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2013 because he had no tax liability in 2012. Www freetaxhelp com Total tax for 2012. Www freetaxhelp com   For 2012, your total tax on Form 1040 is the amount on line 61 reduced by the following. Www freetaxhelp com    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Www freetaxhelp com Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Www freetaxhelp com The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Www freetaxhelp com Any refundable credit amounts listed on lines 64a, 65, 66, 70, and credits from Forms 8801 (line 27 only), and 8885 included on line 71. Www freetaxhelp com   If you filed Form 1040A, your 2012 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Www freetaxhelp com   If you filed Form 1040EZ, your 2012 total tax is the amount on line 11 reduced by the amount on line 8a. Www freetaxhelp com Figuring Your Required Annual Payment (Part I) Figure your required annual payment in Part I of Form 2210, following the line-by-line instructions. Www freetaxhelp com If you rounded the entries on your tax return to whole dollars, you can round on Form 2210. Www freetaxhelp com Example. Www freetaxhelp com The tax on Lori Lane's 2012 return was $12,400. Www freetaxhelp com Her AGI was not more than $150,000 for either 2012 or 2013. Www freetaxhelp com The tax on her 2013 return (Form 1040, line 55) is $13,044. Www freetaxhelp com Line 56 (self-employment tax) is $8,902. Www freetaxhelp com Her 2013 total tax is $21,946. Www freetaxhelp com For 2013, Lori had $1,600 income tax withheld and made four equal estimated tax payments ($1,000 each). Www freetaxhelp com 90% of her 2013 tax is $19,751. Www freetaxhelp com Because she paid less than her 2012 tax ($12,400) and less than 90% of her 2013 tax ($19,751), and does not meet an exception, Lori knows that she owes a penalty for underpayment of estimated tax. Www freetaxhelp com The IRS will figure the penalty for Lori, but she decides to figure it herself on Form 2210 and pay it with her taxes when she files her tax return. Www freetaxhelp com Lori's required annual payment is $12,400 (100% of 2012 tax) because that is smaller than 90% of her 2013 tax. Www freetaxhelp com Different 2012 filing status. Www freetaxhelp com    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, see 2012 joint return and 2013 separate returns , earlier, to figure the amount to enter as your 2012 tax on line 8 of Form 2210. Www freetaxhelp com Short Method for Figuring the Penalty (Part III) You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. Www freetaxhelp com If you qualify to use this method, it will result in the same penalty amount as the regular method. Www freetaxhelp com However, either the annualized income installment method or the actual withholding method, explained later, may result in a smaller penalty. Www freetaxhelp com You can use the short method only if you meet one of the following requirements. Www freetaxhelp com You made no estimated tax payments for 2013 (it does not matter whether you had income tax withholding). Www freetaxhelp com You paid the same amount of estimated tax on each of the four payment due dates. Www freetaxhelp com If you do not meet either requirement, figure your penalty using the regular method in Part IV of Form 2210 and the Penalty Worksheet in the instructions. Www freetaxhelp com Note. Www freetaxhelp com If any payment was made before the due date, you can use the short method, but the penalty may be less if you use the regular method. Www freetaxhelp com However, if the payment was only a few days early, the difference is likely to be small. Www freetaxhelp com You cannot use the short method if any of the following apply. Www freetaxhelp com You made any estimated tax payments late. Www freetaxhelp com You checked box C or D in Part II of Form 2210. Www freetaxhelp com You are filing Form 1040NR or 1040NR-EZ and you did not receive wages as an employee subject to U. Www freetaxhelp com S. Www freetaxhelp com income tax withholding. Www freetaxhelp com If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. Www freetaxhelp com Also, you cannot use your actual withholding during each period to figure your payments for each period. Www freetaxhelp com These methods, which may give you a smaller penalty amount, are explained under Figuring Your Underpayment (Part IV, Section A). Www freetaxhelp com Complete Part III of Form 2210 following the line-by-line instructions in the Instructions for Form 2210. Www freetaxhelp com Regular Method for Figuring the Penalty (Part IV) You can use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if you paid one or more estimated tax payments