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2009 Amended Tax Return Instructions

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2009 Amended Tax Return Instructions

2009 amended tax return instructions 4. 2009 amended tax return instructions   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. 2009 amended tax return instructions Payments from checking accounts. 2009 amended tax return instructions Amounts paid within 30 days. 2009 amended tax return instructions Optional method for determining date of reallocation. 2009 amended tax return instructions Interest on a segregated account. 2009 amended tax return instructions How to report. 2009 amended tax return instructions Interest You Can DeductStatement. 2009 amended tax return instructions Expenses paid to obtain a mortgage. 2009 amended tax return instructions Prepayment penalty. 2009 amended tax return instructions De minimis OID. 2009 amended tax return instructions Constant-yield method. 2009 amended tax return instructions Loan or mortgage ends. 2009 amended tax return instructions Interest You Cannot DeductPenalties. 2009 amended tax return instructions Who is a key person? Exceptions for pre-June 1997 contracts. 2009 amended tax return instructions Interest allocated to unborrowed policy cash value. 2009 amended tax return instructions Capitalization of Interest When To Deduct InterestPrepaid interest. 2009 amended tax return instructions Discounted loan. 2009 amended tax return instructions Refunds of interest. 2009 amended tax return instructions Prepaid interest. 2009 amended tax return instructions Discounted loan. 2009 amended tax return instructions Tax deficiency. 2009 amended tax return instructions Related person. 2009 amended tax return instructions Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. 2009 amended tax return instructions Introduction This chapter discusses the tax treatment of business interest expense. 2009 amended tax return instructions Business interest expense is an amount charged for the use of money you borrowed for business activities. 2009 amended tax return instructions Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2009 amended tax return instructions Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. 2009 amended tax return instructions 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. 2009 amended tax return instructions Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. 2009 amended tax return instructions If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. 2009 amended tax return instructions Allocate your interest expense to the following categories. 2009 amended tax return instructions Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. 2009 amended tax return instructions You allocate loan proceeds by tracing disbursements to specific uses. 2009 amended tax return instructions The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. 2009 amended tax return instructions Secured loan. 2009 amended tax return instructions   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. 2009 amended tax return instructions Example. 2009 amended tax return instructions You secure a loan with property used in your business. 2009 amended tax return instructions You use the loan proceeds to buy an automobile for personal use. 2009 amended tax return instructions You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. 2009 amended tax return instructions    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. 2009 amended tax return instructions The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. 2009 amended tax return instructions For more information, see Publication 936. 2009 amended tax return instructions Allocation period. 2009 amended tax return instructions   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. 2009 amended tax return instructions The date the loan is repaid. 2009 amended tax return instructions The date the loan is reallocated to another use. 2009 amended tax return instructions Proceeds not disbursed to borrower. 2009 amended tax return instructions   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. 2009 amended tax return instructions This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. 2009 amended tax return instructions Proceeds deposited in borrower's account. 2009 amended tax return instructions   Treat loan proceeds deposited in an account as property held for investment. 2009 amended tax return instructions It does not matter whether the account pays interest. 2009 amended tax return instructions Any interest you pay on the loan is investment interest expense. 2009 amended tax return instructions If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. 2009 amended tax return instructions Example. 2009 amended tax return instructions Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. 2009 amended tax return instructions No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. 2009 amended tax return instructions On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. 2009 amended tax return instructions On September 4, Celina uses an additional $40,000 from the account for personal purposes. 2009 amended tax return instructions Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. 2009 amended tax return instructions From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. 2009 amended tax return instructions From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. 2009 amended tax return instructions Order of funds spent. 2009 amended tax return instructions   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. 2009 amended tax return instructions Any unborrowed amounts held in the same account. 2009 amended tax return instructions Any amounts deposited after these loan proceeds. 2009 amended tax return instructions Example. 2009 amended tax return instructions On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. 2009 amended tax return instructions The following table shows the transactions in her account during the tax year. 2009 amended tax return instructions Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. 2009 amended tax return instructions She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. 2009 amended tax return instructions She treats the $800 used for an investment as made entirely from the proceeds of Loan C. 2009 amended tax return instructions She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. 2009 amended tax return instructions For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. 2009 amended tax return instructions Payments from checking accounts. 2009 amended tax return instructions   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. 2009 amended tax return instructions You can treat checks written on the same day as written in any order. 2009 amended tax return instructions Amounts paid within 30 days. 2009 amended tax return instructions   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. 