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Ez worksheet line f 4. Ez worksheet line f   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Ez worksheet line f Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Ez worksheet line f Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Ez worksheet line f If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Ez worksheet line f You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Ez worksheet line f Special rules apply if you rent your condominium to others. Ez worksheet line f You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Ez worksheet line f In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Ez worksheet line f You cannot deduct special assessments you pay to a condominium management corporation for improvements. Ez worksheet line f However, you may be able to recover your share of the cost of any improvement by taking depreciation. Ez worksheet line f Cooperatives If you live in a cooperative, you do not own your apartment. Ez worksheet line f Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Ez worksheet line f If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Ez worksheet line f In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Ez worksheet line f Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Ez worksheet line f Figure your depreciation deduction as follows. Ez worksheet line f Figure the depreciation for all the depreciable real property owned by the corporation. Ez worksheet line f (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Ez worksheet line f ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Ez worksheet line f Multiply your cost per share by the total number of outstanding shares. Ez worksheet line f Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Ez worksheet line f Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Ez worksheet line f Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Ez worksheet line f Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Ez worksheet line f Multiply the result of (2) by the percentage you figured in (3). Ez worksheet line f This is your depreciation on the stock. Ez worksheet line f Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Ez worksheet line f Payments added to capital account. Ez worksheet line f   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Ez worksheet line f For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Ez worksheet line f   Treat as a capital cost the amount you were assessed for capital items. Ez worksheet line f This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Ez worksheet line f   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Ez worksheet line f Otherwise, figure your share in the following manner. Ez worksheet line f Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Ez worksheet line f Multiply the corporation's deductible interest by the number you figured in (1). Ez worksheet line f This is your share of the interest. Ez worksheet line f Multiply the corporation's deductible taxes by the number you figured in (1). Ez worksheet line f This is your share of the taxes. Ez worksheet line f Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Ez worksheet line f You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Ez worksheet line f You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Ez worksheet line f However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Ez worksheet line f Example. Ez worksheet line f Your tax year is the calendar year. Ez worksheet line f You moved from your home in May and started renting it out on June 1. Ez worksheet line f You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Ez worksheet line f Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Ez worksheet line f When figuring depreciation, treat the property as placed in service on June 1. Ez worksheet line f Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Ez worksheet line f Fair market value. Ez worksheet line f   This 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 relevant facts. Ez worksheet line f Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Ez worksheet line f Figuring the basis. Ez worksheet line f   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Ez worksheet line f For other increases and decreases to basis, see Adjusted Basis in chapter 2. Ez worksheet line f Example. Ez worksheet line f Several years ago you built your home for $140,000 on a lot that cost you $14,000. Ez worksheet line f Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Ez worksheet line f Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Ez worksheet line f Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Ez worksheet line f The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Ez worksheet line f On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Ez worksheet line f The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Ez worksheet line f Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Ez worksheet line f (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Ez worksheet line f ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Ez worksheet line f The fair market value of the property on the date you change your apartment to rental use. Ez worksheet line f This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Ez worksheet line f The corporation's adjusted basis in the property on that date. Ez worksheet line f Do not subtract depreciation when figuring the corporation's adjusted basis. Ez worksheet line f If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Ez worksheet line f The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Ez worksheet line f Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Ez worksheet line f Generally, that will be MACRS for any conversion after 1986. Ez worksheet line f Treat the property as placed in service on the conversion date. Ez worksheet line f Example. Ez worksheet line f Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Ez worksheet line f Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Ez worksheet line f 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Ez worksheet line f 01364). Ez worksheet line f Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Ez worksheet line f You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Ez worksheet line f You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Ez worksheet line f There is no change in the types of expenses deductible for the personal-use part of your property. Ez worksheet line f Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Ez worksheet line f You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Ez worksheet line f You do not have to divide the expenses that belong only to the rental part of your property. Ez worksheet line f For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Ez worksheet line f If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Ez worksheet line f You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Ez worksheet line f How to divide expenses. Ez worksheet line f   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Ez worksheet line f You can use any reasonable method for dividing the expense. Ez worksheet line f It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Ez worksheet line f The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Ez worksheet line f Example. Ez worksheet line f You rent a room in your house. Ez worksheet line f The room is 12 × 15 feet, or 180 square feet. Ez worksheet line f Your entire house has 1,800 square feet of floor space. Ez worksheet line f You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Ez worksheet line f If your heating bill for the year for the entire house was $600, $60 ($600 × . Ez worksheet line f 10) is a rental expense. Ez worksheet line f The balance, $540, is a personal expense that you cannot deduct. Ez worksheet line f Duplex. Ez worksheet line f   A common situation is the duplex where you live in one unit and rent out the other. Ez worksheet line f Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Ez worksheet line f Example. Ez worksheet line f You own a duplex and live in one half, renting the other half. Ez worksheet line f Both units are approximately the same size. Ez worksheet line f Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Ez worksheet line f You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Ez worksheet line f Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Ez worksheet line f You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Ez worksheet line f Where to report. Ez worksheet line f   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Ez worksheet line f For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Ez worksheet line f   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Ez worksheet line f You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Ez worksheet line f Presumption of profit. Ez worksheet line f   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Ez worksheet line f Postponing decision. Ez worksheet line f   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Ez worksheet line f You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Ez worksheet line f You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Ez worksheet line f More information. Ez worksheet line f   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Ez worksheet line f Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Ez worksheet line f Instead of selling the house she had been living in, she decided to change it to rental property. Ez worksheet line f Eileen selected a tenant and started renting the house on February 1. Ez worksheet line f Eileen charges $750 a month for rent and collects it herself. Ez worksheet line f Eileen also received a $750 security deposit from her tenant. Ez worksheet line f Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Ez worksheet line f Her rental expenses for the year are as follows. Ez worksheet line f   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Ez worksheet line f She can deduct eleven-twelfths of these expenses as rental expenses. Ez worksheet line f She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Ez worksheet line f She cannot deduct the balance of the fire insurance because it is a personal expense. Ez worksheet line f Eileen bought this house in 1984 for $35,000. Ez worksheet line f Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Ez worksheet line f Before changing it to rental property, Eileen added several improvements to the house. Ez worksheet line f She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Ez worksheet line f Of this amount, $35,000 was for the land and $117,000 was for the house. Ez worksheet line f Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Ez worksheet line f As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Ez worksheet line f She chooses the GDS recovery period of 27. Ez worksheet line f 5 years. Ez worksheet line f She uses Table 2-2d to find her depreciation percentage. Ez worksheet line f Since she placed the property in service in February, the percentage is 3. Ez worksheet line f 182%. Ez worksheet line f On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Ez worksheet line f The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Ez worksheet line f She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Ez worksheet line f On May 1, Eileen paid $4,000 to have a furnace installed in the house. Ez worksheet line f The furnace is residential rental property. Ez worksheet line f Because she placed the property in service in May, the percentage from Table 2-2d is 2. Ez worksheet line f 273%. Ez worksheet line f Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Ez worksheet line f 03182) $1,241   Dishwasher ($425 × . Ez worksheet line f 20) 85   Furnace ($4,000 × . Ez worksheet line f 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Ez worksheet line f She enters her income, expenses, and depreciation for the house in the column for Property A. Ez worksheet line f Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Ez worksheet line f See the Instructions for Form 4562 for more information on preparing the form. Ez worksheet line f Prev  Up  Next   Home   More Online Publications
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Understanding Your CP123 Notice

