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2010 Tax Preparation Software

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2010 Tax Preparation Software

2010 tax preparation software 4. 2010 tax preparation software   Tax Withholding and Estimated Tax Table of Contents What's New for 2014 Reminders Introduction Useful Items - You may want to see: Tax Withholding for 2014Salaries and Wages Tips Taxable Fringe Benefits Sick Pay Pensions and Annuities Gambling Winnings Unemployment Compensation Federal Payments Backup Withholding Estimated Tax for 2014Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated Tax How To Figure Estimated Tax When To Pay Estimated Tax How To Figure Each Payment How To Pay Estimated Tax Credit for Withholding and Estimated Tax for 2013Withholding Estimated Tax Underpayment Penalty for 2013 What's New for 2014 Tax law changes for 2014. 2010 tax preparation software  When you figure how much income tax you want withheld from your pay and when you figure your estimated tax, consider tax law changes effective in 2014. 2010 tax preparation software For more information, see Publication 505. 2010 tax preparation software Reminders Estimated tax safe harbor for higher income taxpayers. 2010 tax preparation software  If your 2013 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2014 or 110% of the tax shown on your 2013 return to avoid an estimated tax penalty. 2010 tax preparation software Introduction This chapter discusses how to pay your tax as you earn or receive income during the year. 2010 tax preparation software In general, the federal income tax is a pay-as-you-go tax. 2010 tax preparation software There are two ways to pay as you go. 2010 tax preparation software Withholding. 2010 tax preparation software If you are an employee, your employer probably withholds income tax from your pay. 2010 tax preparation software Tax also may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. 2010 tax preparation software The amount withheld is paid to the IRS in your name. 2010 tax preparation software Estimated tax. 2010 tax preparation software If you do not pay your tax through withholding, or do not pay enough tax that way, you may have to pay estimated tax. 2010 tax preparation software People who are in business for themselves generally will have to pay their tax this way. 2010 tax preparation software Also, you may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rent, and royalties. 2010 tax preparation software Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. 2010 tax preparation software This chapter explains these methods. 2010 tax preparation software In addition, it also explains the following. 2010 tax preparation software Credit for withholding and estimated tax. 2010 tax preparation software When you file your 2013 income tax return, take credit for all the income tax withheld from your salary, wages, pensions, etc. 2010 tax preparation software , and for the estimated tax you paid for 2013. 2010 tax preparation software Also take credit for any excess social security or railroad retirement tax withheld (discussed in chapter 37). 2010 tax preparation software Underpayment penalty. 2010 tax preparation software If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. 2010 tax preparation software In most cases, the IRS can figure this penalty for you. 2010 tax preparation software See Underpayment Penalty for 2013 at the end of this chapter. 2010 tax preparation software Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request 1040-ES Estimated Tax for Individuals 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen Tax Withholding for 2014 This section discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. 2010 tax preparation software This section explains the rules for withholding tax from each of these types of income. 2010 tax preparation software This section also covers backup withholding on interest, dividends, and other payments. 2010 tax preparation software Salaries and Wages Income tax is withheld from the pay of most employees. 2010 tax preparation software Your pay includes your regular pay, bonuses, commissions, and vacation allowances. 2010 tax preparation software It also includes reimbursements and other expense allowances paid under a nonaccountable plan. 2010 tax preparation software See Supplemental Wages , later, for more information about reimbursements and allowances paid under a nonaccountable plan. 2010 tax preparation software If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. 2010 tax preparation software This is explained under Exemption From Withholding , later. 2010 tax preparation software You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. 2010 tax preparation software If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . 2010 tax preparation software Military retirees. 2010 tax preparation software   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. 2010 tax preparation software Household workers. 2010 tax preparation software   If you are a household worker, you can ask your employer to withhold income tax from your pay. 2010 tax preparation software A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. 2010 tax preparation software   Tax is withheld only if you want it withheld and your employer agrees to withhold it. 2010 tax preparation software If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . 2010 tax preparation software Farmworkers. 2010 tax preparation software   Generally, income tax is withheld from your cash wages for work on a farm unless your employer does both of these: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. 2010 tax preparation software Differential wage payments. 2010 tax preparation software    When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. 2010 tax preparation software Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. 2010 tax preparation software The wages and withholding will be reported on Form W-2, Wage and Tax Statement. 2010 tax preparation software   The credit employers can claim for differential wages paid to activated military reservists is scheduled to expire for wages paid after December 31, 2013. 2010 tax preparation software Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. 2010 tax preparation software The amount you earn in each payroll period. 2010 tax preparation software The information you give your employer on Form W-4. 2010 tax preparation software Form W-4 includes four types of information that your employer will use to figure your withholding. 2010 tax preparation software Whether to withhold at the single rate or at the lower married rate. 2010 tax preparation software How many withholding allowances you claim (each allowance reduces the amount withheld). 2010 tax preparation software Whether you want an additional amount withheld. 2010 tax preparation software Whether you are claiming an exemption from withholding in 2014. 2010 tax preparation software See Exemption From Withholding , later. 2010 tax preparation software Note. 2010 tax preparation software You must specify a filing status and a number of withholding allowances on Form W-4. 2010 tax preparation software You cannot specify only a dollar amount of withholding. 2010 tax preparation software New Job When you start a new job, you must fill out Form W-4 and give it to your employer. 2010 tax preparation software Your employer should have copies of the form. 2010 tax preparation software If you need to change the information later, you must fill out a new form. 2010 tax preparation software If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. 2010 tax preparation software You may be able to avoid overwithholding if your employer agrees to use the part-year method. 2010 tax preparation software See Part-Year Method in chapter 1 of Publication 505 for more information. 2010 tax preparation software Employee also receiving pension income. 2010 tax preparation software   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. 2010 tax preparation software However, you can choose to split your withholding allowances between your pension and job in any manner. 2010 tax preparation software Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. 2010 tax preparation software When this happens, you may need to give your employer a new Form W-4 to change your withholding status or your number of allowances. 2010 tax preparation software If the changes reduce the number of allowances you are claiming or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. 2010 tax preparation software Generally, you can submit a new Form W-4 whenever you wish to change the number of your withholding allowances for any other reason. 2010 tax preparation software Changing your withholding for 2015. 2010 tax preparation software   If events in 2014 will decrease the number of your withholding allowances for 2015, you must give your employer a new Form W-4 by December 1, 2014. 2010 tax preparation software If the event occurs in December 2014, submit a new Form W-4 within 10 days. 2010 tax preparation software Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. 2010 tax preparation software If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. 2010 tax preparation software You should try to have your withholding match your actual tax liability. 2010 tax preparation software If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. 2010 tax preparation software If too much tax is withheld, you will lose the use of that money until you get your refund. 2010 tax preparation software Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. 2010 tax preparation software Note. 2010 tax preparation software You cannot give your employer a payment to cover withholding on salaries and wages for past pay periods or a payment for estimated tax. 2010 tax preparation software Completing Form W-4 and Worksheets Form W-4 has worksheets to help you figure how many withholding allowances you can claim. 2010 tax preparation software The worksheets are for your own records. 2010 tax preparation software Do not give them to your employer. 2010 tax preparation software Multiple jobs. 2010 tax preparation software   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. 2010 tax preparation software Then split your allowances between the Forms W-4 for each job. 2010 tax preparation software You cannot claim the same allowances with more than one employer at the same time. 2010 tax preparation software You can claim all your allowances with one employer and none with the other(s), or divide them any other way. 2010 tax preparation software Married individuals. 