2009 amended tax return instructions This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. 2009 amended tax return instructions   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. 2009 amended tax return instructions If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. 2009 amended tax return instructions   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. 2009 amended tax return instructions Example. 2009 amended tax return instructions Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. 2009 amended tax return instructions Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. 2009 amended tax return instructions Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. 2009 amended tax return instructions Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. 2009 amended tax return instructions In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. 2009 amended tax return instructions Optional method for determining date of reallocation. 2009 amended tax return instructions   You can use the following method to determine the date loan proceeds are reallocated to another use. 2009 amended tax return instructions You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. 2009 amended tax return instructions The first day of that month. 2009 amended tax return instructions The date the loan proceeds are deposited in the account. 2009 amended tax return instructions However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. 2009 amended tax return instructions Interest on a segregated account. 2009 amended tax return instructions   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. 2009 amended tax return instructions When the interest earned is used up, any remaining payments are from loan proceeds. 2009 amended tax return instructions Example. 2009 amended tax return instructions You borrowed $20,000 and used the proceeds of this loan to open a new savings account. 2009 amended tax return instructions When the account had earned interest of $867, you withdrew $20,000 for personal purposes. 2009 amended tax return instructions You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). 2009 amended tax return instructions All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. 2009 amended tax return instructions The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. 2009 amended tax return instructions The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. 2009 amended tax return instructions Loan repayment. 2009 amended tax return instructions   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. 2009 amended tax return instructions Personal use. 2009 amended tax return instructions Investments and passive activities (other than those included in (3)). 2009 amended tax return instructions Passive activities in connection with a rental real estate activity in which you actively participate. 2009 amended tax return instructions Former passive activities. 2009 amended tax return instructions Trade or business use and expenses for certain low-income housing projects. 2009 amended tax return instructions Line of credit (continuous borrowings). 2009 amended tax return instructions   The following rules apply if you have a line of credit or similar arrangement. 2009 amended tax return instructions Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. 2009 amended tax return instructions Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. 2009 amended tax return instructions Treat these loans as repaid in the order shown on the loan agreement. 2009 amended tax return instructions Loan refinancing. 2009 amended tax return instructions   Allocate the replacement loan to the same uses to which the repaid loan was allocated. 2009 amended tax return instructions Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. 2009 amended tax return instructions Debt-financed distribution. 2009 amended tax return instructions   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. 2009 amended tax return instructions The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. 2009 amended tax return instructions How to report. 2009 amended tax return instructions   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). 2009 amended tax return instructions If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). 2009 amended tax return instructions If the proceeds were used in an investment activity, enter the interest on Form 4952. 2009 amended tax return instructions If the proceeds are used for personal purposes, the interest is generally not deductible. 2009 amended tax return instructions Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. 2009 amended tax return instructions Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. 2009 amended tax return instructions It does not matter what type of property secures the loan. 2009 amended tax return instructions You can deduct interest on a debt only if you meet all the following requirements. 2009 amended tax return instructions You are legally liable for that debt. 2009 amended tax return instructions Both you and the lender intend that the debt be repaid. 2009 amended tax return instructions You and the lender have a true debtor-creditor relationship. 2009 amended tax return instructions Partial liability. 2009 amended tax return instructions   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. 2009 amended tax return instructions Example. 2009 amended tax return instructions You and your brother borrow money. 2009 amended tax return instructions You are liable for 50% of the note. 2009 amended tax return instructions You use your half of the loan in your business, and you make one-half of the loan payments. 2009 amended tax return instructions You can deduct your half of the total interest payments as a business deduction. 2009 amended tax return instructions Mortgage. 2009 amended tax return instructions   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. 2009 amended tax return instructions However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. 2009 amended tax return instructions Statement. 2009 amended tax return instructions   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. 2009 amended tax return instructions You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. 2009 amended tax return instructions A governmental unit is a person for purposes of furnishing the statement. 2009 amended tax return instructions   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. 2009 amended tax return instructions You cannot deduct this amount. 2009 amended tax return instructions For information on how to report this refund, see Refunds of interest, later in this chapter. 2009 amended tax return instructions Expenses paid to obtain a mortgage. 2009 amended tax return instructions   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. 2009 amended tax return instructions These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. 2009 amended tax return instructions If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. 