We made changes to your excise tax return because we believe there was a miscalculation. As a result of these changes, you have a balance due of less than $1.


What you need to do

  • Read the notice carefully.
  • Compare the figures on the notice with your railroad retirement tax return.
  • Contact us within 30 days of the date of your notice if you disagree with the changes we made.
  • Correct the copy of your railroad retirement tax return that you kept for your records if you agree with our changes.
  • You don’t have to pay if you owe less than $1.

You may want to

  • Download copies of the following materials (if they weren’t included with your notice).
  • Call 1-800-829-FORM to have forms and publications mailed to you.

 


Answers to Common Questions

Q. How can I find out what caused my tax return to change?

A. You can contact us at the number listed on your notice for specific information about your tax return.

Q. What should I do if I disagree with the changes you made?

A. If you disagree, contact us at the toll-free number listed on the top right corner of your notice or respond in writing within 30 days of the date of the notice. If your response provides additional information that justifies a reversal of the change, we’ll reverse the change we made to your account. If you agree with the change, update your records. No further action is required.

 


Tips for next year

Review your return for accuracy before mailing it to us.

Page Last Reviewed or Updated: 23-Jan-2014

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 Ez Worksheet Line F

Ez worksheet line f 3. Ez worksheet line f   Limit on Annual Additions Table of Contents Ministers and church employees. Ez worksheet line f Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. Ez worksheet line f This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. Ez worksheet line f The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. Ez worksheet line f More than one 403(b) account. Ez worksheet line f If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. Ez worksheet line f Ministers and church employees. Ez worksheet line f   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. Ez worksheet line f For more information, see chapter 5. Ez worksheet line f Participation in a qualified plan. Ez worksheet line f If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Ez worksheet line f You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. Ez worksheet line f Includible Compensation for Your Most Recent Year of Service Definition. Ez worksheet line f   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. Ez worksheet line f When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. Ez worksheet line f This can happen if your tax year is not the same as your employer's annual work period. Ez worksheet line f When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. Ez worksheet line f Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. Ez worksheet line f Tax year different from employer's annual work period. Ez worksheet line f   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. Ez worksheet line f Example. Ez worksheet line f A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). Ez worksheet line f To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. Ez worksheet line f Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. Ez worksheet line f A full year of service is equal to full-time employment for your employer's annual work period. Ez worksheet line f After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. Ez worksheet line f Part-time or employed only part of the year. Ez worksheet line f   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. Ez worksheet line f To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. Ez worksheet line f Example. Ez worksheet line f You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). Ez worksheet line f Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). Ez worksheet line f Not yet employed for 1 year. Ez worksheet line f   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. Ez worksheet line f Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. Ez worksheet line f Includible compensation is not the same as income included on your tax return. Ez worksheet line f Compensation is a combination of income and benefits received in exchange for services provided to your employer. Ez worksheet line f Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. Ez worksheet line f Includible compensation includes the following amounts. Ez worksheet line f Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). Ez worksheet line f Amounts contributed or deferred by your employer under a section 125 cafeteria plan. Ez worksheet line f Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). Ez worksheet line f  Note. Ez worksheet line f For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. Ez worksheet line f Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. Ez worksheet line f Income otherwise excluded under the foreign earned income exclusion. Ez worksheet line f Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. Ez worksheet line f Includible compensation does not include the following items. Ez worksheet line f Your employer's contributions to your 403(b) account. Ez worksheet line f Compensation earned while your employer was not an eligible employer. Ez worksheet line f Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. Ez worksheet line f The cost of incidental life insurance. Ez worksheet line f See Cost of Incidental Life Insurance, later. Ez worksheet line f If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. Ez worksheet line f Contributions after retirement. Ez worksheet line f   Nonelective contributions may be made for an employee for up to 5 years after retirement. Ez worksheet line f These contributions would be based on includible compensation for the last year of service before retirement. Ez worksheet line f Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. Ez worksheet line f