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Federal Form 1040ez

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Federal Form 1040ez

Federal form 1040ez 3. Federal form 1040ez   Exclusions From Gross Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident AliensForeign Earned Income and Housing Amount Nonresident AliensInterest Income Dividend Income Services Performed for Foreign Employer Gambling Winnings From Dog or Horse Racing Gain From the Sale of Your Main Home Scholarships and Fellowship GrantsExpenses that do not qualify. Federal form 1040ez Introduction Resident and nonresident aliens are allowed exclusions from gross income if they meet certain conditions. Federal form 1040ez An exclusion from gross income is generally income you receive that is not included in your U. Federal form 1040ez S. Federal form 1040ez income and is not subject to U. Federal form 1040ez S. Federal form 1040ez tax. Federal form 1040ez This chapter covers some of the more common exclusions allowed to resident and nonresident aliens. Federal form 1040ez Topics - This chapter discusses: Nontaxable interest, Nontaxable dividends, Certain compensation paid by a foreign employer, Gain from sale of home, and Scholarships and fellowship grants. Federal form 1040ez Useful Items - You may want to see: Publication 54 Tax Guide for U. Federal form 1040ez S. Federal form 1040ez Citizens and Resident Aliens Abroad 523 Selling Your Home See chapter 12 for information about getting these publications. Federal form 1040ez Resident Aliens Resident aliens may be able to exclude the following items from their gross income. Federal form 1040ez Foreign Earned Income and Housing Amount If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may qualify for the foreign earned income exclusion. Federal form 1040ez The exclusion is $97,600 in 2013. Federal form 1040ez In addition, you may be able to exclude or deduct certain foreign housing amounts. Federal form 1040ez You may also qualify if you are a bona fide resident of a foreign country and you are a citizen or national of a country with which the United States has an income tax treaty. Federal form 1040ez For more information, see Publication 54. Federal form 1040ez Foreign country. Federal form 1040ez    A foreign country is any territory under the sovereignty of a government other than that of the United States. Federal form 1040ez   The term “foreign country” includes the country's territorial waters and airspace, but not international waters and the airspace above them. Federal form 1040ez It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Federal form 1040ez   The term “foreign country” does not include U. Federal form 1040ez S. Federal form 1040ez possessions or territories. Federal form 1040ez It does not include the Antarctic region. Federal form 1040ez Nonresident Aliens Nonresident aliens can exclude the following items from their gross income. Federal form 1040ez Interest Income Interest income that is not connected with a U. Federal form 1040ez S. Federal form 1040ez trade or business is excluded from income if it is from: Deposits (including certificates of deposit) with persons in the banking business, Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association), and Amounts held by an insurance company under an agreement to pay interest on them. Federal form 1040ez State and local government obligations. Federal form 1040ez   Interest on obligations of a state or political subdivision, the District of Columbia, or a U. Federal form 1040ez S. Federal form 1040ez possession, generally is not included in income. Federal form 1040ez However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income. Federal form 1040ez Portfolio interest. Federal form 1040ez   Interest and original issue discount that qualifies as portfolio interest is not subject to NRA withholding. Federal form 1040ez To qualify as portfolio interest, the interest must be paid on obligations issued after July 18, 1984, and otherwise subject to NRA withholding. Federal form 1040ez Note. Federal form 1040ez For obligations issued after March 18, 2012, portfolio interest does not include interest paid on debt that is not in registered form. Federal form 1040ez Before March 19, 2012, portfolio interest included interest on certain registered and nonregistered (bearer) bonds if the obligations meet the requirements described below. Federal form 1040ez Obligations in registered form. Federal form 1040ez   Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a United States person. Federal form 1040ez   Generally, an obligation is in registered form if: (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder; (ii) the right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or (iii) the obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system. Federal form 1040ez   An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form. Federal form 1040ez For more information on whether obligations are considered to be in registered form, see Portfolio interest in Publication 515. Federal form 1040ez Obligations not in registered form. Federal