2009 amended tax return instructions Prepayment penalty. 2009 amended tax return instructions   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. 2009 amended tax return instructions Interest on employment tax deficiency. 2009 amended tax return instructions   Interest charged on employment taxes assessed on your business is deductible. 2009 amended tax return instructions Original issue discount (OID). 2009 amended tax return instructions   OID is a form of interest. 2009 amended tax return instructions A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. 2009 amended tax return instructions The OID is the difference between the stated redemption price at maturity and the issue price of the loan. 2009 amended tax return instructions   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. 2009 amended tax return instructions Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. 2009 amended tax return instructions You generally deduct OID over the term of the loan. 2009 amended tax return instructions Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. 2009 amended tax return instructions De minimis OID. 2009 amended tax return instructions   The OID is de minimis if it is less than one-fourth of 1% (. 2009 amended tax return instructions 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). 2009 amended tax return instructions   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. 2009 amended tax return instructions On a constant-yield basis over the term of the loan. 2009 amended tax return instructions On a straight-line basis over the term of the loan. 2009 amended tax return instructions In proportion to stated interest payments. 2009 amended tax return instructions In its entirety at maturity of the loan. 2009 amended tax return instructions You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. 2009 amended tax return instructions Example. 2009 amended tax return instructions On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. 2009 amended tax return instructions The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. 2009 amended tax return instructions Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. 2009 amended tax return instructions The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . 2009 amended tax return instructions 0025 × 10). 2009 amended tax return instructions You choose to deduct the OID on a straight-line basis over the term of the loan. 2009 amended tax return instructions Beginning in 2013, you can deduct $150 each year for 10 years. 2009 amended tax return instructions Constant-yield method. 2009 amended tax return instructions   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. 2009 amended tax return instructions You figure your deduction for the first year using the following steps. 2009 amended tax return instructions Determine the issue price of the loan. 2009 amended tax return instructions Generally, this equals the proceeds of the loan. 2009 amended tax return instructions If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. 2009 amended tax return instructions Multiply the result in (1) by the yield to maturity. 2009 amended tax return instructions Subtract any qualified stated interest payments from the result in (2). 2009 amended tax return instructions This is the OID you can deduct in the first year. 2009 amended tax return instructions   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). 2009 amended tax return instructions To get the adjusted issue price, add to the issue price any OID previously deducted. 2009 amended tax return instructions Then follow steps (2) and (3) above. 2009 amended tax return instructions   The yield to maturity is generally shown in the literature you receive from your lender. 2009 amended tax return instructions If you do not have this information, consult your lender or tax advisor. 2009 amended tax return instructions In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. 2009 amended tax return instructions Example. 2009 amended tax return instructions The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. 2009 amended tax return instructions The yield to maturity on your loan is 10. 2009 amended tax return instructions 2467%, compounded annually. 2009 amended tax return instructions For 2013, you can deduct $93 [($98,500 × . 2009 amended tax return instructions 102467) − $10,000]. 2009 amended tax return instructions For 2014, you can deduct $103 [($98,593 × . 2009 amended tax return instructions 102467) − $10,000]. 2009 amended tax return instructions Loan or mortgage ends. 2009 amended tax return instructions   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. 2009 amended tax return instructions A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. 2009 amended tax return instructions If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. 2009 amended tax return instructions See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. 2009 amended tax return instructions Points. 2009 amended tax return instructions   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. 2009 amended tax return instructions These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. 2009 amended tax return instructions If any of these charges (points) are solely for the use of money, they are interest. 2009 amended tax return instructions   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. 2009 amended tax return instructions However, you can choose to fully deduct points in the year paid if you meet certain tests. 2009 amended tax return instructions For exceptions to the general rule, see Publication 936. 2009 amended tax return instructions The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. 2009 amended tax return instructions Partial payments on a nontax debt. 2009 amended tax return instructions   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. 2009 amended tax return instructions You can deduct only the interest. 2009 amended tax return instructions This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. 2009 amended tax return instructions Installment purchase. 2009 amended tax return instructions   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. 2009 amended tax return instructions If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). 2009 amended tax return instructions The amount recharacterized as interest reduces your basis in the property and increases your interest expense. 2009 amended tax return instructions For more information on installment sales and unstated interest, see Publication 537. 2009 amended tax return instructions Interest You Cannot Deduct Certain interest payments cannot be deducted. 2009 amended tax return instructions In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. 2009 amended tax return instructions You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. 2009 amended tax return instructions Interest paid with funds borrowed from original lender. 