earlier than the due date. Www freetaxhelp com You must use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if any of the following apply to you. Www freetaxhelp com You paid one or more estimated tax payments on a date after the due date. Www freetaxhelp com You paid at least one, but less than four, installments of estimated tax. Www freetaxhelp com You paid estimated tax payments in un- equal amounts. Www freetaxhelp com You use the annualized income installment method to figure your underpayment for each payment period. Www freetaxhelp com You use your actual withholding during each payment period to figure your payments. Www freetaxhelp com Under the regular method, figure your underpayment for each payment period in Section A, then figure your penalty using the Penalty Worksheet in the Instructions for Form 2210. Www freetaxhelp com Enter the results on line 27 of Section B. Www freetaxhelp com Figuring Your Underpayment (Part IV, Section A) Figure your underpayment of estimated tax for each payment period in Section A following the line-by-line instructions in the Instructions for Form 2210. Www freetaxhelp com Complete lines 20 through 26 of the first column before going to line 20 of the next column. Www freetaxhelp com Required installments—line 18. Www freetaxhelp com   Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). Www freetaxhelp com This method—the regular method—is the one to use if you received your income evenly throughout the year. Www freetaxhelp com   However, if you did not receive your income evenly throughout the year, you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Www freetaxhelp com First complete Schedule AI (Form 2210), then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV. Www freetaxhelp com See Annualized Income Installment Method (Schedule AI), later. Www freetaxhelp com Payments made—line 19. Www freetaxhelp com   Enter in each column the total of: Your estimated tax paid after the due date for the previous column and by the due date shown at the top of the column, and One-fourth of your withholding. Www freetaxhelp com For special rules for figuring your payments, see Form 2210 instructions for line 19. Www freetaxhelp com   If you file Form 1040, your withholding is the amount on line 62, plus any excess social security or tier 1 RRTA tax withholding on line 69. Www freetaxhelp com If you file Form 1040A, your withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included in line 41. Www freetaxhelp com Actual withholding method. Www freetaxhelp com    Instead of using one-fourth of your withholding for each quarter, you can choose to use the amounts actually withheld by each due date. Www freetaxhelp com You can make this choice separately for the tax withheld from your wages and for all other withholding. Www freetaxhelp com This includes any excess social security and tier 1 RRTA tax withheld. Www freetaxhelp com   Using your actual withholding may result in a smaller penalty if most of your withholding occurred early in the year. Www freetaxhelp com   If you use your actual withholding, you must check box D in Form 2210, Part II. Www freetaxhelp com Then complete Form 2210 using the regular method (Part IV) and file it with your return. Www freetaxhelp com Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Figure the amount of your penalty for Section B using the Penalty Worksheet in the Form 2210 instructions. Www freetaxhelp com The penalty is imposed on each underpayment amount shown on Form 2210, Section A, line 25, for the number of days that it remained unpaid. Www freetaxhelp com For 2013, there are four rate periods—April 16 through June 30, July 1 through September 30, October 1 through December 31, and January 1, 2014 through April 15, 2014. Www freetaxhelp com A 3% rate applies to all four periods. Www freetaxhelp com Payments. Www freetaxhelp com    Before completing the Penalty Worksheet, it may be helpful to make a list of the payments you made and income tax withheld after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. Www freetaxhelp com For example, if you had an underpayment for the first payment period, list your payments after April 15, 2013. Www freetaxhelp com You can use the table in the Form 2210 instructions to make your list. Www freetaxhelp com Follow those instructions for listing income tax withheld and payments made with your return. Www freetaxhelp com Use the list to determine when each underpayment was paid. Www freetaxhelp com   If you mail your estimated tax payments, use the date of the U. Www freetaxhelp com S. Www freetaxhelp com postmark as the date of payment. Www freetaxhelp com Line 1b. Www freetaxhelp com   Apply the