form 1040ez    For obligations issued before March 19, 2012, interest on an obligation that is not in registered form (bearer obligation) is portfolio interest if the obligation is foreign-targeted. Federal form 1040ez A bearer obligation is foreign-targeted if: There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a United States person, Interest on the obligation is payable only outside the United States and its possessions, and The face of the obligation contains a statement that any United States person who holds the obligation will be subject to limits under the United States income tax laws. Federal form 1040ez   Documentation is not required for interest on bearer obligations to qualify as portfolio interest. Federal form 1040ez In some cases, however, you may need documentation for purposes of Form 1099 reporting and backup withholding. Federal form 1040ez Interest that does not qualify as portfolio interest. Federal form 1040ez   Payments to certain persons and payments of contingent interest do not qualify as portfolio interest. Federal form 1040ez You must withhold at the statutory rate on such payments unless some other exception, such as a treaty provision, applies. Federal form 1040ez Contingent interest. Federal form 1040ez   Portfolio interest does not include contingent interest. Federal form 1040ez Contingent interest is either of the following: Interest that is determined by reference to: Any receipts, sales, or other cash flow of the debtor or related person, Income or profits of the debtor or related person, Any change in value of any property of the debtor or a related person, or Any dividend, partnership distributions, or similar payments made by the debtor or a related person. Federal form 1040ez For exceptions, see Internal Revenue Code section 871(h)(4)(C). Federal form 1040ez Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations. Federal form 1040ez Related persons. Federal form 1040ez   Related persons include the following. Federal form 1040ez Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Federal form 1040ez ), and lineal descendants (children, grandchildren, etc. Federal form 1040ez ). Federal form 1040ez Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules. Federal form 1040ez Certain corporations, partnerships, and other entities. Federal form 1040ez For details, see Nondeductible Loss in chapter 2 of Publication 544. Federal form 1040ez Exception for existing debt. Federal form 1040ez   Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued: On or before April 7, 1993, or After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was issued. Federal form 1040ez Dividend Income The following dividend income is exempt from the 30% tax. Federal form 1040ez Certain dividends paid by foreign corporations. Federal form 1040ez   There is no 30% tax on U. Federal form 1040ez S. Federal form 1040ez source dividends you receive from a foreign corporation. Federal form 1040ez See Second exception under Dividends in chapter 2 for how to figure the amount of U. Federal form 1040ez S. Federal form 1040ez source dividends. Federal form 1040ez Certain interest-related dividends. Federal form 1040ez   There is no 30% tax on interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company in 2013. Federal form 1040ez The mutual fund will designate in writing which dividends are interest-related dividends. Federal form 1040ez Certain short-term capital gain dividends. Federal form 1040ez   There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. Federal form 1040ez The mutual fund will designate in writing which dividends are short-term capital gain dividends. Federal form 1040ez This tax relief will not apply to you if you are present in the United States for 183 days or more during your tax year. Federal form 1040ez Services Performed for Foreign Employer If you were paid by a foreign employer, your U. Federal form 1040ez S. Federal form 1040ez source income may be exempt from U. Federal form 1040ez S. Federal form 1040ez tax, but only if you meet one of the situations discussed next. Federal form 1040ez Employees of foreign persons, organizations, or offices. Federal form 1040ez   Income for personal services performed in the United States as a nonresident alien is not considered to be from U. Federal form 1040ez S. Federal form 1040ez sources and is tax exempt if you meet all three of the following conditions. Federal form 1040ez You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country or possession of the United States by a U. Federal form 1040ez S. Federal form 1040ez corporation, a U. Federal form 1040ez S. Federal form 1040ez partnership, or a U. Federal form 1040ez S. Federal form 1040ez citizen or resident. Federal form 1040ez You perform these services while you are a nonresident alien temporarily present in the United States for a period or periods of not more than a total of 90 days during the tax year. Federal form 1040ez Your pay for these services is not more than $3,000. Federal form 1040ez If you do not meet all three conditions, your income from personal services performed in the