2009 amended tax return instructions   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. 2009 amended tax return instructions You can deduct the interest expense once you start making payments on the new loan. 2009 amended tax return instructions   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. 2009 amended tax return instructions All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. 2009 amended tax return instructions Capitalized interest. 2009 amended tax return instructions   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. 2009 amended tax return instructions See Capitalization of Interest, later. 2009 amended tax return instructions In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. 2009 amended tax return instructions Add this interest to the basis of the property. 2009 amended tax return instructions Commitment fees or standby charges. 2009 amended tax return instructions   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. 2009 amended tax return instructions You may be able to deduct them as business expenses. 2009 amended tax return instructions   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. 2009 amended tax return instructions See Capitalization of Interest, later. 2009 amended tax return instructions Interest on income tax. 2009 amended tax return instructions   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. 2009 amended tax return instructions Treat this interest as a business deduction only in figuring a net operating loss deduction. 2009 amended tax return instructions Penalties. 2009 amended tax return instructions   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. 2009 amended tax return instructions You cannot deduct them. 2009 amended tax return instructions Generally, you cannot deduct any fines or penalties. 2009 amended tax return instructions Interest on loans with respect to life insurance policies. 2009 amended tax return instructions   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. 2009 amended tax return instructions   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. 2009 amended tax return instructions However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. 2009 amended tax return instructions Who is a key person?   A key person is an officer or 20% owner. 2009 amended tax return instructions However, the number of individuals you can treat as key persons is limited to the greater of the following. 2009 amended tax return instructions Five individuals. 2009 amended tax return instructions The lesser of 5% of the total officers and employees of the company or 20 individuals. 2009 amended tax return instructions Exceptions for pre-June 1997 contracts. 2009 amended tax return instructions   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. 2009 amended tax return instructions If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. 2009 amended tax return instructions Interest allocated to unborrowed policy cash value. 2009 amended tax return instructions   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. 2009 amended tax return instructions This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. 2009 amended tax return instructions For more information, see section 264(f) of the Internal Revenue Code. 2009 amended tax return instructions Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. 2009 amended tax return instructions The property must be produced by you for use in your trade or business or for sale to customers. 2009 amended tax return instructions You cannot capitalize interest related to property that you acquire in any other manner. 2009 amended tax return instructions Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. 2009 amended tax return instructions Designated property is any of the following. 2009 amended tax return instructions Real property. 2009 amended tax return instructions Tangible personal property with a class life of 20 years or more. 2009 amended tax return instructions Tangible personal property with an estimated production period of more than 2 years. 2009 amended tax return instructions Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. 2009 amended tax return instructions Property you produce. 2009 amended tax return instructions   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. 2009 amended tax return instructions Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. 2009 amended tax return instructions Carrying charges. 2009 amended tax return instructions   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. 2009 amended tax return instructions You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. 2009 amended tax return instructions For more information, see chapter 7. 2009 amended tax return instructions Capitalized interest. 2009 amended tax return instructions   Treat capitalized interest as a cost of the property produced. 2009 amended tax return instructions You recover your interest when you sell or use the property. 2009 amended tax return instructions If the property is inventory, recover capitalized interest through cost of goods sold. 2009 amended tax return instructions If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. 2009 amended tax return instructions Partnerships and S corporations. 2009 amended tax return instructions   The interest capitalization rules are applied first at the partnership or S corporation level. 2009 amended tax return instructions The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. 2009 amended tax return instructions   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. 2009 amended tax return instructions You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. 2009 amended tax return instructions To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. 2009 amended tax return instructions Additional information. 2009 amended tax return instructions   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. 2009 amended tax return instructions For more information, see sections 1. 2009 amended tax return instructions 263A-8 through 1. 2009 amended tax return instructions 263A-15 of the regulations and Notice 88-99. 2009 amended tax return instructions Notice 88-99 is in Cumulative Bulletin 1988-2. 2009 amended tax return instructions When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. 2009 amended tax return instructions Cash method. 2009 amended tax return instructions   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. 2009 amended tax return instructions You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. 2009 amended tax return instructions Prepaid interest. 2009 amended tax return instructions   You generally cannot deduct any interest paid before the year it is due. 2009 amended tax return instructions Interest paid in advance can be deducted only in the tax year in which it is due. 2009 amended tax return instructions Discounted loan. 2009 amended tax return instructions   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. 