payments listed to underpayment balance in the first column until it is fully paid. Www freetaxhelp com Apply payments in the order made. Www freetaxhelp com Figuring the penalty. Www freetaxhelp com   If an underpayment was paid in two or more payments on different dates, you must figure the penalty separately for each payment. Www freetaxhelp com On line 3 of the Penalty Worksheet enter the number of days between the due date (line 2) and the date of each payment on line 1b. Www freetaxhelp com On line 4 figure the penalty for the amount of each payment applied on line 1b or the amount remaining unpaid. Www freetaxhelp com If no payments are applied, figure the penalty on the amount on line 1a. Www freetaxhelp com Aid for counting days. Www freetaxhelp com    Table 4-1 provides a simple method for counting the number of days between a due date and a payment date. Www freetaxhelp com Find the number for the date the payment was due by going across to the column of the month the payment was due and moving down the column to the due date. Www freetaxhelp com In the same manner, find the number for the date the payment was made. Www freetaxhelp com Subtract the due date “number” from the payment date “number. Www freetaxhelp com ”   For example, if a payment was due on June 15 (61), but was not paid until September 1 (139), the payment was 78 (139 – 61) days late. Www freetaxhelp com Table 4-1. Www freetaxhelp com Calendar To Determine the Number of Days a Payment Is Late Instructions. Www freetaxhelp com Use this table with Form 2210 if you are completing Part IV, Section B. Www freetaxhelp com First, find the number for the payment due date by going across to the column of the month the payment was due and moving down the column to the due date. Www freetaxhelp com Then, in the same manner, find the number for the date the payment was made. Www freetaxhelp com Finally, subtract the due date number from the payment date number. Www freetaxhelp com The result is the number of days the payment is late. Www freetaxhelp com Example. Www freetaxhelp com The payment due date is June 15 (61). Www freetaxhelp com The payment was made on November 4 (203). Www freetaxhelp com The payment is 142 days late (203 – 61). Www freetaxhelp com Tax Year 2013 Day of 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 Month April May June July Aug. Www freetaxhelp com Sept. Www freetaxhelp com Oct. Www freetaxhelp com Nov. Www freetaxhelp com Dec. Www freetaxhelp com Jan. Www freetaxhelp com Feb. Www freetaxhelp com Mar. Www freetaxhelp com Apr. Www freetaxhelp com 1   16 47 77 108 139 169 200 230 261 292 320 351 2   17 48 78 109 140 170 201 231 262 293 321 352 3   18 49 79 110 141 171 202 232 263 294 322 353 4   19 50 80 111 142 172 203 233 264 295 323 354 5   20 51 81 112 143 173 204 234 265 296 324 355 6   21 52 82 113 144 174 205 235 266 297 325 356 7   22 53 83 114 145 175 206 236 267 298 326 357 8   23 54 84 115 146 176 207 237 268 299 327 358 9   24 55 85 116 147 177 208 238 269 300 328 359 10   25 56 86 117 148 178 209 239 270 301 329 360 11   26 57 87 118 149 179 210 240 271 302 330 361 12   27 58 88 119 150 180 211 241 272 303 331 362 13   28 59 89 120 151 181 212 242 273 304 332 363 14   29 60 90 121 152 182 213 243 274 305 333 364 15 0 30 61 91 122 153 183 214 244 275 306 334 365 16 1 31 62 92 123 154 184 215 245 276 307 335   17 2 32 63 93 124 155 185 216 246 277 308 336   18 3 33 64 94 125 156 186 217 247 278 309 337   19 4 34 65 95 126 157 187 218 248 279 310 338   20 5 35 66 96 127 158 188 219 249 280 311 339   21 6 36 67 97 128 159 189 220 250 281 312 340   22 7 37 68 98 129 160 190 221 251 282 313 341   23 8 38 69 99 130 161 191 222 252 283 314 342   24 9 39 70 100 131 162 192 223 253 284 315 343   25 10 40 71 101 132 163 193 224 254 285 316 344   26 11 41 72 102 133 164 194 225 255 286 317 345   27 12 42 73 103 134 165 195 226 256 287 318 346   28 13 43 74 104 135 166 196 227 257 288 319 347   29 14 44 75 105 136 167 197 228 258 289   348   30 15 45 76 106 137 168 198 229 259 290   349   31   46   107 138   199   260 291   350   Annualized Income Installment Method (Schedule AI) If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Www freetaxhelp com Under this method, your required installment (Part IV, line 18) for one or more payment periods may be less than one-fourth of your required annual payment. Www freetaxhelp com To figure your underpayment using this method, complete Form 2210, Schedule AI. Www freetaxhelp com Schedule AI annualizes your tax at the end of each payment period based on your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. Www freetaxhelp com If you use the annualized income installment method, you must check