2010 tax preparation software   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. 2010 tax preparation software Use only one set of worksheets. 2010 tax preparation software You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. 2010 tax preparation software   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. 2010 tax preparation software Alternative method of figuring withholding allowances. 2010 tax preparation software   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. 2010 tax preparation software For more information, see Alternative method of figuring withholding allowances under Completing Form W-4 and Worksheets in Publication 505, chapter 1. 2010 tax preparation software Personal Allowances Worksheet. 2010 tax preparation software   Use the Personal Allowances Worksheet on Form W-4 to figure your withholding allowances based on exemptions and any special allowances that apply. 2010 tax preparation software Deduction and Adjustments Worksheet. 2010 tax preparation software   Use the Deduction and Adjustments Worksheet on Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. 2010 tax preparation software Also, complete this worksheet when you have changes to these items to see if you need to change your withholding. 2010 tax preparation software Two-Earners/Multiple Jobs Worksheet. 2010 tax preparation software   You may need to complete the Two-Earners/Multiple Jobs Worksheet on Form W-4 if you have more than one job, a working spouse, or are also receiving a pension. 2010 tax preparation software Also, on this worksheet you can add any additional withholding necessary to cover any amount you expect to owe other than income tax, such as self-employment tax. 2010 tax preparation software Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. 2010 tax preparation software You accurately complete all the Form W-4 worksheets that apply to you. 2010 tax preparation software You give your employer a new Form W-4 when changes occur. 2010 tax preparation software But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. 2010 tax preparation software This is most likely to happen in the following situations. 2010 tax preparation software You are married and both you and your spouse work. 2010 tax preparation software You have more than one job at a time. 2010 tax preparation software You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. 2010 tax preparation software You will owe additional amounts with your return, such as self-employment tax. 2010 tax preparation software Your withholding is based on obsolete Form W-4 information for a substantial part of the year. 2010 tax preparation software Your earnings are more than the amount shown under Check your withholding in the instructions at the top of page 1 of Form W-4. 2010 tax preparation software You work only part of the year. 2010 tax preparation software You change the number of your withholding allowances during the year. 2010 tax preparation software Cumulative wage method. 2010 tax preparation software   If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. 2010 tax preparation software You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. 2010 tax preparation software You must ask your employer in writing to use this method. 2010 tax preparation software   To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. 2010 tax preparation software ) since the beginning of the year. 2010 tax preparation software Publication 505 To make sure you are getting the right amount of tax withheld, get Publication 505. 2010 tax preparation software It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. 2010 tax preparation software It also will help you determine how much, if any, additional withholding is needed each payday to avoid owing tax when you file your return. 2010 tax preparation software If you do not have enough tax withheld, you may have to pay estimated tax, as explained under Estimated Tax for 2014 , later. 2010 tax preparation software You can use the IRS Withholding Calculator at www. 2010 tax preparation software irs. 2010 tax preparation software gov/Individuals, instead of Publication 505 or the worksheets included with Form W-4, to determine whether you need to have your withholding increased or decreased. 2010 tax preparation software Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. 2010 tax preparation software These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. 2010 tax preparation software New Form W-4. 2010 tax preparation software   When you start a new job, your employer should have you complete a Form W-4. 2010 tax preparation software Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. 2010 tax preparation software   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. 2010 tax preparation software The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. 2010 tax preparation software No Form W-4. 2010 tax preparation software   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. 2010 tax preparation software Repaying withheld tax. 2010 tax preparation software   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. 2010 tax preparation software Your employer cannot repay any of the tax previously withheld. 2010 tax preparation software Instead, claim the full amount withheld when you file your tax return. 2010 tax preparation software   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. 2010 tax preparation software Your employer can repay the amount that was withheld incorrectly. 2010 tax preparation software If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. 2010 tax preparation software Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. 2010 tax preparation software The exemption applies only to income tax, not to social security or Medicare tax. 2010 tax preparation software You can claim exemption from withholding for 2014 only if both of the following situations apply. 2010 tax preparation software For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. 2010 tax preparation software For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. 2010 tax preparation software Students. 2010 tax preparation software   If you are a student, you are not automatically exempt. 2010 tax preparation software See chapter 1 to find out if you must file a return. 2010 tax preparation software If you work only part time or only during the summer, you may qualify for exemption from withholding. 2010 tax preparation software Age 65 or older or blind. 2010 tax preparation software   If you are 65 or older or blind, use Worksheet 1-3 or 1-4 in chapter 1 of Publication 505, to help you decide if you qualify for exemption from withholding. 2010 tax preparation software Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. 2010 tax preparation software Instead, see Itemizing deductions or claiming exemptions or credits in chapter 1 of Publication 505. 2010 tax preparation software Claiming exemption from withholding. 2010 tax preparation software   To claim exemption, you must give your employer a Form W-4. 2010 tax preparation software Do not complete lines 5 and 6. 2010 tax preparation software Enter “Exempt” on line 7. 2010 tax preparation software   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. 2010 tax preparation software If you claim exemption in 2014, but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. 2010 tax preparation software   Your claim of exempt status may be reviewed by the IRS. 2010 tax preparation software An exemption is good for only 1 year. 2010 tax preparation software   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. 2010 tax preparation software Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. 2010 tax preparation software The payer can figure withholding on supplemental wages using the same method used for your regular wages. 2010 tax preparation software However, if these payments are identified separately from your regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. 2010 tax preparation software Expense allowances. 2010 tax preparation software   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. 2010 tax preparation software   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. 2010 tax preparation software   For more information about accountable and nonaccountable expense allowance plans, see Reimbursements in chapter 26. 2010 tax preparation software Penalties You may have to pay a penalty of $500 if both of the following apply. 2010 tax preparation software You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. 2010 tax preparation software You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. 2010 tax preparation software There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. 2010 tax preparation software The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. 2010 tax preparation software These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. 2010 tax preparation software A simple error or an honest mistake will not result in one of these penalties. 2010 tax preparation software For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a W-4 penalty. 2010 tax preparation software Tips The tips you receive while working on your job are considered part of your pay. 2010 tax preparation software You must include your tips on your tax return on the same line as your regular pay. 2010 tax preparation software However, tax is not withheld directly from tip income, as it is from your regular pay. 2010 tax preparation software Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. 2010 tax preparation software See chapter 6 for information on reporting your tips to your employer. 2010 tax preparation software For more information on the withholding rules for tip income, see Publication 531, Reporting Tip Income. 2010 tax preparation software How employer figures amount to withhold. 2010 tax preparation software   The tips you report to your employer are counted as part of your income for the month you report them. 2010 tax preparation software Your employer can figure your withholding in either of two ways. 2010 tax preparation software By withholding at the regular rate on the sum of your pay plus your reported tips. 2010 tax preparation software By withholding at the regular rate on your pay plus a percentage of your reported tips. 2010 tax preparation software Not enough pay to cover taxes. 2010 tax preparation software   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. 2010 tax preparation software See Giving your employer money for taxes in chapter 6. 