2009 amended tax return instructions For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. 2009 amended tax return instructions Refunds of interest. 2009 amended tax return instructions   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. 2009 amended tax return instructions If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. 2009 amended tax return instructions Accrual method. 2009 amended tax return instructions   Under an accrual method, you can deduct only interest that has accrued during the tax year. 2009 amended tax return instructions Prepaid interest. 2009 amended tax return instructions   See Prepaid interest, earlier. 2009 amended tax return instructions Discounted loan. 2009 amended tax return instructions   See Discounted loan, earlier. 2009 amended tax return instructions Tax deficiency. 2009 amended tax return instructions   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. 2009 amended tax return instructions If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. 2009 amended tax return instructions   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. 2009 amended tax return instructions Related person. 2009 amended tax return instructions   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. 2009 amended tax return instructions The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. 2009 amended tax return instructions See section 267 of the Internal Revenue Code for more information. 2009 amended tax return instructions Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. 2009 amended tax return instructions See Treatment of gift and demand loans, later, in this discussion. 2009 amended tax return instructions A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 2009 amended tax return instructions A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. 2009 amended tax return instructions A loan in exchange for a note that requires the payment of interest at the applicable federal rate. 2009 amended tax return instructions An additional payment in an amount equal to the forgone interest. 2009 amended tax return instructions The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. 2009 amended tax return instructions Forgone interest. 2009 amended tax return instructions   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. 2009 amended tax return instructions Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. 2009 amended tax return instructions Internal Revenue Bulletins are available on the IRS web site at www. 2009 amended tax return instructions irs. 2009 amended tax return instructions gov/irb. 2009 amended tax return instructions You can also contact an IRS office to get these rates. 2009 amended tax return instructions Loans subject to the rules. 2009 amended tax return instructions   The rules for below-market loans apply to the following. 2009 amended tax return instructions Gift loans (below-market loans where the forgone interest is in the nature of a gift). 2009 amended tax return instructions Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). 2009 amended tax return instructions Corporation-shareholder loans. 2009 amended tax return instructions Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). 2009 amended tax return instructions Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). 2009 amended tax return instructions   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. 2009 amended tax return instructions Treatment of gift and demand loans. 2009 amended tax return instructions   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. 2009 amended tax return instructions ) equal to the forgone interest on the loan. 2009 amended tax return instructions You are then treated as transferring this amount back to the lender as interest. 2009 amended tax return instructions These transfers are considered to occur annually, generally on December 31. 2009 amended tax return instructions If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. 2009 amended tax return instructions The lender must report it as interest income. 2009 amended tax return instructions Limit on forgone interest for gift loans of $100,000 or less. 2009 amended tax return instructions   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. 2009 amended tax return instructions This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. 2009 amended tax return instructions If the borrower's net investment income is $1,000 or less, it is treated as zero. 2009 amended tax return instructions This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. 2009 amended tax return instructions Treatment of term loans. 2009 amended tax return instructions   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. 2009 amended tax return instructions ) on the date the loan is made. 2009 amended tax return instructions This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. 2009 amended tax return instructions The same amount is treated as original issue discount on the loan. 2009 amended tax return instructions See Original issue discount (OID) under Interest You Can Deduct, earlier. 2009 amended tax return instructions Exceptions for loans of $10,000 or less. 2009 amended tax return instructions   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. 2009 amended tax return instructions This exception applies only to the following. 2009 amended tax return instructions Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. 2009 amended tax return instructions Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. 2009 amended tax return instructions This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. 2009 amended tax return instructions Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. 2009 amended tax return instructions Exceptions for loans without significant tax effect. 2009 amended tax return instructions   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. 2009 amended tax return instructions Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. 2009 amended tax return instructions Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. 2009 amended tax return instructions Certain employee-relocation loans. 2009 amended tax return instructions Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. 2009 amended tax return instructions S. 2009 amended tax return instructions trade or business and not exempt from U. 2009 amended tax return instructions S. 2009 amended tax return instructions tax under an income tax treaty. 2009 amended tax return instructions Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. 2009 amended tax return instructions Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. 2009 amended tax return instructions Consider all the following factors. 2009 amended tax return instructions Whether items of income and deduction generated by the loan offset each other. 2009 amended tax return instructions The amount of the items. 