box C in Part II of Form 2210. Www freetaxhelp com Also, you must attach Form 2210 and Schedule AI to your return. Www freetaxhelp com If you use Schedule AI for any payment due date, you must use it for all payment due dates. Www freetaxhelp com Completing Schedule AI. Www freetaxhelp com   Follow the Form 2210 instructions to complete Schedule AI. Www freetaxhelp com For each period shown on Schedule AI, figure your income and deductions based on your method of accounting. Www freetaxhelp com If you use the cash method of accounting (used by most people), include all income actually or constructively received during the period and all deductions actually paid during the period. Www freetaxhelp com Note. Www freetaxhelp com Each period includes amounts from the previous period(s). Www freetaxhelp com Period (a) includes items for January 1 through March 31. Www freetaxhelp com Period (b) includes items for January 1 through May 31. Www freetaxhelp com Period (c) includes items for January 1 through August 31. Www freetaxhelp com Period (d) includes items for the entire year. Www freetaxhelp com Farmers and Fishermen If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you. Www freetaxhelp com The penalty for underpaying your 2013 estimated tax will not apply if you file your return and pay all the tax due by March 3, 2014. Www freetaxhelp com If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year. Www freetaxhelp com Any penalty you owe for underpaying your 2013 estimated tax will be figured from one payment due date, January 15, 2014. Www freetaxhelp com The underpayment penalty for 2013 is figured on the difference between the amount of 2013 withholding plus estimated tax paid by the due date and the smaller of: 662/3% (rather than 90%) of your 2013 tax, or 100% of the tax shown on your 2012 return. Www freetaxhelp com Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed under Exceptions . Www freetaxhelp com See Who Must Pay Estimated Tax in chapter 2 for the definition of a farmer or fisherman who is eligible for these special rules. Www freetaxhelp com Form 2210-F. Www freetaxhelp com   Use Form 2210-F to figure any underpayment penalty. Www freetaxhelp com Do not attach it to your return unless you check a box in Part I. Www freetaxhelp com However, if none of the boxes apply to you and you owe a penalty, you do not need to attach Form 2210-F. Www freetaxhelp com Enter the amount from line 16 on Form 1040, line 77 and add the penalty to any balance due on your return or subtract it from your refund. Www freetaxhelp com Keep your filled-in Form 2210-F for your records. Www freetaxhelp com    If none of the boxes on Form 2210-F apply to you and you owe a penalty, the IRS can figure your penalty and send you a bill. Www freetaxhelp com Waiver of Penalty The IRS can waive the penalty for underpayment if either of the following applies. Www freetaxhelp com You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty. Www freetaxhelp com You retired (after reaching age 62) or became disabled in 2012 or 2013 and both the following requirements are met. Www freetaxhelp com You had a reasonable cause for not making the payment. Www freetaxhelp com Your underpayment was not due to willful neglect. Www freetaxhelp com How to request a waiver. Www freetaxhelp com   To request a waiver, see the Instructions for Form 2210. Www freetaxhelp com Farmers and fishermen. Www freetaxhelp com   To request a waiver, see the Instructions for Form 2210-F. Www freetaxhelp com Federally declared disaster. Www freetaxhelp com   Certain estimated tax payment deadlines for taxpayers who reside or have a business in a federally declared disaster area are postponed for a period during and after the disaster. Www freetaxhelp com During the processing of your tax return, the IRS automatically identifies taxpayers located in a covered disaster area (by county or parish) and applies the appropriate penalty relief. Www freetaxhelp com Do not file Form 2210 or 2210-F if your underpayment was due to a federally declared disaster. Www freetaxhelp com If you still owe a penalty after the automatic waiver is applied, we will send you a bill. Www freetaxhelp com   Individuals, estates, and trusts not in a covered disaster area but whose books, records, or tax professionals' offices are in a covered area are also entitled to relief. Www freetaxhelp com Also eligible are relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in a covered disaster area. Www freetaxhelp com If you meet either of these eligibility requirements, you must call the IRS disaster hotline at 1-866-562-5227 and identify yourself as eligible for this relief. Www freetaxhelp com   Details on