2010 tax preparation software Allocated tips. 2010 tax preparation software   Your employer should not withhold income tax, Medicare tax, social security tax, or railroad retirement tax on any allocated tips. 2010 tax preparation software Withholding is based only on your pay plus your reported tips. 2010 tax preparation software Your employer should refund to you any incorrectly withheld tax. 2010 tax preparation software See Allocated Tips in chapter 6 for more information. 2010 tax preparation software Taxable Fringe Benefits The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. 2010 tax preparation software Your employer generally must withhold income tax on these benefits from your regular pay. 2010 tax preparation software For information on fringe benefits, see Fringe Benefits under Employee Compensation in chapter 5. 2010 tax preparation software Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. 2010 tax preparation software Your employer must notify you if this choice is made. 2010 tax preparation software For more information on withholding on taxable fringe benefits, see chapter 1 of Publication 505. 2010 tax preparation software Sick Pay Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. 2010 tax preparation software To qualify as sick pay, it must be paid under a plan to which your employer is a party. 2010 tax preparation software If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. 2010 tax preparation software An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate. 2010 tax preparation software However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. 2010 tax preparation software See Form W-4S , later. 2010 tax preparation software If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable. 2010 tax preparation software Union agreements. 2010 tax preparation software   If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. 2010 tax preparation software See your union representative or your employer for more information. 2010 tax preparation software Form W-4S. 2010 tax preparation software   If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. 2010 tax preparation software Its instructions contain a worksheet you can use to figure the amount you want withheld. 2010 tax preparation software They also explain restrictions that may apply. 2010 tax preparation software   Give the completed form to the payer of your sick pay. 2010 tax preparation software The payer must withhold according to your directions on the form. 2010 tax preparation software Estimated tax. 2010 tax preparation software   If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to make estimated tax payments. 2010 tax preparation software If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. 2010 tax preparation software See Underpayment Penalty for 2013 at the end of this chapter. 2010 tax preparation software Pensions and Annuities Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. 2010 tax preparation software This rule applies to distributions from: A traditional individual retirement arrangement (IRA); A life insurance company under an endowment, annuity, or life insurance contract; A pension, annuity, or profit-sharing plan; A stock bonus plan; and Any other plan that defers the time you receive compensation. 2010 tax preparation software The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). 2010 tax preparation software Income tax withholding from an ERD is mandatory. 2010 tax preparation software More information. 2010 tax preparation software   For more information on taxation of annuities and distributions (including ERDs) from qualified retirement plans, see chapter 10. 2010 tax preparation software For information on IRAs, see chapter 17. 2010 tax preparation software For more information on withholding on pensions and annuities, including a discussion of Form W-4P, see Pensions and Annuities in chapter 1 of Publication 505. 2010 tax preparation software Gambling Winnings Income tax is withheld at a flat 25% rate from certain kinds of gambling winnings. 2010 tax preparation software Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding. 2010 tax preparation software Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery. 2010 tax preparation software Any other wager, if the proceeds are at least 300 times the amount of the bet. 2010 tax preparation software It does not matter whether your winnings are paid in cash, in property, or as an annuity. 2010 tax preparation software Winnings not paid in cash are taken into account at their fair market value. 2010 tax preparation software Exception. 2010 tax preparation software   Gambling winnings from bingo, keno, and slot machines generally are not subject to income tax withholding. 2010 tax preparation software However, you may need to provide the payer with a social security number to avoid withholding. 2010 tax preparation software See Backup withholding on gambling winnings in chapter 1 of Publication 505. 2010 tax preparation software If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. 2010 tax preparation software See Estimated Tax for 2014 , later. 2010 tax preparation software If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. 2010 tax preparation software See Underpayment Penalty for 2013 at the end of this chapter. 2010 tax preparation software Form W-2G. 2010 tax preparation software   If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld. 2010 tax preparation software Report the tax withheld on line 62 of Form 1040. 2010 tax preparation software Unemployment Compensation You can choose to have income tax withheld from unemployment compensation. 2010 tax preparation software To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. 2010 tax preparation software All unemployment compensation is taxable. 2010 tax preparation software So, if you do not have income tax withheld, you may have to pay estimated tax. 2010 tax preparation software See Estimated Tax for 2014 , later. 2010 tax preparation software If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. 2010 tax preparation software For information, see Underpayment Penalty for 2013 at the end of this chapter. 2010 tax preparation software Federal Payments You can choose to have income tax withheld from certain federal payments you receive. 2010 tax preparation software These payments are: Social security benefits, Tier 1 railroad retirement benefits, Commodity credit corporation loans you choose to include in your gross income, Payments under the Agricultural Act of 1949 (7 U. 2010 tax preparation software S. 2010 tax preparation software C. 2010 tax preparation software 1421 et. 2010 tax preparation software seq. 2010 tax preparation software ), as amended, or title II of the Disaster Assistance Act of 1988, that are treated as insurance proceeds and that you receive because: Your crops were destroyed or damaged by drought, flood, or any other natural disaster, or You were unable to plant crops because of a natural disaster described in (a), and Any other payment under Federal law as determined by the Secretary. 2010 tax preparation software To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. 2010 tax preparation software If you do not choose to have income tax withheld, you may have to pay estimated tax. 2010 tax preparation software See Estimated Tax for 2014 , later. 2010 tax preparation software If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. 2010 tax preparation software For information, see Underpayment Penalty for 2013 at the end of this chapter. 2010 tax preparation software More information. 2010 tax preparation software   For more information about the tax treatment of social security and railroad retirement benefits, see chapter 11. 2010 tax preparation software Get Publication 225, Farmer's Tax Guide, for information about the tax treatment of commodity credit corporation loans or crop disaster payments. 2010 tax preparation software Backup Withholding Banks or other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. 2010 tax preparation software The information return shows how much you were paid during the year. 2010 tax preparation software It also includes your name and taxpayer identification number (TIN). 2010 tax preparation software TINs are explained in chapter 1 under Social Security Number (SSN) . 2010 tax preparation software These payments generally are not subject to withholding. 2010 tax preparation software However, “backup” withholding is required in certain situations. 2010 tax preparation software Backup withholding can apply to most kinds of payments that are reported on Form 1099. 2010 tax preparation software The payer must withhold at a flat 28% rate in the following situations. 2010 tax preparation software You do not give the payer your TIN in the required manner. 2010 tax preparation software The IRS notifies the payer that the TIN you gave is incorrect. 2010 tax preparation software You are required, but fail, to certify that you are not subject to backup withholding. 2010 tax preparation software The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. 2010 tax preparation software The IRS will do this only after it has mailed you four notices over at least a 210-day period. 2010 tax preparation software See Backup Withholding in chapter 1 of Publication 505 for more information. 2010 tax preparation software Penalties. 2010 tax preparation software   There are civil and criminal penalties for giving false information to avoid backup withholding. 2010 tax preparation software The civil penalty is $500. 2010 tax preparation software The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to 1 year, or both. 2010 tax preparation software Estimated Tax for 2014 Estimated tax is the method used to pay tax on income that is not subject to withholding. 2010 tax preparation software This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. 2010 tax preparation software You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. 2010 tax preparation software Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. 2010 tax preparation software If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. 2010 tax preparation software If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax , later), you may be charged a penalty even if you are due a refund when you file your tax return. 2010 tax preparation software For information on when the penalty applies, see Underpayment Penalty for 2013 at the end of this chapter. 2010 tax preparation software Who Does Not Have To Pay Estimated Tax If you receive salaries or wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. 