2009 amended tax return instructions The cost of complying with the below-market loan provisions if they were to apply. 2009 amended tax return instructions Any reasons, other than taxes, for structuring the transaction as a below-market loan. 2009 amended tax return instructions Exception for loans to qualified continuing care facilities. 2009 amended tax return instructions   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. 2009 amended tax return instructions A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. 2009 amended tax return instructions Designed to provide services under continuing care contracts (defined below). 2009 amended tax return instructions Includes an independent living unit, and either an assisted living or nursing facility, or both. 2009 amended tax return instructions Substantially all of the independent living unit residents are covered by continuing care contracts. 2009 amended tax return instructions A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. 2009 amended tax return instructions The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. 2009 amended tax return instructions The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. 2009 amended tax return instructions The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. 2009 amended tax return instructions For more information, see section 7872(h) of the Internal Revenue Code. 2009 amended tax return instructions Sale or exchange of property. 2009 amended tax return instructions   Different rules generally apply to a loan connected with the sale or exchange of property. 2009 amended tax return instructions If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. 2009 amended tax return instructions However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. 2009 amended tax return instructions See Unstated Interest and Original Issue Discount (OID) in Publication 537. 2009 amended tax return instructions More information. 2009 amended tax return instructions   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. 2009 amended tax return instructions 7872-5 of the regulations. 2009 amended tax return instructions Prev  Up  Next   Home   More Online Publications
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The 2009 Amended Tax Return Instructions

2009 amended tax return instructions Publication 560 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionSEP plans. 2009 amended tax return instructions SIMPLE plans. 2009 amended tax return instructions Qualified plans. 2009 amended tax return instructions Ordering forms and publications. 2009 amended tax return instructions Tax questions. 2009 amended tax return instructions Future Developments For the latest information about developments related to Publication 560, such as legislation enacted after we release it, go to www. 2009 amended tax return instructions irs. 2009 amended tax return instructions gov/pub560. 2009 amended tax return instructions What's New Compensation limit increased for 2013 and 2014. 2009 amended tax return instructions  For 2013 the maximum compensation used for figuring contributions and benefits increases to $255,000. 2009 amended tax return instructions This limit increases to $260,000 for 2014. 2009 amended tax return instructions Elective deferral limit for 2013 and 2014. 2009 amended tax return instructions  The limit on elective deferrals, other than catch-up contributions, increases to $17,500 for 2013 and remains at $17,500 for 2014. 2009 amended tax return instructions These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(b) plans and section 457(b) plans. 2009 amended tax return instructions Defined contribution limit increased for 2013 and 2014. 2009 amended tax return instructions  The limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan increases to $51,000 for 2013. 2009 amended tax return instructions This limit increases to $52,000 for 2014. 2009 amended tax return instructions SIMPLE plan salary reduction contribution limit for 2013 and 2014. 2009 amended tax return instructions  The limit on salary reduction contributions, other than catch-up contributions, increases to $12,000 for 2013 and remains at $12,000 for 2014. 2009 amended tax return instructions Catch-up contribution limit remains unchanged for 2013 and 2014. 2009 amended tax return instructions  A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions. 2009 amended tax return instructions The catch-up contribution limitation for defined contribution plans other than SIMPLE plans remains unchanged at $5,500 for 2013 and 2014. 2009 amended tax return instructions The catch-up contribution limitation for SIMPLE plans remains unchanged at $2,500 for 2013 and 2014. 2009 amended tax return instructions The catch-up contributions a participant can make for a year cannot exceed the lesser of the following amounts. 2009 amended tax return instructions The catch-up contribution limit. 2009 amended tax return instructions The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 2009 amended tax return instructions See “Catch-up contributions” under Contribution Limits and Limit on Elective Deferrals in chapters 3 and 4, respectively, for more information. 2009 amended tax return instructions All section references are to the Internal Revenue Code, unless otherwise stated. 2009 amended tax return instructions Reminders In-plan Roth rollovers. 2009 amended tax return instructions  Section 402A(c)(4) provides for a distribution from an individual's account in a 401(k) plan, other than from a designated Roth account, that is rolled over to the individual's designated Roth account in the same plan. 2009 amended tax return instructions An in-plan Roth rollover is not treated as a distribution for most purposes. 2009 amended tax return instructions Section 402A(c)(4) was added by the Small Business Jobs Act of 2010 and applies to distributions made after September 27, 2010. 2009 amended tax return instructions For additional guidance on in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. 2009 amended tax return instructions R. 2009 amended tax return instructions B. 2009 amended tax return instructions 872, available at  www. 2009 amended tax return instructions irs. 2009 amended tax return instructions gov/irb/2010-51_IRB/ar11. 2009 amended tax return instructions html. 2009 amended tax return instructions In-plan Roth rollovers expanded. 2009 amended tax return instructions  Beginning in 2013, a plan with designated Roth accounts can permit a participant to roll over amounts into a designated Roth account from his or her other accounts in the same plan, regardless of whether the participant is eligible for a distribution from the other accounts. 2009 amended tax return instructions Section 402A(c)(4) was amended by the American Taxpayer Relief Act of 2012. 2009 amended tax return instructions For more information, see Notice 2013-74, 2013-52 I. 2009 amended tax return instructions R. 2009 amended tax return instructions B. 2009 amended tax return instructions 819, available at www. 2009 amended tax return instructions irs. 2009 amended tax return instructions gov/irb/2013-52_IRB/ar11. 