the applicable disaster postponement period can be found at IRS. Www freetaxhelp com gov. Www freetaxhelp com Enter Tax Relief in Disaster Situations. Www freetaxhelp com Select the federally declared disaster that affected you. Www freetaxhelp com    Worksheet 4-1. Www freetaxhelp com 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Note. Www freetaxhelp com To figure the annualized entries for lines 2, 3, and 5 below, multiply the expected amount for the period by the  annualization amount on line 2 of Schedule AI for the same period. Www freetaxhelp com                   1. Www freetaxhelp com Enter line 11 of your Schedule AI, or line 3 from Worksheet 4-2 1. Www freetaxhelp com       2. Www freetaxhelp com Enter your annualized qualified dividends for the period 2. Www freetaxhelp com           3. Www freetaxhelp com Are you filing Schedule D?               □ Yes. Www freetaxhelp com Enter the smaller of your annualized amount from line 15 or line 16 of Schedule D. Www freetaxhelp com If either line 15 or line 16 is blank or a loss, enter -0-. Www freetaxhelp com 3. Www freetaxhelp com             □ No. Www freetaxhelp com Enter your annualized capital gain distributions from Form 1040, line 13             4. Www freetaxhelp com Add lines 2 and 3   4. Www freetaxhelp com           5. Www freetaxhelp com If you are claiming investment interest expense on Form 4952, enter your annualized amount from line 4g of that form. Www freetaxhelp com Otherwise, enter -0-   5. Www freetaxhelp com           6. Www freetaxhelp com Subtract line 5 from line 4. Www freetaxhelp com If zero or less, enter -0- 6. Www freetaxhelp com       7. Www freetaxhelp com Subtract line 6 from line 1. Www freetaxhelp com If zero or less, enter -0- 7. Www freetaxhelp com       8. Www freetaxhelp com Enter: $36,900 if single or married filing separately, $73,800 if married filing jointly or qualifying widow(er), $49,400 if head of household. Www freetaxhelp com 8. Www freetaxhelp com       9. Www freetaxhelp com Enter the smaller of line 1 or line 8 9. Www freetaxhelp com       10. Www freetaxhelp com Enter the smaller of line 7 or line 9 10. Www freetaxhelp com       11. Www freetaxhelp com Subtract line 10 from line 9. Www freetaxhelp com This amount is taxed at 0% 11. Www freetaxhelp com       12. Www freetaxhelp com Enter the smaller of line 1 or line 6 12. Www freetaxhelp com       13. Www freetaxhelp com Enter the amount from line 11 13. Www freetaxhelp com       14. Www freetaxhelp com Subtract line 13 from line 12 14. Www freetaxhelp com       15. Www freetaxhelp com Multiply line 14 by 15% (. Www freetaxhelp com 15) 15. Www freetaxhelp com   16. Www freetaxhelp com Figure the tax on the amount on line 7. Www freetaxhelp com If the amount on line 7 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Www freetaxhelp com If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 16. Www freetaxhelp com   17. Www freetaxhelp com Add lines 15 and 16 17. Www freetaxhelp com   18. Www freetaxhelp com Figure the tax on the amount on line 1. Www freetaxhelp com If the amount on line 1 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Www freetaxhelp com If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 18. Www freetaxhelp com   19. Www freetaxhelp com Tax on all taxable income. Www freetaxhelp com Enter the smaller of line 17 or line 18. Www freetaxhelp com Also enter this amount on line 12 of Schedule AI in the appropriate column. Www freetaxhelp com However, if you are using this worksheet to figure the tax on the amount on line 3 of Worksheet 4-2, enter the amount from line 19 on Worksheet 4-2, line 4 19. Www freetaxhelp com   Worksheet 4-2. Www freetaxhelp com 2013 Form 2210, Schedule AI—Line 12 Foreign Earned Income Tax Worksheet Before you begin:If Schedule AI, line 11, is zero for the period, do not complete this worksheet. Www freetaxhelp com             1. Www freetaxhelp com Enter the amount from line 11 of Schedule AI for the period 1. Www freetaxhelp com   2. Www freetaxhelp com Enter the annualized amount* of foreign earned income and housing amount excluded or deducted (from  Form 2555, lines 45 and 50, or Form 2555-EZ, line 18) in figuring the amount entered for the period on line 1  of Schedule AI 2. Www freetaxhelp com   3. Www freetaxhelp com Add lines 1 and 2 3. Www freetaxhelp com   4. Www freetaxhelp com Tax on the amount on line 3. Www freetaxhelp com Use the Tax Table, Tax Computation Worksheet, Form 8615**, Qualified Dividends and Capital Gain Tax Worksheet***, or Schedule D Tax Worksheet***, whichever applies. Www freetaxhelp com See the 2013 Instructions for Form 1040, line 44, to find out which tax computation method to use. Www