2010 tax preparation software To do this, give a new Form W-4 to your employer. 2010 tax preparation software See chapter 1 of Publication 505. 2010 tax preparation software Estimated tax not required. 2010 tax preparation software   You do not have to pay estimated tax for 2014 if you meet all three of the following conditions. 2010 tax preparation software You had no tax liability for 2013. 2010 tax preparation software You were a U. 2010 tax preparation software S. 2010 tax preparation software citizen or resident alien for the whole year. 2010 tax preparation software Your 2013 tax year covered a 12-month period. 2010 tax preparation software   You had no tax liability for 2013 if your total tax was zero or you did not have to file an income tax return. 2010 tax preparation software For the definition of “total tax” for 2013, see Publication 505, chapter 2. 2010 tax preparation software Who Must Pay Estimated Tax If you owe additional tax for 2013, you may have to pay estimated tax for 2014. 2010 tax preparation software You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. 2010 tax preparation software General rule. 2010 tax preparation software   In most cases, you must pay estimated tax for 2014 if both of the following apply. 2010 tax preparation software You expect to owe at least $1,000 in tax for 2014, after subtracting your withholding and refundable credits. 2010 tax preparation software You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers, later). 2010 tax preparation software Your 2013 tax return must cover all 12 months. 2010 tax preparation software    If the result from using the general rule above suggests that you will not have enough withholding, complete the 2014 Estimated Tax Worksheet in Publication 505 for a more accurate calculation. 2010 tax preparation software Special rules for farmers, fishermen, and higher income taxpayers. 2010 tax preparation software   If at least two-thirds of your gross income for tax year 2013 or 2014 is from farming or fishing, substitute 662/3% for 90% in (2a) under the General rule, earlier. 2010 tax preparation software If your AGI for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing a separate return), substitute 110% for 100% in (2b) under General rule , earlier. 2010 tax preparation software See Figure 4-A and Publication 505, chapter 2 for more information. 2010 tax preparation software Figure 4-A. 2010 tax preparation software Do You Have To Pay Estimated Tax? Please click here for the text description of the image. 2010 tax preparation software Figure 4-A Do You Have To Pay Estimated Tax? Aliens. 2010 tax preparation software   Resident and nonresident aliens also may have to pay estimated tax. 2010 tax preparation software Resident aliens should follow the rules in this chapter unless noted otherwise. 2010 tax preparation software Nonresident aliens should get Form 1040-ES (NR), U. 2010 tax preparation software S. 2010 tax preparation software Estimated Tax for Nonresident Alien Individuals. 2010 tax preparation software   You are an alien if you are not a citizen or national of the United States. 2010 tax preparation software You are a resident alien if you either have a green card or meet the substantial presence test. 2010 tax preparation software For more information about the substantial presence test, see Publication 519, U. 2010 tax preparation software S. 2010 tax preparation software Tax Guide for Aliens. 2010 tax preparation software Married taxpayers. 2010 tax preparation software   If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income. 2010 tax preparation software   You and your spouse can make joint estimated tax payments even if you are not living together. 2010 tax preparation software   However, you and your spouse cannot make joint estimated tax payments if:  You are legally separated under a decree of divorce or separate maintenance, You and your spouse have different tax years, or Either spouse is a nonresident alien (unless that spouse elected to be treated as a resident alien for tax purposes (see chapter 1 of Publication 519)). 2010 tax preparation software   If you do not qualify to make joint estimated tax payments, apply these rules to your separate estimated income. 2010 tax preparation software Making joint or separate estimated tax payments will not affect your choice of filing a joint tax return or separate returns for 2014. 2010 tax preparation software 2013 separate returns and 2014 joint return. 2010 tax preparation software   If you plan to file a joint return with your spouse for 2014, but you filed separate returns for 2013, your 2013 tax is the total of the tax shown on your separate returns. 2010 tax preparation software You filed a separate return if you filed as single, head of household, or married filing separately. 2010 tax preparation software 2013 joint return and 2014 separate returns. 2010 tax preparation software   If you plan to file a separate return for 2014 but you filed a joint return for 2013, your 2013 tax is your share of the tax on the joint return. 2010 tax preparation software You file a separate return if you file as single, head of household, or married filing separately. 2010 tax preparation software   To figure your share of the tax on the joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2013 using the same filing status as for 2014. 2010 tax preparation software Then multiply the tax on the joint return by the following fraction. 2010 tax preparation software     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. 2010 tax preparation software Joe and Heather filed a joint return for 2013 showing taxable income of $48,500 and a tax of $6,386. 2010 tax preparation software Of the $48,500 taxable income, $40,100 was Joe's and the rest was Heather's. 2010 tax preparation software For 2014, they plan to file married filing separately. 2010 tax preparation software Joe figures his share of the tax on the 2013 joint return as follows. 2010 tax preparation software   Tax on $40,100 based on a separate return $5,960     Tax on $8,400 based on a separate return 843     Total $6,803     Joe's percentage of total ($5,960 ÷ $6,803) 87. 2010 tax preparation software 6%     Joe's share of tax on joint return  ($6,386 × 87. 2010 tax preparation software 6%) $5,594   How To Figure Estimated Tax To figure your estimated tax, you must figure your expected adjusted gross income (AGI), taxable income, taxes, deductions, and credits for the year. 2010 tax preparation software When figuring your 2014 estimated tax, it may be helpful to use your income, deductions, and credits for 2013 as a starting point. 2010 tax preparation software Use your 2013 federal tax return as a guide. 2010 tax preparation software You can use Form 1040-ES and Publication 505 to figure your estimated tax. 2010 tax preparation software Nonresident aliens use Form 1040-ES (NR) and Publication 505 to figure estimated tax (see chapter 8 of Publication 519 for more information). 2010 tax preparation software You must make adjustments both for changes in your own situation and for recent changes in the tax law. 2010 tax preparation software For a discussion of these changes, visit IRS. 2010 tax preparation software gov. 2010 tax preparation software For more complete information on how to figure your estimated tax for 2014, see chapter 2 of Publication 505. 2010 tax preparation software When To Pay Estimated Tax For estimated tax purposes, the tax year is divided into four payment periods. 2010 tax preparation software Each period has a specific payment due date. 2010 tax preparation software If you do not pay enough tax by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your income tax return. 2010 tax preparation software The payment periods and due dates for estimated tax payments are shown next. 2010 tax preparation software   For the period: Due date:*     Jan. 2010 tax preparation software 1 – March 31 April 15     April 1 – May 31 June 16     June 1 – August 31 Sept. 2010 tax preparation software 15     Sept. 2010 tax preparation software 1– Dec. 2010 tax preparation software 31 Jan. 2010 tax preparation software 15, next year     *See Saturday, Sunday, holiday rule and January payment . 2010 tax preparation software Saturday, Sunday, holiday rule. 2010 tax preparation software   If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday. 2010 tax preparation software January payment. 2010 tax preparation software   If you file your 2014 Form 1040 or Form 1040A by January 31, 2015, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2015. 2010 tax preparation software Fiscal year taxpayers. 2010 tax preparation software   If your tax year does not start on January 1, see the Form 1040-ES instructions for your payment due dates. 2010 tax preparation software When To Start You do not have to make estimated tax payments until you have income on which you will owe income tax. 2010 tax preparation software If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. 2010 tax preparation software You can pay all your estimated tax at that time, or you can pay it in installments. 2010 tax preparation software If you choose to pay in installments, make your first payment by the due date for the first payment period. 2010 tax preparation software Make your remaining installment payments by the due dates for the later periods. 2010 tax preparation software No income subject to estimated tax during first period. 2010 tax preparation software    If you do not have income subject to estimated tax until a later payment period, you must make your first payment by the due date for that period. 2010 tax preparation software You can pay your entire estimated tax by the due date for that period or you can pay it in installments by the due date for that period and the due dates for the remaining periods. 2010 tax preparation software The following chart shows when to make installment payments. 2010 tax preparation software If you first have income on which you must pay estimated tax: Make a payment  by:* Make later installments by:* Before April 1 April 15 June 16 Sept. 2010 tax preparation software 15 Jan. 2010 tax preparation software 15 next year April 1–May 31 June 16 Sept. 2010 tax preparation software 15 Jan. 2010 tax preparation software 15 next year June 1–Aug. 2010 tax preparation software 31 Sept. 2010 tax preparation software 15 Jan. 2010 tax preparation software 15 next year After Aug. 2010 tax preparation software 31 Jan. 2010 tax preparation software 15 next year (None) *See Saturday, Sunday, holiday rule and January payment . 