2009 amended tax return instructions html. 2009 amended tax return instructions Credit for startup costs. 2009 amended tax return instructions  You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan. 2009 amended tax return instructions The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. 2009 amended tax return instructions You can choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. 2009 amended tax return instructions You must have had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year. 2009 amended tax return instructions At least one participant must be a non-highly compensated employee. 2009 amended tax return instructions The employees generally cannot be substantially the same employees for whom contributions were made or benefits accrued under a plan of any of the following employers in the 3-tax-year period immediately before the first year to which the credit applies. 2009 amended tax return instructions You. 2009 amended tax return instructions A member of a controlled group that includes you. 2009 amended tax return instructions A predecessor of (1) or (2). 2009 amended tax return instructions The credit is part of the general business credit, which can be carried back or forward to other tax years if it cannot be used in the current year. 2009 amended tax return instructions However, the part of the general business credit attributable to the small employer pension plan startup cost credit cannot be carried back to a tax year beginning before January 1, 2002. 2009 amended tax return instructions You cannot deduct the part of the startup costs equal to the credit claimed for a tax year, but you can choose not to claim the allowable credit for a tax year. 2009 amended tax return instructions To take the credit, use Form 8881, Credit for Small Employer Pension Plan Startup Costs. 2009 amended tax return instructions Retirement savings contributions credit. 2009 amended tax return instructions  Retirement plan participants (including self-employed individuals) who make contributions to their plan may qualify for the retirement savings contribution credit. 2009 amended tax return instructions The maximum contribution eligible for the credit is $2,000. 2009 amended tax return instructions To take the credit, use Form 8880, Credit for Qualified Retirement Savings Contributions. 2009 amended tax return instructions For more information on who is eligible for the credit, retirement plan contributions eligible for the credit and how to figure the credit, see Form 8880 and its instructions or go to the IRS website and search Retirement Topics-Retirement Savings Contributions Credit (Saver's Credit). 2009 amended tax return instructions Photographs of missing children. 2009 amended tax return instructions  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2009 amended tax return instructions Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2009 amended tax return instructions You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2009 amended tax return instructions Introduction This publication discusses retirement plans you can set up and maintain for yourself and your employees. 2009 amended tax return instructions In this publication, “you” refers to the employer. 2009 amended tax return instructions See chapter 1 for the definition of the term employer and the definitions of other terms used in this publication. 2009 amended tax return instructions This publication covers the following types of retirement plans. 2009 amended tax return instructions SEP (simplified employee pension) plans. 2009 amended tax return instructions SIMPLE (savings incentive match plan for employees) plans. 2009 amended tax return instructions Qualified plans (also called H. 2009 amended tax return instructions R. 2009 amended tax return instructions 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans. 2009 amended tax return instructions SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. 2009 amended tax return instructions You can deduct contributions you make to the plan for your employees. 2009 amended tax return instructions If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. 2009 amended tax return instructions You can also deduct trustees' fees if contributions to the plan do not cover them. 2009 amended tax return instructions Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. 2009 amended tax return instructions Under a 401(k) plan, employees can have you contribute limited amounts of their before-tax (after-tax, in the case of a qualified Roth contribution program) pay to the plan. 2009 amended tax return instructions These amounts (and the earnings on them) are generally tax free until your employees receive distributions from the plan or, in the case of a qualified distribution from a designated Roth account, completely tax free. 2009 amended tax return instructions What this publication covers. 2009 amended tax return instructions   This publication contains the information you need to understand the following topics. 2009 amended tax return instructions What type of plan to set up. 2009 amended tax return instructions How to set up a plan. 2009 amended tax return instructions How much you can contribute to a plan. 2009 amended tax return instructions How much of your contribution is deductible. 2009 amended tax return instructions How to treat certain distributions. 2009 amended tax return instructions How to report information about the plan to the IRS and your employees. 2009 amended tax return instructions Basic features of SEP, SIMPLE, and qualified plans. 2009 amended tax return instructions The key rules for SEP, SIMPLE, and qualified plans are outlined in Table 1. 2009 amended tax return instructions SEP plans. 2009 amended tax return instructions   SEPs provide a simplified method for you to make contributions to a retirement plan for yourself and your employees. 2009 amended tax return instructions Instead of setting up a profit-sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for yourself and each eligible employee. 2009 amended tax return instructions SIMPLE plans. 2009 amended tax return instructions   Generally, if you had 100 or fewer employees who received at least $5,000 in compensation last year, you can set up a SIMPLE plan. 2009 amended tax return instructions Under a SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their regular pay. 2009 amended tax return instructions In addition, you will contribute matching or nonelective contributions. 2009 amended tax return instructions The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan. 2009 amended tax return instructions Qualified plans. 2009 amended tax return instructions   The qualified plan rules are more complex than the SEP plan and SIMPLE plan rules. 