freetaxhelp com (Note. Www freetaxhelp com You do not have to use the same method for each period on Schedule AI. Www freetaxhelp com ) 4. Www freetaxhelp com   5. Www freetaxhelp com Tax on the amount on line 2. Www freetaxhelp com If the amount on line 2 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Www freetaxhelp com If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 5. Www freetaxhelp com   6. Www freetaxhelp com Subtract line 5 from line 4. Www freetaxhelp com Enter the result here and on line 12 of Schedule AI. Www freetaxhelp com If zero or less,  enter -0- 6. Www freetaxhelp com             * To figure the annualized amount for line 2, multiply the exclusion or deduction for the period by the annualization amount on line 2 of Schedule AI for the same period. Www freetaxhelp com     ** If you use Form 8615 to figure the tax on line 4 above, enter the amount from line 3 above on line 4 of Form 8615. Www freetaxhelp com If the child's parent files Form 2555 or 2555-EZ, enter the amounts from lines 3 and 4 of the parent's Foreign Earned Income Tax Worksheet on lines 6 and 10, respectively, of Form 8615. Www freetaxhelp com Complete the rest of Form 8615 according to its instructions. Www freetaxhelp com Then complete lines 5 and 6 above. Www freetaxhelp com     *** Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet (or Worksheet 4-1 in this chapter) or the Schedule D Tax Worksheet, whichever worksheet you use to figure the tax on line 4 above. Www freetaxhelp com Complete that worksheet through line 6 (line 10 if you use the Schedule D Tax Worksheet). Www freetaxhelp com Next, determine if you have a capital gain excess. Www freetaxhelp com     Figuring capital gain excess. Www freetaxhelp com To find out if you have a capital gain excess for the appropriate period, subtract line 11 of Schedule AI from line 6 of Worksheet 4-1 or your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). Www freetaxhelp com If the result is more than zero, that amount is your capital gain excess. Www freetaxhelp com     No capital gain excess. Www freetaxhelp com If you do not have a capital gain excess, complete the rest of Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet according to the worksheet's instructions. Www freetaxhelp com Then complete lines 5 and 6 above. Www freetaxhelp com     Capital gain excess. Www freetaxhelp com If you have a capital gain excess, complete a second Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or Schedule D Tax Worksheet (whichever applies) as instructed above but in its entirety and with the following additional modifications. Www freetaxhelp com Then complete lines 5 and 6 above. Www freetaxhelp com     Make the modifications below only for purposes of filling out Worksheet 4-2 above. Www freetaxhelp com     a. Www freetaxhelp com Reduce (but not below zero) the amount you otherwise would enter on line 3 of your Worksheet 4-1, line 3 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 9 of your Schedule D Tax Worksheet by your capital gain excess. Www freetaxhelp com     b. Www freetaxhelp com Reduce (but not below zero) the amount you otherwise would enter on line 2 of your Worksheet 4-1, line 2 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (a) above. Www freetaxhelp com     c. Www freetaxhelp com Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess. Www freetaxhelp com     d. Www freetaxhelp com Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the 2013 Instructions for Schedule D (Form 1040). Www freetaxhelp com   Prev  Up  Next   Home   More Online Publications
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Tax Information for Churches and Religious Organizations

Exemption Requirements - 501(c)(3) Organizations
A brief description of the requirements for exemption under IRC Section 501(c)(3).

Unrelated Business Income Tax
Unrelated business income tax requirements for tax-exempt organizations.

Filing Requirements
A brief description of annual filing requirements for tax-exempt churches and religious organizations.

The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations
Political Campaign Activity by section 501(c)(3) tax-exempt organizations

Special Rules Limiting IRS Authority to Audit a Church
Overview of rules on tax inquiries and examinations of churches.

Tax Information for Charitable Organizations
Tax information for charitable, religious, scientific, literary, and other organizations exempt under Internal Revenue Code ("IRC") section 501(c)(3).

Publication 4573, Group Exemptions
A publication describing, in question and answer format, the federal tax rules that apply to group rulings of exemption under Internal Revenue Code section 501.