2010 tax preparation software How much to pay to avoid a penalty. 2010 tax preparation software   To determine how much you should pay by each payment due date, see How To Figure Each Payment, next. 2010 tax preparation software How To Figure Each Payment You should pay enough estimated tax by the due date of each payment period to avoid a penalty for that period. 2010 tax preparation software You can figure your required payment for each period by using either the regular installment method or the annualized income installment method. 2010 tax preparation software These methods are described in chapter 2 of Publication 505. 2010 tax preparation software If you do not pay enough during each payment period, you may be charged a penalty even if you are due a refund when you file your tax return. 2010 tax preparation software If the earlier discussion of No income subject to estimated tax during first period or the later discussion of Change in estimated tax applies to you, you may benefit from reading Annualized Income Installment Method in chapter 2 of Publication 505 for information on how to avoid a penalty. 2010 tax preparation software Underpayment penalty. 2010 tax preparation software   Under the regular installment method, if your estimated tax payment for any period is less than one-fourth of your estimated tax, you may be charged a penalty for underpayment of estimated tax for that period when you file your tax return. 2010 tax preparation software Under the annualized income installment method, your estimated tax payments vary with your income, but the amount required must be paid each period. 2010 tax preparation software See chapter 4 of Publication 505 for more information. 2010 tax preparation software Change in estimated tax. 2010 tax preparation software   After you make an estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. 2010 tax preparation software Pay the unpaid balance of your amended estimated tax by the next payment due date after the change or in installments by that date and the due dates for the remaining payment periods. 2010 tax preparation software Estimated Tax Payments Not Required You do not have to pay estimated tax if your withholding in each payment period is at least as much as: One-fourth of your required annual payment, or Your required annualized income installment for that period. 2010 tax preparation software You also do not have to pay estimated tax if you will pay enough through withholding to keep the amount you owe with your return under $1,000. 2010 tax preparation software How To Pay Estimated Tax There are several ways to pay estimated tax. 2010 tax preparation software Credit an overpayment on your 2013 return to your 2014 estimated tax. 2010 tax preparation software Pay by direct transfer from your bank account, or pay by credit or debit card using a pay-by-phone system or the Internet. 2010 tax preparation software Send in your payment (check or money order) with a payment voucher from Form 1040-ES. 2010 tax preparation software Credit an Overpayment If you show an overpayment of tax after completing your Form 1040 or Form 1040A for 2013, you can apply part or all of it to your estimated tax for 2014. 2010 tax preparation software On line 75 of Form 1040, or line 44 of Form 1040A, enter the amount you want credited to your estimated tax rather than refunded. 2010 tax preparation software Take the amount you have credited into account when figuring your estimated tax payments. 2010 tax preparation software You cannot have any of the amount you credited to your estimated tax refunded to you until you file your tax return for the following year. 2010 tax preparation software You also cannot use that overpayment in any other way. 2010 tax preparation software Pay Online Paying online is convenient and secure and helps make sure we get your payments on time. 2010 tax preparation software You can pay using either of the following electronic payment methods. 2010 tax preparation software Direct transfer from your bank account. 2010 tax preparation software Credit or debit card. 2010 tax preparation software To pay your taxes online or for more information, go to www. 2010 tax preparation software irs. 2010 tax preparation software gov/e-pay. 2010 tax preparation software Pay by Phone Paying by phone is another safe and secure method of paying electronically. 2010 tax preparation software Use one of the following methods. 2010 tax preparation software Direct transfer from your bank account. 2010 tax preparation software Credit or debit card. 2010 tax preparation software To pay by direct transfer from your bank account, call 1-800-555-4477 (English), 1-800-244-4829 (Espanol). 2010 tax preparation software People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD can call 1-800-733-4829. 2010 tax preparation software To pay using a credit or debit card, you can call one of the following service providers. 2010 tax preparation software There is a convenience fee charged by these providers that varies by provider, card type, and payment amount. 2010 tax preparation software WorldPay 1-888-9-PAY-TAXTM(1-888-972-9829) www. 2010 tax preparation software payUSAtax. 2010 tax preparation software com Official Payments Corporation 1-888-UPAY-TAXTM (1-888-872-9829) www. 2010 tax preparation software officialpayments. 2010 tax preparation software com Link2Gov Corporation 1-888-PAY-1040TM (1-888-729-1040) www. 2010 tax preparation software PAY1040. 2010 tax preparation software com For the latest details on how to pay by phone, go to www. 2010 tax preparation software irs. 2010 tax preparation software gov/e-pay. 2010 tax preparation software Pay by Check or Money Order Using the Estimated Tax Payment Voucher Each payment of estimated tax by check or money order must be accompanied by a payment voucher from Form 1040-ES. 2010 tax preparation software During 2013, if you: made at least one estimated tax payment but not by electronic means, did not use software or a paid preparer to prepare or file your return,  then you should receive a copy of the 2014 Form 1040-ES/V. 2010 tax preparation software The enclosed payment vouchers will be preprinted with your name, address, and social security number. 2010 tax preparation software Using the preprinted vouchers will speed processing, reduce the chance of error, and help save processing costs. 2010 tax preparation software Use the window envelopes that came with your Form 1040-ES package. 2010 tax preparation software If you use your own envelopes, make sure you mail your payment vouchers to the address shown in the Form 1040-ES instructions for the place where you live. 2010 tax preparation software Note. 2010 tax preparation software These criteria can change without notice. 2010 tax preparation software If you do not receive a Form 1040-ES/V package and you are required to make an estimated tax payment, you should go to www. 2010 tax preparation software irs. 2010 tax preparation software gov and print a copy of Form 1040-ES which includes four blank payment vouchers. 2010 tax preparation software Complete one of these and make your payment timely to avoid penalties for paying late. 2010 tax preparation software Do not use the address shown in the Form 1040 or Form 1040A instructions for your estimated tax payments. 2010 tax preparation software If you did not pay estimated tax last year, you can order Form 1040-ES from the IRS (see inside back cover of this publication) or download it from IRS. 2010 tax preparation software gov. 2010 tax preparation software Follow the instructions to make sure you use the vouchers correctly. 2010 tax preparation software Joint estimated tax payments. 2010 tax preparation software   If you file a joint return and are making joint estimated tax payments, enter the names and social security numbers on the payment voucher in the same order as they will appear on the joint return. 2010 tax preparation software Change of address. 2010 tax preparation software   You must notify the IRS if you are making estimated tax payments and you changed your address during the year. 2010 tax preparation software Complete Form 8822, Change of Address, and mail it to the address shown in the instructions for that form. 2010 tax preparation software Credit for Withholding and Estimated Tax for 2013 When you file your 2013 income tax return, take credit for all the income tax and excess social security or railroad retirement tax withheld from your salary, wages, pensions, etc. 2010 tax preparation software Also take credit for the estimated tax you paid for 2013. 2010 tax preparation software These credits are subtracted from your total tax. 2010 tax preparation software Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. 2010 tax preparation software Two or more employers. 2010 tax preparation software   If you had two or more employers in 2013 and were paid wages of more than $113,700, too much social security or tier 1 railroad retirement tax may have been withheld from your pay. 2010 tax preparation software You may be able to claim the excess as a credit against your income tax when you file your return. 2010 tax preparation software See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld in chapter 37. 2010 tax preparation software Withholding If you had income tax withheld during 2013, you should be sent a statement by January 31, 2014, showing your income and the tax withheld. 2010 tax preparation software Depending on the source of your income, you should receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. 2010 tax preparation software Forms W-2 and W-2G. 2010 tax preparation software   If you file a paper return, always file Form W-2 with your income tax return. 2010 tax preparation software File Form W-2G with your return only if it shows any federal income tax withheld from your winnings. 2010 tax preparation software   You should get at least two copies of each form. 2010 tax preparation software If you file a paper return, attach one copy to the front of your federal income tax return. 2010 tax preparation software Keep one copy for your records. 2010 tax preparation software You also should receive copies to file with your state and local returns. 2010 tax preparation software Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. 2010 tax preparation software You should receive a separate Form W-2 from each employer you worked for. 2010 tax preparation software If you stopped working before the end of 2013, your employer could have given you your Form W-2 at any time after you stopped working. 