United States is U. Federal form 1040ez S. Federal form 1040ez source income and is taxed according to the rules in chapter 4. Federal form 1040ez   If your pay for these services is more than $3,000, the entire amount is income from a trade or business within the United States. Federal form 1040ez To find if your pay is more than $3,000, do not include any amounts you get from your employer for advances or reimbursements of business travel expenses, if you were required to and did account to your employer for those expenses. Federal form 1040ez If the advances or reimbursements are more than your expenses, include the excess in your pay for these services. Federal form 1040ez   A day means a calendar day during any part of which you are physically present in the United States. Federal form 1040ez Example 1. Federal form 1040ez During 2013, Henry Smythe, a nonresident alien from a nontreaty country, worked for an overseas office of a U. Federal form 1040ez S. Federal form 1040ez partnership. Federal form 1040ez Henry, who uses the calendar year as his tax year, was temporarily present in the United States for 60 days during 2013 performing personal services for the overseas office of the partnership. Federal form 1040ez That office paid him a total gross salary of $2,800 for those services. Federal form 1040ez During 2013, he was not engaged in a trade or business in the United States. Federal form 1040ez The salary is not considered U. Federal form 1040ez S. Federal form 1040ez source income and is exempt from U. Federal form 1040ez S. Federal form 1040ez tax. Federal form 1040ez Example 2. Federal form 1040ez The facts are the same as in Example 1, except that Henry's total gross salary for the services performed in the United States during 2013 was $4,500. Federal form 1040ez He received $2,875 in 2013, and $1,625 in 2014. Federal form 1040ez During 2013, he was engaged in a trade or business in the United States because the compensation for his personal services in the United States was more than $3,000. Federal form 1040ez Henry's salary is U. Federal form 1040ez S. Federal form 1040ez source income and is taxed under the rules in chapter 4. Federal form 1040ez Crew members. Federal form 1040ez   Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular crew member of a foreign vessel (for example, a boat or ship) engaged in transportation between the United States and a foreign country or U. Federal form 1040ez S. Federal form 1040ez possession is not U. Federal form 1040ez S. Federal form 1040ez source income and is exempt from U. Federal form 1040ez S. Federal form 1040ez tax. Federal form 1040ez This exemption does not apply to compensation for services performed on foreign aircraft. Federal form 1040ez Students and exchange visitors. Federal form 1040ez   Nonresident alien students and exchange visitors present in the United States under “F,” “J,” or “Q” visas can exclude from gross income pay received from a foreign employer. Federal form 1040ez   This group includes bona fide students, scholars, trainees, teachers, professors, research assistants, specialists, or leaders in a field of specialized knowledge or skill, or persons of similar description. Federal form 1040ez It also includes the alien's spouse and minor children if they come with the alien or come later to join the alien. Federal form 1040ez   A nonresident alien temporarily present in the United States under a “J” visa includes an alien individual entering the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Federal form 1040ez Foreign employer. Federal form 1040ez   A foreign employer is: A nonresident alien individual, foreign partnership, or foreign corporation, or An office or place of business maintained in a foreign country or in a U. Federal form 1040ez S. Federal form 1040ez possession by a U. Federal form 1040ez S. Federal form 1040ez corporation, a U. Federal form 1040ez S. Federal form 1040ez partnership, or an individual who is a U. Federal form 1040ez S. Federal form 1040ez citizen or resident. Federal form 1040ez   The term “foreign employer” does not include a foreign government. Federal form 1040ez Pay from a foreign government that is exempt from U. Federal form 1040ez S. Federal form 1040ez income tax is discussed in chapter 10. Federal form 1040ez Income from certain annuities. Federal form 1040ez   Do not include in income any annuity received under a qualified annuity plan or from a qualified trust exempt from U. Federal form 1040ez S. Federal form 1040ez income tax if you meet both of the following conditions. Federal form 1040ez You receive the annuity only because: You performed personal services outside the United States while you were a nonresident alien, or You performed personal services inside the United States while you were a nonresident alien and you met the three conditions, described earlier, under Employees of foreign persons, organizations, or offices . Federal form 1040ez At the time the first amount is paid as an annuity under the plan (or by the trust), 90% or more of the employees for whom contributions or benefits are provided under