Webinar for Churches and Religious Organizations
A survey of tax-exempt status for churches and religious organizations

Page Last Reviewed or Updated: 30-Mar-2014

The Www Freetaxhelp Com

Www freetaxhelp com 5. Www freetaxhelp com   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Www freetaxhelp com Making the election. Www freetaxhelp com Form 3115. Www freetaxhelp com Income TaxesAccrual of contested income taxes. Www freetaxhelp com Employment Taxes Other TaxesAdditional Medicare Tax. Www freetaxhelp com What's New Additional Medicare Tax. Www freetaxhelp com  Beginning in 2013, you must withhold a 0. Www freetaxhelp com 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Www freetaxhelp com Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Www freetaxhelp com See Employment Taxes , and Self-employment tax , later. Www freetaxhelp com Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Www freetaxhelp com You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Www freetaxhelp com Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Www freetaxhelp com When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Www freetaxhelp com This applies whether you use the cash method or an accrual method of accounting. Www freetaxhelp com Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Www freetaxhelp com You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Www freetaxhelp com Limit on accrual of taxes. Www freetaxhelp com   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Www freetaxhelp com However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Www freetaxhelp com Example. Www freetaxhelp com Your state imposes a tax on personal property used in a trade or business conducted in the state. Www freetaxhelp com This tax is assessed and becomes a lien as of July 1 (accrual date). Www freetaxhelp com In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Www freetaxhelp com Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Www freetaxhelp com You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Www freetaxhelp com Uniform capitalization rules. Www freetaxhelp com   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Www freetaxhelp com They also apply to certain taxpayers who acquire property for resale. Www freetaxhelp com Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Www freetaxhelp com For more information, see chapter 1. Www freetaxhelp com Carrying charges. Www freetaxhelp com   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Www freetaxhelp com You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Www freetaxhelp com For more information, see chapter 7. Www freetaxhelp com Refunds of taxes. Www freetaxhelp com   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Www freetaxhelp com For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Www freetaxhelp com    You must include in income any interest you receive on tax refunds. Www freetaxhelp com Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Www freetaxhelp com The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Www freetaxhelp com Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Www freetaxhelp com See Taxes for local benefits , later. Www freetaxhelp com If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Www freetaxhelp com However, you can elect to ratably accrue the taxes during the year. Www freetaxhelp com See Electing to ratably accrue , later. Www freetaxhelp com Taxes for local benefits. Www freetaxhelp com   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Www freetaxhelp com These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Www freetaxhelp com You should increase the basis of your property by the amount of the assessment. Www freetaxhelp com   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Www freetaxhelp com If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Www freetaxhelp com Example. Www freetaxhelp com To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Www freetaxhelp com The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Www freetaxhelp com The city is paying the principal and interest with the annual payments made by the property owners. Www freetaxhelp com The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Www freetaxhelp com The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Www freetaxhelp com Charges for services. Www freetaxhelp com   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Www freetaxhelp com Purchase or sale of real estate. Www freetaxhelp com   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Www freetaxhelp com   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Www freetaxhelp com Treat the seller as paying the taxes up to but not including the date of sale. Www freetaxhelp com Treat the buyer as paying the taxes beginning with the date of sale. Www freetaxhelp com You can usually find this information on the settlement statement you received at closing. Www freetaxhelp com   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Www freetaxhelp com Example. Www freetaxhelp com Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Www freetaxhelp com He has not elected to ratably accrue property taxes. Www freetaxhelp com November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Www freetaxhelp com He sold the property on June 30, 2013. Www freetaxhelp com Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Www freetaxhelp com He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Www freetaxhelp com Electing to ratably accrue. Www freetaxhelp com   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Www freetaxhelp com Example. Www freetaxhelp com Juan Sanchez is a calendar year taxpayer who uses an accrual method. Www freetaxhelp com His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Www freetaxhelp com July 1 is the assessment and lien date. Www freetaxhelp com If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Www freetaxhelp com Separate elections. Www freetaxhelp com   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Www freetaxhelp com Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Www freetaxhelp com See Form 3115 , later. Www freetaxhelp com Making the election. Www freetaxhelp com   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Www freetaxhelp com The statement should show all the following items. Www freetaxhelp com The trades or businesses to which the election applies and the accounting method or methods used. Www freetaxhelp com The period to which the taxes relate. Www freetaxhelp com The computation of the real estate tax deduction for that first year. Www freetaxhelp com   