2010 tax preparation software However, your employer must provide or send it to you by January 31, 2014. 2010 tax preparation software If you ask for the form, your employer must send it to you within 30 days after receiving your written request or within 30 days after your final wage payment, whichever is later. 2010 tax preparation software If you have not received your Form W-2 by January 31, you should ask your employer for it. 2010 tax preparation software If you do not receive it by February 15, call the IRS. 2010 tax preparation software Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. 2010 tax preparation software Include the federal income tax withheld (as shown in box 2 of Form W-2) on: Line 62 if you file Form 1040, Line 36 if you file Form 1040A, or Line 7 if you file Form 1040EZ. 2010 tax preparation software In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. 2010 tax preparation software Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. 2010 tax preparation software If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. 2010 tax preparation software Report the amounts you won on line 21 of Form 1040. 2010 tax preparation software Take credit for the tax withheld on line 62 of Form 1040. 2010 tax preparation software If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. 2010 tax preparation software The 1099 Series Most forms in the 1099 series are not filed with your return. 2010 tax preparation software These forms should be furnished to you by January 31, 2014 (or, for Forms 1099-B, 1099-S, and certain Forms 1099-MISC, by February 15, 2014). 2010 tax preparation software Unless instructed to file any of these forms with your return, keep them for your records. 2010 tax preparation software There are several different forms in this series, including: Form 1099-B, Proceeds From Broker and Barter Exchange Transactions; Form 1099-DIV, Dividends and Distributions; Form 1099-G, Certain Government Payments; Form 1099-INT, Interest Income; Form 1099-K, Payment Card and Third Party Network Transactions; Form 1099-MISC, Miscellaneous Income; Form 1099-OID, Original Issue Discount; Form 1099-PATR, Taxable Distributions Received from Cooperatives; Form 1099-Q, Payments From Qualified Education Programs; Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2010 tax preparation software ; Form 1099-S, Proceeds From Real Estate Transactions; Form RRB-1099, Payments by the Railroad Retirement Board. 2010 tax preparation software If you received the types of income reported on some forms in the 1099 series, you may not be able to use Form 1040A or Form 1040EZ. 2010 tax preparation software See the instructions to these forms for details. 2010 tax preparation software Form 1099-R. 2010 tax preparation software   Attach Form 1099-R to your paper return if box 4 shows federal income tax withheld. 2010 tax preparation software Include the amount withheld in the total on line 62 of Form 1040 or line 36 of Form 1040A. 2010 tax preparation software You cannot use Form 1040EZ if you received payments reported on Form 1099-R. 2010 tax preparation software Backup withholding. 2010 tax preparation software   If you were subject to backup withholding on income you received during 2013, include the amount withheld, as shown on your Form 1099, in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. 2010 tax preparation software Form Not Correct If you receive a form with incorrect information on it, you should ask the payer for a corrected form. 2010 tax preparation software Call the telephone number or write to the address given for the payer on the form. 2010 tax preparation software The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. 2010 tax preparation software A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. 2010 tax preparation software In certain situations, you will receive two forms in place of the original incorrect form. 2010 tax preparation software This will happen when your taxpayer identification number is wrong or missing, your name and address are wrong, or you received the wrong type of form (for example, a Form 1099-DIV instead of a Form 1099-INT). 2010 tax preparation software One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. 2010 tax preparation software This form will have an “X” in the “CORRECTED” box at the top of the form. 2010 tax preparation software The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). 2010 tax preparation software Form Received After Filing If you file your return and you later receive a form for income that you did not include on your return, you should report the income and take credit for any income tax withheld by filing Form 1040X, Amended U. 2010 tax preparation software S. 2010 tax preparation software Individual Income Tax Return. 2010 tax preparation software Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. 2010 tax preparation software Do not include any amount withheld from your spouse's income. 2010 tax preparation software However, different rules may apply if you live in a community property state. 2010 tax preparation software Community property states are listed in chapter 2. 2010 tax preparation software For more information on these rules, and some exceptions, see Publication 555, Community Property. 2010 tax preparation software Fiscal Years If you file your tax return on the basis of a fiscal year (a 12-month period ending on the last day of any month except December), you must follow special rules to determine your credit for federal income tax withholding. 2010 tax preparation software For a discussion of how to take credit for withholding on a fiscal year return, see Fiscal Years (FY) in chapter 3 of Publication 505. 2010 tax preparation software Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. 2010 tax preparation software Include any overpayment from 2012 that you had credited to your 2013 estimated tax. 2010 tax preparation software You must use Form 1040 or Form 1040A if you paid estimated tax. 2010 tax preparation software You cannot use Form 1040EZ. 2010 tax preparation software Name changed. 2010 tax preparation software   If you changed your name, and you made estimated tax payments using your old name, attach a brief statement to the front of your paper tax return indicating: When you made the payments, The amount of each payment, Your name when you made the payments, and Your social security number. 2010 tax preparation software The statement should cover payments you made jointly with your spouse as well as any you made separately. 2010 tax preparation software   Be sure to report the change to the Social Security Administration. 2010 tax preparation software This prevents delays in processing your return and issuing any refunds. 2010 tax preparation software Separate Returns If you and your spouse made separate estimated tax payments for 2013 and you file separate returns, you can take credit only for your own payments. 2010 tax preparation software If you made joint estimated tax payments, you must decide how to divide the payments between your returns. 2010 tax preparation software One of you can claim all of the estimated tax paid and the other none, or you can divide it in any other way you agree on. 2010 tax preparation software If you cannot agree, you must divide the payments in proportion to each spouse's individual tax as shown on your separate returns for 2013. 2010 tax preparation software Divorced Taxpayers If you made joint estimated tax payments for 2013, and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. 2010 tax preparation software If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse's individual tax as shown on your separate returns for 2013. 2010 tax preparation software If you claim any of the joint payments on your tax return, enter your former spouse's social security number (SSN) in the space provided on the front of Form 1040 or Form 1040A. 2010 tax preparation software If you divorced and remarried in 2013, enter your present spouse's SSN in that space and write your former spouse's SSN, followed by “DIV,” to the left of Form 1040, line 63, or Form 1040A, line 37. 2010 tax preparation software Underpayment Penalty for 2013 If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have an underpayment of estimated tax and you may have to pay a penalty. 2010 tax preparation software Generally, you will not have to pay a penalty for 2013 if any of the following apply. 2010 tax preparation software The total of your withholding and estimated tax payments was at least as much as your 2012 tax (or 110% of your 2012 tax if your AGI was more than $150,000, $75,000 if your 2013 filing status is married filing separately) and you paid all required estimated tax payments on time. 2010 tax preparation software 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. 2010 tax preparation software Your total 2013 tax minus your withholding and refundable credits is less than $1,000. 2010 tax preparation software You did not have a tax liability for 2012 and your 2012 tax year was 12 months, or You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000. 2010 tax preparation software See Publication 505, chapter 4, for a definition of “total tax” for 2012 and 2013. 2010 tax preparation software Farmers and fishermen. 2010 tax preparation software   Special rules apply if you are a farmer or fisherman. 2010 tax preparation software See Farmers and Fishermen in chapter 4 of Publication 505 for more information. 2010 tax preparation software IRS can figure the penalty for you. 2010 tax preparation software   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. 2010 tax preparation software Generally, the IRS will figure the penalty for you and send you a bill. 2010 tax preparation software However, if you think you are able to lower or eliminate your penalty, you must complete Form 2210 or Form 2210-F and attach it to your paper return. 2010 tax preparation software See chapter 4 of Publication 505. 2010 tax preparation software Prev  Up  Next   Home   More Online Publications
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Understanding your CP152 Notice

This notice acknowledges that we received your Form 8703, Annual Certification of a Residential Rental Project.


What you need to do

You don’t need to do anything.


You may want to...

Keep a copy of this notice for your records.


Answers to Common Questions

Will I receive a notice for each Form 8703 I filed?
Yes. We'll send a separate acknowledgement for each form.