the annuity plan (or under the plan of which the trust is a part) are U. Federal form 1040ez S. Federal form 1040ez citizens or residents. Federal form 1040ez   If the annuity qualifies under condition (1) but not condition (2) above, you do not have to include the amount in income if: You are a resident of a country that gives a substantially equal exclusion to U. Federal form 1040ez S. Federal form 1040ez citizens and residents, or You are a resident of a beneficiary developing country under Title V of the Trade Act of 1974. Federal form 1040ez   If you are not sure whether the annuity is from a qualified annuity plan or qualified trust, ask the person who made the payment. Federal form 1040ez Income affected by treaties. Federal form 1040ez   Income of any kind that is exempt from U. Federal form 1040ez S. Federal form 1040ez tax under a treaty to which the United States is a party is excluded from your gross income. Federal form 1040ez Income on which the tax is only limited by treaty, however, is included in gross income. Federal form 1040ez See chapter 9. Federal form 1040ez Gambling Winnings From Dog or Horse Racing You can exclude from your gross income winnings from legal wagers initiated outside the United States in a parimutuel pool with respect to a live horse or dog race in the United States. Federal form 1040ez Gain From the Sale of Your Main Home If you sold your main home, you may be able to exclude up to $250,000 of the gain on the sale of your home. Federal form 1040ez If you are married and file a joint return, you may be able to exclude up to $500,000. Federal form 1040ez For information on the requirements for this exclusion, see Publication 523. Federal form 1040ez This exclusion does not apply to nonresident aliens who are subject to the expatriation tax rules discussed in chapter 4. Federal form 1040ez Scholarships and Fellowship Grants If you are a candidate for a degree, you may be able to exclude from your income part or all of the amounts you receive as a qualified scholarship. Federal form 1040ez The rules discussed here apply to both resident and nonresident aliens. Federal form 1040ez If a nonresident alien receives a grant that is not from U. Federal form 1040ez S. Federal form 1040ez sources, it is not subject to U. Federal form 1040ez S. Federal form 1040ez tax. Federal form 1040ez See Scholarships, Grants, Prizes, and Awards in chapter 2 to determine whether your grant is from U. Federal form 1040ez S. Federal form 1040ez sources. Federal form 1040ez A scholarship or fellowship is excludable from income only if: You are a candidate for a degree at an eligible educational institution, and You use the scholarship or fellowship to pay qualified education expenses. Federal form 1040ez Candidate for a degree. Federal form 1040ez   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Federal form 1040ez Eligible educational institution. Federal form 1040ez   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Federal form 1040ez Qualified education expenses. Federal form 1040ez   These are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Federal form 1040ez These items must be required of all students in your course of instruction. Federal form 1040ez However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. Federal form 1040ez Expenses that do not qualify. Federal form 1040ez   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Federal form 1040ez This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Federal form 1040ez Scholarship or fellowship amounts used to pay these costs are taxable. Federal form 1040ez Amounts used to pay expenses that do not qualify. Federal form 1040ez   A scholarship amount used to pay any expense that does not qualify is taxable, even if the expense is a fee that must be paid to the institution as a condition of enrollment or attendance. Federal form 1040ez Payment for services. Federal form 1040ez   You cannot exclude from income the portion of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. Federal form 1040ez This is true even if all candidates for a degree are required to perform the services as a condition for receiving the degree. Federal form 1040ez Example. Federal form 1040ez On January 7, Maria Gomez is notified of a scholarship of $2,500 for the spring semester. Federal form 1040ez As a condition for receiving the scholarship, Maria must serve as a part-time teaching assistant. Federal form 1040ez Of the $2,500 scholarship, $1,000 represents payment for her services. Federal form 1040ez Assuming that Maria meets all other conditions, she can exclude no more than $1,500 from income as a qualified scholarship. Federal form 1040ez Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Earthquake in Virginia

Updated 2/2/2012 to include Albemarle and King George Counties
Updated 1/3/2012 to include Culpeper, Fluvanna, Goochland, Orange and Spotsylvania Counties and the City of Fredericksburg.

VA-2011-22, Nov. 7, 2011

BALTIMORE — Victims of the earthquake that took place on Aug. 23, 2011 in parts of Virginia may qualify for tax relief from the Internal Revenue Service.