Generally, you must file your return by the due date (including extensions). Www freetaxhelp com However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Www freetaxhelp com Attach the statement to the amended return and write “Filed pursuant to section 301. Www freetaxhelp com 9100-2” on the statement. Www freetaxhelp com File the amended return at the same address where you filed the original return. Www freetaxhelp com Form 3115. Www freetaxhelp com    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Www freetaxhelp com For more information, including applicable time frames for filing, see the Instructions for Form 3115. Www freetaxhelp com Note. Www freetaxhelp com If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Www freetaxhelp com R. Www freetaxhelp com B. Www freetaxhelp com 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Www freetaxhelp com R. Www freetaxhelp com B. Www freetaxhelp com 689, and Revenue Procedure 2012-20, 2012-14 I. Www freetaxhelp com R. Www freetaxhelp com B. Www freetaxhelp com 700, or any successor. Www freetaxhelp com Revenue Procedure 2011-14 is available at  www. Www freetaxhelp com irs. Www freetaxhelp com gov/irb/2011-04IRB/ar08. Www freetaxhelp com html. Www freetaxhelp com Income Taxes This section discusses federal, state, local, and foreign income taxes. Www freetaxhelp com Federal income taxes. Www freetaxhelp com   You cannot deduct federal income taxes. Www freetaxhelp com State and local income taxes. Www freetaxhelp com   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Www freetaxhelp com An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Www freetaxhelp com   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Www freetaxhelp com Accrual of contested income taxes. Www freetaxhelp com   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Www freetaxhelp com   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Www freetaxhelp com You cannot deduct them in the year in which the liability is finally determined. Www freetaxhelp com    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Www freetaxhelp com Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Www freetaxhelp com   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Www freetaxhelp com You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Www freetaxhelp com For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Www freetaxhelp com Foreign income taxes. Www freetaxhelp com   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Www freetaxhelp com S. Www freetaxhelp com possession. Www freetaxhelp com However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Www freetaxhelp com S. Www freetaxhelp com tax under the foreign earned income exclusion or the foreign housing exclusion. Www freetaxhelp com For information on these exclusions, see Publication 54, Tax Guide for U. Www freetaxhelp com S. Www freetaxhelp com Citizens and Resident Aliens Abroad. Www freetaxhelp com For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Www freetaxhelp com Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Www freetaxhelp com Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Www freetaxhelp com You may also need to pay certain employment taxes from your own funds. Www freetaxhelp com These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Www freetaxhelp com Note. Www freetaxhelp com Additional Medicare Tax is only imposed on the employee. Www freetaxhelp com There is no employer share of Additional Medicare Tax. Www freetaxhelp com Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Www freetaxhelp com You can deduct the employment taxes you must pay from your own funds as taxes. Www freetaxhelp com Example. Www freetaxhelp com You pay your employee $18,000 a year. Www freetaxhelp com However, after you withhold various taxes, your employee receives $14,500. Www freetaxhelp com You also pay an additional $1,500 in employment taxes. Www freetaxhelp com You should deduct the full $18,000 as wages. Www freetaxhelp com You can deduct the $1,500 you pay from your own funds as taxes. Www freetaxhelp com For more information on employment taxes, see Publication 15 (Circular E). Www freetaxhelp com Unemployment fund taxes. Www freetaxhelp com   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Www freetaxhelp com Deduct these payments as taxes. Www freetaxhelp com Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Www freetaxhelp com Excise taxes. Www freetaxhelp com   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Www freetaxhelp com However, see Fuel taxes , later. Www freetaxhelp com   For more information on excise taxes, see Publication 510. Www freetaxhelp com Franchise taxes. Www freetaxhelp com   You can deduct corporate franchise taxes as a business expense. Www freetaxhelp com Fuel taxes. Www freetaxhelp com   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Www freetaxhelp com Do not deduct these taxes as a separate item. Www freetaxhelp com   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Www freetaxhelp com For more information, see Publication 510. Www freetaxhelp com Occupational taxes. Www freetaxhelp com   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Www freetaxhelp com Personal property tax. Www freetaxhelp com   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Www freetaxhelp com Sales tax. Www freetaxhelp com   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Www freetaxhelp com If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Www freetaxhelp com If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Www freetaxhelp com If the property is depreciable, add the sales tax to the basis for depreciation. Www freetaxhelp com For more information on basis, see Publication 551. Www freetaxhelp com    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Www freetaxhelp com Also, do not include these taxes in gross receipts or sales. Www freetaxhelp com Self-employment tax. Www freetaxhelp com   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Www freetaxhelp com This deduction only affects your income tax. Www freetaxhelp com It does not affect your net earnings from self-employment or your self-employment tax. Www freetaxhelp com   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Www freetaxhelp com   For more information on self-employment tax, see Publication 334. Www freetaxhelp com Additional Medicare Tax. Www freetaxhelp com   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Www freetaxhelp com See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Www freetaxhelp com Prev  Up  Next   Home   More Online Publications