If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. Ez worksheet line f If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. Ez worksheet line f If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Ez worksheet line f Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. Ez worksheet line f Not all annuity contracts include life insurance. Ez worksheet line f Contact your plan administrator to determine if your contract includes incidental life insurance. Ez worksheet line f If it does, you will need to figure the cost of life insurance each year the policy is in effect. Ez worksheet line f Figuring the cost of incidental life insurance. Ez worksheet line f If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. Ez worksheet line f To determine the amount of the life insurance premiums, you will need to know the following information. Ez worksheet line f The value of your life insurance contract, which is the amount payable upon your death. Ez worksheet line f The cash value of your life insurance contract at the end of the tax year. Ez worksheet line f Your age on your birthday nearest the beginning of the policy year. Ez worksheet line f Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. Ez worksheet line f You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. Ez worksheet line f Example. Ez worksheet line f Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Ez worksheet line f Your cash value in the contract at the end of the first year is zero. Ez worksheet line f Your current life insurance protection for the first year is $10,000 ($10,000 − 0). Ez worksheet line f The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). Ez worksheet line f The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . Ez worksheet line f The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. Ez worksheet line f Figure 3-1. Ez worksheet line f Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. Ez worksheet line f 70   35 $0. Ez worksheet line f 99   70 $20. Ez worksheet line f 62 1 0. Ez worksheet line f 41   36 1. Ez worksheet line f 01   71 22. Ez worksheet line f 72 2 0. Ez worksheet line f 27   37 1. Ez worksheet line f 04   72 25. Ez worksheet line f 07 3 0. Ez worksheet line f 19   38 1. Ez worksheet line f 06   73 27. Ez worksheet line f 57 4 0. Ez worksheet line f 13   39 1. Ez worksheet line f 07   74 30. Ez worksheet line f 18 5 0. Ez worksheet line f 13   40 1. Ez worksheet line f 10   75 33. Ez worksheet line f 05 6 0. Ez worksheet line f 14   41 1. Ez worksheet line f 13   76 36. Ez worksheet line f 33 7 0. Ez worksheet line f 15   42 1. Ez worksheet line f 20   77 40. Ez worksheet line f 17 8 0. Ez worksheet line f 16   43 1. Ez worksheet line f 29   78 44. Ez worksheet line f 33 9 0. Ez worksheet line f 16   44 1. Ez worksheet line f 40   79 49. Ez worksheet line f 23 10 0. Ez worksheet line f 16   45 1. Ez worksheet line f 53   80 54. Ez worksheet line f 56 11 0. Ez worksheet line f 19   46 1. Ez worksheet line f 67   81 60. Ez worksheet line f 51 12 0. Ez worksheet line f 24   47 1. Ez worksheet line f 83   82 66. Ez worksheet line f 74 13 0. Ez worksheet line f 28   48 1. Ez worksheet line f 98   83 73. Ez worksheet line f 07 14 0. Ez worksheet line f 33   49 2. Ez worksheet line f 13   84 80. Ez worksheet line f 35 15 0. Ez worksheet line f 38   50 2. Ez worksheet line f 30   85 88. Ez worksheet line f 76 16 0. Ez worksheet line f 52   51 2. Ez worksheet line f 52   86 99. Ez worksheet line f 16 17 0. Ez worksheet line f 57   52 2. Ez worksheet line f 81   87 110. Ez worksheet line f 40 18 0. Ez worksheet line f 59   53 3. Ez worksheet line f 20   88 121. Ez worksheet line f 85 19 0. Ez worksheet line f 61   54 3. Ez worksheet line f 65   89 133. Ez worksheet line f 40 20 0. Ez worksheet line f 62   55 4. Ez worksheet line f 15   90 144. Ez worksheet line f 30 21 0. Ez worksheet line f 62   56 4. Ez worksheet line f 68   91 155. Ez worksheet line f 80 22 0. Ez worksheet line f 64   57 5. Ez worksheet line f 20   92 168. Ez worksheet line f 75 23 0. Ez worksheet line f 66   58 5. Ez worksheet line f 66   93 186. Ez worksheet line f 44 24 0. Ez worksheet line f 68   59 6. Ez worksheet line f 06   94 206. Ez worksheet line f 70 25 0. Ez worksheet line f 71   60 6. Ez worksheet line f 51   95 228. Ez worksheet line f 35 26 0. Ez worksheet line f 73   61 7. Ez worksheet line f 11   96 250. Ez worksheet line f 01 27 0. Ez worksheet line f 76   62 7. Ez worksheet line f 96   97 265. Ez worksheet line f 09 28 0. Ez worksheet line f 80   63 9. Ez worksheet line f 08   98 270. Ez worksheet line f 11 29 0. Ez worksheet line f 83   64 10. Ez worksheet line f 41   99 281. Ez worksheet line f 05 30 0. Ez worksheet line f 87   65 11. Ez worksheet line f 90       31 0. Ez worksheet line f 90   66 13. Ez worksheet line f 51       32 0. Ez worksheet line f 93   67 15. Ez worksheet line f 20       33 0. Ez worksheet line f 96   68 16. Ez worksheet line f 92       34 0. Ez worksheet line f 98   69 18. Ez worksheet line f 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. Ez worksheet line f Example 1. Ez worksheet line f Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. Ez worksheet line f The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Ez worksheet line f Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. Ez worksheet line f Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. Ez worksheet line f When figuring her includible compensation for this year, Lynne will subtract $28. Ez worksheet line f Table 3-1. Ez worksheet line f Worksheet A. Ez worksheet line f Cost of Incidental Life Insurance Note. Ez worksheet line f Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Ez worksheet line f This amount will be used to figure includible compensation for your most recent year of service. Ez worksheet line f 1. Ez worksheet line f Enter the value of the contract (amount payable upon your death) 1. Ez worksheet line f $20,000. Ez worksheet line f 00 2. Ez worksheet line f Enter the cash value in the contract at the end of the year 2. Ez worksheet line f 0. Ez worksheet line f 00 3. Ez