Page Last Reviewed or Updated: 26-Mar-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The 2010 Tax Preparation Software

2010 tax preparation software 13. 2010 tax preparation software   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. 2010 tax preparation software It is divided into the following sections. 2010 tax preparation software Cost basis. 2010 tax preparation software Adjusted basis. 2010 tax preparation software Basis other than cost. 2010 tax preparation software Your basis is the amount of your investment in property for tax purposes. 2010 tax preparation software Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. 2010 tax preparation software Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. 2010 tax preparation software If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 2010 tax preparation software Only the basis allocated to the business or investment use of the property can be depreciated. 2010 tax preparation software Your original basis in property is adjusted (increased or decreased) by certain events. 2010 tax preparation software For example, if you make improvements to the property, increase your basis. 2010 tax preparation software If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. 2010 tax preparation software Keep accurate records of all items that affect the basis of your property. 2010 tax preparation software For more information on keeping records, see chapter 1. 2010 tax preparation software Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. 2010 tax preparation software The cost is the amount you pay in cash, debt obligations, other property, or services. 2010 tax preparation software Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). 2010 tax preparation software In addition, the basis of real estate and business assets may include other items. 2010 tax preparation software Loans with low or no interest. 2010 tax preparation software    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. 2010 tax preparation software You generally have unstated interest if your interest rate is less than the applicable federal rate. 2010 tax preparation software   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 2010 tax preparation software Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 2010 tax preparation software If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 2010 tax preparation software Lump sum purchase. 2010 tax preparation software   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. 2010 tax preparation software Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. 2010 tax preparation software Figure the basis of each asset by multiplying the lump sum by a fraction. 2010 tax preparation software The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 2010 tax preparation software    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. 2010 tax preparation software Fair market value (FMV). 2010 tax preparation software   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. 2010 tax preparation software Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. 2010 tax preparation software Assumption of mortgage. 2010 tax preparation software   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. 2010 tax preparation software Settlement costs. 2010 tax preparation software   Your basis includes the settlement fees and closing costs you paid for buying the property. 2010 tax preparation software (A fee for buying property is a cost that must be paid even if you buy the property for cash. 2010 tax preparation software ) Do not include fees and costs for getting a loan on the property in your basis. 2010 tax preparation software   The following are some of the settlement fees or closing costs you can include in the basis of your property. 2010 tax preparation software Abstract fees (abstract of title fees). 2010 tax preparation software Charges for installing utility services. 2010 tax preparation software Legal fees (including fees for the title search and preparation of the sales contract and deed). 2010 tax preparation software Recording fees. 2010 tax preparation software Survey fees. 2010 tax preparation software Transfer taxes. 2010 tax preparation software Owner's title insurance. 2010 tax preparation software Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. 2010 tax preparation software   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2010 tax preparation software   The following are some of the settlement fees and closing costs you cannot include in the basis of property. 2010 tax preparation software Casualty insurance premiums. 2010 tax preparation software Rent for occupancy of the property before closing. 2010 tax preparation software Charges for utilities or other services related to occupancy of the property before closing. 2010 tax preparation software Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. 2010 tax preparation software Fees for refinancing a mortgage. 2010 tax preparation software Real estate taxes. 2010 tax preparation software   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 2010 tax preparation software You cannot deduct them as an expense. 2010 tax preparation software    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. 2010 tax preparation software Do not include that amount in the basis of your property. 2010 tax preparation software If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. 2010 tax preparation software Points. 2010 tax preparation software   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. 2010 tax preparation software Generally, you deduct the points over the term of the loan. 2010 tax preparation software For more information on how to deduct points, see chapter 23. 2010 tax preparation software Points on home mortgage. 2010 tax preparation software   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. 2010 tax preparation software If certain requirements are met, you can deduct the points in full for the year in which they are paid. 2010 tax preparation software Reduce the basis of your home by any seller-paid points. 2010 tax preparation software Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. 2010 tax preparation software The result is the adjusted basis. 2010 tax preparation software Increases to Basis Increase the basis of any property by all items properly added to a capital account. 2010 tax preparation software Examples of items that increase basis are shown in Table 13-1. 2010 tax preparation software These include the items discussed below. 2010 tax preparation software Improvements. 2010 tax preparation software   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. 2010 tax preparation software For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. 2010 tax preparation software Assessments for local improvements. 2010 tax preparation software   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. 2010 tax preparation software Do not deduct them as taxes. 2010 tax preparation software However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. 2010 tax preparation software Example. 2010 tax preparation software Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. 2010 tax preparation software Add the assessment to your property's basis. 2010 tax preparation software In this example, the assessment is a depreciable asset. 2010 tax preparation software Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. 2010 tax preparation software Examples of items that decrease basis are shown in Table 13-1. 2010 tax preparation software These include the items discussed below. 2010 tax preparation software Table 13-1. 2010 tax preparation software Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. 2010 tax preparation software   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. 2010 tax preparation software    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. 2010 tax preparation software   For more information on casualty and theft losses, see chapter 25. 2010 tax preparation software Depreciation and section 179 deduction. 2010 tax preparation software   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. 2010 tax preparation software   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. 2010 tax preparation software Example. 2010 tax preparation software You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. 2010 tax preparation software You added an improvement to the duplex that cost $10,000. 2010 tax preparation software In February last year, the duplex was damaged by fire. 2010 tax preparation software Up to that time, you had been allowed depreciation of $23,000. 2010 tax preparation software You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. 2010 tax preparation software You deducted a casualty loss of $1,000 on your income tax return for last year. 2010 tax preparation software You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. 2010 tax preparation software You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. 2010 tax preparation software Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. 2010 tax preparation software Your basis in the land is its original cost of $5,000. 2010 tax preparation software Easements. 2010 tax preparation software   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. 2010 tax preparation software It reduces the basis of the affected part of the property. 2010 tax preparation software If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 2010 tax preparation software   If the gain is on a capital asset, see chapter 16 for information about how to report it. 2010 tax preparation software If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. 2010 tax preparation software Exclusion of subsidies for energy conservation measures. 2010 tax preparation software   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 2010 tax preparation software Reduce the basis of the property for which you received the subsidy by the excluded amount. 2010 tax preparation software For more information about this subsidy, see chapter 12. 2010 tax preparation software Postponed gain from sale of home. 2010 tax preparation software    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. 2010 tax preparation software For more information on the rules for the sale of a home, see chapter 15. 2010 tax preparation software Basis Other Than Cost There are many times when you cannot use cost as basis. 2010 tax preparation software In these cases, the fair market value or the adjusted basis of the property can be used. 2010 tax preparation software Fair market value (FMV) and adjusted basis were discussed earlier. 2010 tax preparation software Property Received for Services If you receive property for your services, include the FMV of the property in income. 2010 tax preparation software The amount you include in income becomes your basis. 2010 tax preparation software If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 2010 tax preparation software Restricted property. 2010 tax preparation software   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. 2010 tax preparation software However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. 2010 tax preparation software Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). 2010 tax preparation software For more information, see Restricted Property in Publication 525. 2010 tax preparation software Bargain purchases. 2010 tax preparation software   A bargain purchase is a purchase of an item for less than its FMV. 2010 tax preparation software If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. 2010 tax preparation software Your basis in the property is its FMV (your purchase price plus the amount you include in income). 2010 tax preparation software   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. 2010 tax preparation software However, your basis in the property is still its FMV. 2010 tax preparation software See Employee Discounts in Publication 15-B. 2010 tax preparation software Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. 2010 tax preparation software A taxable gain or deductible loss also is known as a recognized gain or loss. 2010 tax preparation software If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 2010 tax preparation software Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. 2010 tax preparation software Similar or related property. 2010 tax preparation software   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. 2010 tax preparation software Decrease the basis by the following. 2010 tax preparation software Any loss you recognize on the involuntary conversion. 2010 tax preparation software Any money you receive that you do not spend on similar property. 2010 tax preparation software Increase the basis by the following. 2010 tax preparation software Any gain you recognize on the involuntary conversion. 2010 tax preparation software Any cost of acquiring the replacement property. 2010 tax preparation software Money or property not similar or related. 2010 tax preparation software    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. 2010 tax preparation software Example. 2010 tax preparation software The state condemned your property. 2010 tax preparation software The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. 2010 tax preparation software You realized a gain of $5,000 ($31,000 − $26,000). 2010 tax preparation software You bought replacement property similar in use to the converted property for $29,000. 2010 tax preparation software You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. 2010 tax preparation software Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. 2010 tax preparation software The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. 2010 tax preparation software   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 2010 tax preparation software Basis for depreciation. 