2009 amended tax return instructions However, there are advantages to qualified plans, such as increased flexibility in designing plans and increased contribution and deduction limits in some cases. 2009 amended tax return instructions Table 1. 2009 amended tax return instructions Key Retirement Plan Rules for 2013 Type  of  Plan Last Date for Contribution Maximum Contribution Maximum Deduction When To Set Up Plan SEP Due date of employer's return (including extensions). 2009 amended tax return instructions Smaller of $51,000 or 25%1 of participant's compensation. 2009 amended tax return instructions 2 25%1 of all participants' compensation. 2009 amended tax return instructions 2 Any time up to the due date of employer's return (including extensions). 2009 amended tax return instructions SIMPLE IRA and SIMPLE 401(k) Salary reduction contributions: 30 days after the end of the month for which the contributions are to be made. 2009 amended tax return instructions 4  Matching or nonelective contributions: Due date of employer's return (including extensions). 2009 amended tax return instructions Employee contribution: Salary reduction contribution up to $12,000, $14,500 if age 50 or over. 2009 amended tax return instructions   Employer contribution:  Either dollar-for-dollar matching contributions, up to 3% of employee's compensation,3 or fixed nonelective contributions of 2% of compensation. 2009 amended tax return instructions 2 Same as maximum contribution. 2009 amended tax return instructions Any time between 1/1 and 10/1 of the calendar year. 2009 amended tax return instructions   For a new employer coming into existence after 10/1, as soon as administratively feasible. 2009 amended tax return instructions Qualified Plan: Defined Contribution Plan  Elective deferral: Due date of employer's return (including extensions). 2009 amended tax return instructions 4   Employer contribution: Money Purchase or Profit-Sharing: Due date of employer's return (including extensions). 2009 amended tax return instructions  Employee contribution: Elective deferral up to $17,500, $23,000 if age 50 or over. 2009 amended tax return instructions   Employer contribution: Money Purchase: Smaller of $51,000 or 100%1 of participant's compensation. 2009 amended tax return instructions 2  Profit-Sharing: Smaller of $51,000 or 100%1 of participant's compensation. 2009 amended tax return instructions 2  25%1 of all participants' compensation2, plus amount of elective deferrals made. 2009 amended tax return instructions   By the end of the tax year. 2009 amended tax return instructions Qualified Plan: Defined Benefit Plan Contributions generally must be paid in quarterly installments, due 15 days after the end of each quarter. 2009 amended tax return instructions See Minimum Funding Requirement in chapter 4. 2009 amended tax return instructions Amount needed to provide an annual benefit no larger than the smaller of $205,000 or 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. 2009 amended tax return instructions Based on actuarial assumptions and computations. 2009 amended tax return instructions By the end of the tax year. 2009 amended tax return instructions 1Net earnings from self-employment must take the contribution into account. 2009 amended tax return instructions See Deduction Limit for Self-Employed Individuals in chapters 2 and 4 . 2009 amended tax return instructions  2Compensation is generally limited to $255,000 in 2013. 2009 amended tax return instructions  3Under a SIMPLE 401(k) plan, compensation is generally limited to $255,000 in 2013. 2009 amended tax return instructions  4Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions and elective deferrals. 2009 amended tax return instructions What this publication does not cover. 2009 amended tax return instructions   Although the purpose of this publication is to provide general information about retirement plans you can set up for your employees, it does not contain all the rules and exceptions that apply to these plans. 2009 amended tax return instructions You may also need professional help and guidance. 2009 amended tax return instructions   Also, this publication does not cover all the rules that may be of interest to employees. 2009 amended tax return instructions For example, it does not cover the following topics. 2009 amended tax return instructions The comprehensive IRA rules an employee needs to know. 2009 amended tax return instructions These rules are covered in Publication 590, Individual Retirement Arrangements (IRAs). 2009 amended tax return instructions The comprehensive rules that apply to distributions from retirement plans. 2009 amended tax return instructions These rules are covered in Publication 575, Pension and Annuity Income. 2009 amended tax return instructions The comprehensive rules that apply to section 403(b) plans. 2009 amended tax return instructions These rules are covered in Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). 2009 amended tax return instructions Comments and suggestions. 2009 amended tax return instructions   We welcome your comments about this publication and your suggestions for future editions. 2009 amended tax return instructions   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2009 amended tax return instructions NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2009 amended tax return instructions Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2009 amended tax return instructions   You can send your comments from www. 2009 amended tax return instructions irs. 2009 amended tax return instructions gov/formspubs. 2009 amended tax return instructions Click on “More Information” and then on “Give us feedback. 2009 amended tax return instructions ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2009 amended tax return instructions Ordering forms and publications. 2009 amended tax return instructions   Visit www. 2009 amended tax return instructions irs. 2009 amended tax return instructions gov/formspubs to download forms  and publications, call 1-800-TAX-FORM  (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2009 amended tax return instructions Internal Revenue Service 1201 N. 2009 amended tax return instructions Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2009 amended tax return instructions   If you have a tax question, check the information available on IRS. 2009 amended tax return instructions gov or call 1-800-829-1040. 2009 amended tax return instructions We cannot answer tax questions sent to either of the above addresses. 2009 amended tax return instructions Note. 2009 amended tax return instructions Forms filed electronically with the Department of Labor are not available on the IRS website. 2009 amended tax return instructions Instead, see www. 2009 amended tax return instructions efast. 2009 amended tax return instructions dol. 2009 amended tax return instructions gov. 2009 amended tax return instructions Prev  Up  Next   Home   More Online Publications