worksheet line f Subtract line 2 from line 1. Ez worksheet line f This is the value of your current life insurance protection 3. Ez worksheet line f $20,000. Ez worksheet line f 00 4. Ez worksheet line f Enter your age on your birthday nearest the beginning of the policy year 4. Ez worksheet line f 44 5. Ez worksheet line f Enter the 1-year term premium for $1,000 of life insurance based on your age. Ez worksheet line f (From Figure 3-1) 5. Ez worksheet line f $1. Ez worksheet line f 40 6. Ez worksheet line f Divide line 3 by $1,000 6. Ez worksheet line f 20 7. Ez worksheet line f Multiply line 6 by line 5. Ez worksheet line f This is the cost of your incidental life insurance 7. Ez worksheet line f $28. Ez worksheet line f 00 Example 2. Ez worksheet line f Lynne's cash value in the contract at the end of the second year is $1,000. Ez worksheet line f In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. Ez worksheet line f In year two, Lynne's employer will include $29. Ez worksheet line f 07 in her current year's income. Ez worksheet line f Lynne will subtract this amount when figuring her includible compensation. Ez worksheet line f Table 3-2. Ez worksheet line f Worksheet A. Ez worksheet line f Cost of Incidental Life Insurance Note. Ez worksheet line f Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Ez worksheet line f This amount will be used to figure includible compensation for your most recent year of service. Ez worksheet line f 1. Ez worksheet line f Enter the value of the contract (amount payable upon your death) 1. Ez worksheet line f $20,000. Ez worksheet line f 00 2. Ez worksheet line f Enter the cash value in the contract at the end of the year 2. Ez worksheet line f $1,000. Ez worksheet line f 00 3. Ez worksheet line f Subtract line 2 from line 1. Ez worksheet line f This is the value of your current life insurance protection 3. Ez worksheet line f $19,000. Ez worksheet line f 00 4. Ez worksheet line f Enter your age on your birthday nearest the beginning of the policy year 4. Ez worksheet line f 45 5. Ez worksheet line f Enter the 1-year term premium for $1,000 of life insurance based on your age. Ez worksheet line f (From Figure 3-1) 5. Ez worksheet line f $1. Ez worksheet line f 53 6. Ez worksheet line f Divide line 3 by $1,000 6. Ez worksheet line f 19 7. Ez worksheet line f Multiply line 6 by line 5. Ez worksheet line f This is the cost of your incidental life insurance 7. Ez worksheet line f $29. Ez worksheet line f 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. Ez worksheet line f Example. Ez worksheet line f Floyd has been periodically working full-time for a local hospital since September 2011. Ez worksheet line f He needs to figure his limit on annual additions for 2014. Ez worksheet line f The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. Ez worksheet line f During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Ez worksheet line f Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. Ez worksheet line f Floyd has never worked abroad and there is no life insurance provided under the plan. Ez worksheet line f Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. Ez worksheet line f Table 3-3. Ez worksheet line f Floyd's Compensation Note. Ez worksheet line f This table shows information Floyd will use to figure includible compensation for his most recent year of service. Ez worksheet line f   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. Ez worksheet line f Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. Ez worksheet line f If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. Ez worksheet line f He figures his most recent year of service shown in the following list. Ez worksheet line f Time he will work in 2014 is 6/12 of a year. Ez worksheet line f Time worked in 2013 is 4/12 of a year. Ez worksheet line f All of this time will be used to determine Floyd's most recent year of service. Ez worksheet line f Time worked in 2012 is 4/12 of a year. Ez worksheet line f Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. Ez worksheet line f Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. Ez worksheet line f Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). Ez worksheet line f His includible compensation for his most recent year of service is figured as shown in Table 3-4. Ez worksheet line f After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. Ez worksheet line f Table 3-4. Ez worksheet line f Worksheet B. Ez worksheet line f Includible Compensation for Your Most Recent Year of Service1 Note. Ez worksheet line f Use this worksheet to figure includible compensation for your most recent year of service. Ez worksheet line f 1. Ez worksheet line f Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Ez worksheet line f $66,000 2. Ez worksheet line f Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Ez worksheet line f 4,4753 3. Ez worksheet line f Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Ez worksheet line f -0- 4. Ez worksheet line f Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. Ez worksheet line f -0- 5. Ez worksheet line f Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Ez worksheet line f -0- 6. Ez worksheet line f Enter your foreign earned income exclusion for your most recent year of service 6. Ez worksheet line f -0- 7. Ez worksheet line f Add lines 1, 2, 3, 4, 5, and 6 7. Ez worksheet line f 70,475 8. Ez worksheet line f Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Ez worksheet line f -0- 9. Ez worksheet line f Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Ez worksheet line f -0- 10. Ez worksheet line f Add lines 8 and 9 10. Ez worksheet line f -0- 11. Ez worksheet line f Subtract line 10 from line 7. Ez worksheet line f This is your includible compensation for your most recent year of service 11. Ez worksheet line f 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. Ez worksheet line f 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Ez worksheet line f  3$4,475 ($2,000 + $1,650 + $825). Ez worksheet line f Prev  Up  Next   Home   More Online Publications