2010 tax preparation software   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 2010 tax preparation software For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 2010 tax preparation software Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 2010 tax preparation software If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. 2010 tax preparation software See Nontaxable Trades in chapter 14. 2010 tax preparation software Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 2010 tax preparation software To qualify as a like-kind exchange, the property traded and the property received must be both of the following. 2010 tax preparation software Qualifying property. 2010 tax preparation software Like-kind property. 2010 tax preparation software The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. 2010 tax preparation software If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. 2010 tax preparation software Qualifying property. 2010 tax preparation software   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. 2010 tax preparation software Like-kind property. 2010 tax preparation software   There must be an exchange of like-kind property. 2010 tax preparation software Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. 2010 tax preparation software The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. 2010 tax preparation software Example. 2010 tax preparation software You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. 2010 tax preparation software The dealer allows you $2,000 on the old truck, and you pay $4,800. 2010 tax preparation software This is a like-kind exchange. 2010 tax preparation software The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). 2010 tax preparation software If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). 2010 tax preparation software The basis of the new truck is the price you pay the dealer. 2010 tax preparation software Partially nontaxable exchanges. 2010 tax preparation software   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 2010 tax preparation software The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. 2010 tax preparation software Decrease the basis by the following amounts. 2010 tax preparation software Any money you receive. 2010 tax preparation software Any loss you recognize on the exchange. 2010 tax preparation software Increase the basis by the following amounts. 2010 tax preparation software Any additional costs you incur. 2010 tax preparation software Any gain you recognize on the exchange. 2010 tax preparation software If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 2010 tax preparation software Allocation of basis. 2010 tax preparation software   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 2010 tax preparation software The rest is the basis of the like-kind property. 2010 tax preparation software More information. 2010 tax preparation software   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. 2010 tax preparation software Basis for depreciation. 2010 tax preparation software   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. 2010 tax preparation software For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 2010 tax preparation software Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 2010 tax preparation software The same rule applies to a transfer by your former spouse that is incident to divorce. 2010 tax preparation software However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. 2010 tax preparation software If the property transferred to you is a series E, series EE, or series I U. 2010 tax preparation software S. 2010 tax preparation software savings bond, the transferor must include in income the interest accrued to the date of transfer. 2010 tax preparation software Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. 2010 tax preparation software For more information on these bonds, see chapter 7. 2010 tax preparation software At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 2010 tax preparation software For more information about the transfer of property from a spouse, see chapter 14. 2010 tax preparation software Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. 2010 tax preparation software FMV less than donor's adjusted basis. 2010 tax preparation software   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 2010 tax preparation software Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 2010 tax preparation software Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 2010 tax preparation software See Adjusted Basis , earlier. 2010 tax preparation software Example. 2010 tax preparation software You received an acre of land as a gift. 2010 tax preparation software At the time of the gift, the land had an FMV of $8,000. 2010 tax preparation software The donor's adjusted basis was $10,000. 2010 tax preparation software After you received the property, no events occurred to increase or decrease your basis. 2010 tax preparation software If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. 2010 tax preparation software If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. 2010 tax preparation software If the sales price is between $8,000 and $10,000, you have neither gain nor loss. 2010 tax preparation software Business property. 2010 tax preparation software   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 2010 tax preparation software FMV equal to or greater than donor's adjusted basis. 2010 tax preparation software   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. 2010 tax preparation software Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. 2010 tax preparation software   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 2010 tax preparation software See Adjusted Basis , earlier. 2010 tax preparation software   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 2010 tax preparation software Figure the increase by multiplying the gift tax paid by a fraction. 2010 tax preparation software The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. 2010 tax preparation software   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 2010 tax preparation software The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 2010 tax preparation software Example. 2010 tax preparation software In 2013, you received a gift of property from your mother that had an FMV of $50,000. 2010 tax preparation software Her adjusted basis was $20,000. 2010 tax preparation software The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 2010 tax preparation software She paid a gift tax of $7,320 on the property. 2010 tax preparation software Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 2010 tax preparation software 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 2010 tax preparation software If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 2010 tax preparation software However, your basis cannot exceed the FMV of the gift at the time it was given to you. 2010 tax preparation software Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 2010 tax preparation software The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. 2010 tax preparation software The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. 2010 tax preparation software The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. 2010 tax preparation software If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 2010 tax preparation software For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. 2010 tax preparation software Property inherited from a decedent who died in 2010. 2010 tax preparation software   If you inherited property from a decedent who died in 2010, special rules may apply. 2010 tax preparation software For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 2010 tax preparation software Community property. 2010 tax preparation software   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. 2010 tax preparation software When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. 2010 tax preparation software For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. 2010 tax preparation software Example. 2010 tax preparation software You and your spouse owned community property that had a basis of $80,000. 2010 tax preparation software When your spouse died, half the FMV of the community interest was includible in your spouse's estate. 2010 tax preparation software The FMV of the community interest was $100,000. 2010 tax preparation software The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). 2010 tax preparation software The basis of the other half to your spouse's heirs is also $50,000. 2010 tax preparation software For more information about community property, see Publication 555, Community Property. 2010 tax preparation software Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. 2010 tax preparation software To do so, you must figure its basis for depreciation at the time of the change. 2010 tax preparation software An example of changing property held for personal use to business or rental use would be renting out your former personal residence. 2010 tax preparation software Basis for depreciation. 2010 tax preparation software   The basis for depreciation is the lesser of the following amounts. 2010 tax preparation software The FMV of the property on the date of the change. 2010 tax preparation software Your adjusted basis on the date of the change. 2010 tax preparation software Example. 2010 tax preparation software Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. 2010 tax preparation software You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. 2010 tax preparation software Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. 2010 tax preparation software Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). 2010 tax preparation software On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. 2010 tax preparation software The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). 2010 tax preparation software Sale of property. 2010 tax preparation software   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. 2010 tax preparation software Gain. 2010 tax preparation software   The basis for figuring a gain is your adjusted basis in the property when you sell the property. 2010 tax preparation software Example. 2010 tax preparation software Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. 2010 tax preparation software Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). 2010 tax preparation software Loss. 2010 tax preparation software   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 2010 tax preparation software Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 2010 tax preparation software Example. 2010 tax preparation software Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. 2010 tax preparation software In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. 2010 tax preparation software Reduce that amount ($180,000) by the depreciation deductions ($37,500). 2010 tax preparation software The basis for loss is $142,500 ($180,000 − $37,500). 2010 tax preparation software Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. 2010 tax preparation software If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. 2010 tax preparation software You must adjust the basis of stocks for certain events that occur after purchase. 2010 tax preparation software For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. 2010 tax preparation software This rule applies only when the additional stock received is identical to the stock held. 2010 tax preparation software Also reduce your basis when you receive nontaxable distributions. 2010 tax preparation software They are a return of capital. 2010 tax preparation software Example. 2010 tax preparation software In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. 2010 tax preparation software In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. 2010 tax preparation software In 2013 XYZ declared a 2-for-1 stock split. 2010 tax preparation software You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. 2010 tax preparation software Other basis. 2010 tax preparation software   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. 2010 tax preparation software For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 2010 tax preparation software Identifying stocks or bonds sold. 2010 tax preparation software   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. 2010 tax preparation software If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. 2010 tax preparation software For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 2010 tax preparation software Mutual fund shares. 2010 tax preparation software   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. 2010 tax preparation software For more information, see Publication 550. 2010 tax preparation software Bond premium. 2010 tax preparation software   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. 2010 tax preparation software See Bond Premium Amortization in chapter 3 of Publication 550 for more information. 2010 tax preparation software Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. 2010 tax preparation software Original issue discount (OID) on debt instruments. 2010 tax preparation software   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. 2010 tax preparation software See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. 2010 tax preparation software Tax-exempt obligations. 2010 tax preparation software    OID on tax-exempt obligations is generally not taxable. 2010 tax preparation software However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. 2010 tax preparation software The accrued OID is added to the basis of the obligation to determine your gain or loss. 2010 tax preparation software See chapter 4 of Publication 550. 2010 tax preparation software Prev  Up  Next   Home   More Online Publications