The President has declared Albemarle, Culpeper, Fluvanna, Goochland, King George, Louisa, Orange and Spotsylvania Counties and the City of Fredericksburg a federal disaster area. Individuals who reside or have a business in this county may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 23, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes previously obtained extensions to file 2010 returns and the estimated tax payment for the third quarter, normally due Sept. 15.  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 23, and on or before Sept. 7, as long as the deposits are made by Sept. 7, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The county listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 23 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 23 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 23 and on or before Sept. 7 provided the taxpayer makes these deposits by Sept. 7.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Virginia/Earthquake” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Page Last Reviewed or Updated: 05-Dec-2013

The Federal Form 1040ez

Federal form 1040ez Tax Changes for Businesses Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Electronic Form 1099 Tax Incentives for New York Liberty Zone Other 2001 Changes 2002 ChangesNonaccrual-Experience Method Issuance of Qualified Zone Academy Bonds Depletion Work Opportunity Credit Expanded in New York Liberty Zone Credit For Pension Plan Startup Costs Welfare-to-Work Credit Extended Work Opportunity Credit Extended Electric and Clean-Fuel Vehicles Renewable Electricity Production Credit Later ChangesSpecial Depreciation Allowance Extension of Placed in Service Date Special Liberty Zone Depreciation Allowance for New and Used Property Depreciation of Property Used on Indian Reservations Indian Employment Credit Extended 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). Federal form 1040ez However, you can still choose to use the previous carryback period. Federal form 1040ez You also can choose not to carry back an NOL and only carry it forward. Federal form 1040ez Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Federal form 1040ez Corporations can file Form 1139, Corporation Application for Tentative Refund. Federal form 1040ez The instructions for these forms will be revised to reflect the new law. Federal form 1040ez Electronic Form 1099 For tax years ending after March 9, 2002, most Forms 1099 can be furnished electronically if the recipient consents, according to IRS regulations, to receive it that way. Federal form 1040ez Tax Incentives for New York Liberty Zone New tax benefits are provided for the parts of New York City damaged in the terrorist attacks on September 11, 2001. Federal form 1040ez These benefits apply to the newly created New York Liberty Zone, which is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway), in the Borough of Manhattan. Federal form 1040ez Tax benefits for the New York Liberty Zone include the following. Federal form 1040ez A special depreciation allowance equal to 30% of the adjusted basis of qualified Liberty Zone property. Federal form 1040ez It is allowed for the year the property is placed in service. Federal form 1040ez No alternative minimum tax depreciation adjustment for qualified Liberty Zone property. Federal form 1040ez Classification of Liberty Zone leasehold improvement property as 5-year property. Federal form 1040ez Authorization of the issuance of tax-exempt New York Liberty bonds to finance the acquisition, construction, reconstruction, and renovation of nonresidential real property, residential rental property, and public utility property in the Liberty Zone. Federal form 1040ez An increased section 179 deduction for certain Liberty Zone property. Federal form 1040ez Extension of the replacement period from 2 years to 5 years for certain property involuntarily converted as a result of the terrorist attacks on September 11, 2001, but only if substantially all of the use of the replacement property is in New York City. Federal form 1040ez For more information about involuntary conversions, see Postponement of Gain in Publication 547, Casualties, Disasters, and Thefts. Federal form 1040ez In addition, for 2002 and 2003, the work opportunity credit is expanded by creating a new targeted group, consisting generally of employees who work in the Liberty Zone or, in certain cases, in New York City outside the Liberty Zone. Federal form 1040ez For more information, see Work Opportunity Credit Expanded in New York Liberty Zone under 2002 Changes, later. Federal form 1040ez For more information about the 30% special depreciation allowance, Liberty Zone leasehold improvement property, or increased section 179 deduction, see New York Liberty Zone Benefits, in chapter 5. Federal form 1040ez In addition, the tax benefits for the Liberty Zone will be covered in a new edition of Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, available later in 2002. Federal form 1040ez Other 2001 Changes Other changes are discussed in the following chapters. Federal form 1040ez Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Nonaccrual-Experience Method Under current law, if you perform services and use an accrual method of accounting, you do not accrue income which, based on experience, you expect to be uncollectible. Federal form 1040ez Beginning in 2002, this rule only applies if you perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting, or your average annual gross receipts for the 3 prior tax years does not exceed $5,000,000. Federal form 1040ez As under current law, the nonaccrual-experience method will not apply to amounts on which you charge interest or a late payment penalty. Federal form 1040ez For more information, see Nonaccrual-Experience Method in chapter 11 of Publication 535, Business Expenses. Federal form 1040ez Issuance of Qualified Zone Academy Bonds State and local governments issue qualified zone academy bonds to raise funds for the use of qualified zone academies. Federal form 1040ez The amount of bonds that may be issued was limited to $400 million each year for 1998, 1999, 2000, and 2001. Federal form 1040ez This provision has been extended to provide for an additional $400 million of bonds to be issued each year for 2002 and 2003. Federal form 1040ez For more information about qualified zone academy bonds, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Federal form 1040ez Depletion The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas that was scheduled to expire for tax years beginning after 2001 has been extended to tax years beginning before 2004. Federal form 1040ez For more information on marginal production, see section 613A(c) of the Internal Revenue Code. Federal form 1040ez Work Opportunity Credit Expanded in New York Liberty Zone The work opportunity credit is expanded to include a new targeted group consisting generally of employees who perform substantially all their services: In the New York Liberty Zone (defined earlier under Tax Incentives for New York Liberty Zone, under 2001 Changes), or Elsewhere in New York City for a business that relocated from the Liberty Zone due to the destruction or damage of its place of business by the September 11, 2001, terrorist attack. Federal form 1040ez The credit is available to employers for wages paid to new employees and existing employees for work performed during 2002 or 2003. Federal form 1040ez Certain limits apply. Federal form 1040ez For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Federal form 1040ez Credit For Pension Plan Startup Costs The credit for pension plan startup costs is now allowed for plans that become effective after December 31, 2001. Federal form 1040ez Previously, the credit was only allowed for plans established after December 31, 2001. Federal form 1040ez For more information on the credit, see Important Changes for 2002 in Publication 560, Retirement Plans for Small Business. Federal form 1040ez Welfare-to-Work Credit Extended The welfare-to-work credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Federal form 1040ez For more information on the welfare-to-work credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Federal form 1040ez Work Opportunity Credit Extended The work opportunity credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Federal form 1040ez For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Federal form 1040ez Electric and Clean-Fuel Vehicles The maximum clean-fuel vehicle deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002 and both were scheduled to be phased out completely by 2005. Federal form 1040ez The full deduction and credit are now allowed for qualified property placed in service in 2002 and 2003. Federal form 1040ez The phaseout of the deduction and the credit will begin in 2004, and no deduction or credit will be allowed for property placed in service after 2006. Federal form 1040ez For more information about electric and clean-fuel vehicles, see chapter 12 in Publication 535, Business Expenses. Federal form 1040ez Renewable Electricity Production Credit The renewable electricity production credit is extended to include electricity produced by facilities placed in service after 2001 and before 2004. Federal form 1040ez Later Changes Special Depreciation Allowance You can claim the special depreciation allowance (an additional 30% depreciation deduction) for new property that you acquire before September 11, 2004, and place in service for your business generally before January 1, 2005, if you meet the other requirements for qualified property covered in chapter 5. Federal form 1040ez Accordingly, you will generally no longer be able to claim the special depreciation allowance for the qualified property if you acquire it after September 10, 2004, or place it in service for your business after December 31, 2004. Federal form 1040ez However, you will be able to claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for most qualified property if you place it in service in the Liberty Zone after December 31, 2004, and generally before January 1, 2007, provided you meet the other requirements for qualified Liberty Zone property covered in chapter 5. Federal form 1040ez Extension of Placed in Service Date To qualify for the special depreciation allowance, your property must meet certain tests, including the placed in service date test, as well as the other requirements covered in chapter 5 of this publication. Federal form 1040ez To meet the placed in service date test, your property must generally be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Federal form 1040ez However, certain property placed in service before January 1, 2006, may meet this test. Federal form 1040ez Transportation property and property with a recovery period of 10 years or longer meet the test if one of the following applies. Federal form 1040ez The property has an estimated production period of more than 2 years. Federal form 1040ez The property has an estimated production period of more than 1 year and it costs more than $1 million. Federal form 1040ez Transportation property is any tangible personal property used in the trade or business of transporting persons or property. Federal form 1040ez For property that qualifies for the special depreciation allowance solely because of the one-year extension of the placed in service date, only the part of the basis attributable to manufacture, construction, or production before September 11, 2004, is eligible for the special depreciation allowance. Federal form 1040ez Special Liberty Zone Depreciation Allowance for New and Used Property You can claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for used property that you acquire after September 10, 2001, if the property meets the requirements listed under Qualified Liberty Zone Property in chapter 5 of this publication. Federal form 1040ez You will be able to claim the allowance for both new and used property that you acquire after September 10, 2004, provided the property meets the other requirements for qualified Liberty Zone property. Federal form 1040ez Depreciation of Property Used on Indian Reservations The special depreciation rules that apply to qualified property used on an Indian reservation were scheduled to expire for property placed in service after 2003. Federal form 1040ez These special rules have been extended to include property placed in service in 2004. Federal form 1040ez For more information about these rules, see Publication 946, How To Depreciate Property. Federal form 1040ez Indian Employment Credit Extended The Indian employment credit that was scheduled to expire for tax years beginning after 2003 has been extended to include a tax year beginning in 2004. Federal form 1040ez For more information about this credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Federal form 1040ez Prev  Up  Next   Home   More Online Publications