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File Taxes For 2011 Free

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File Taxes For 2011 Free

File taxes for 2011 free 2. File taxes for 2011 free   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. File taxes for 2011 free Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. File taxes for 2011 free Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). File taxes for 2011 free You must do this to figure your net capital gain or loss. File taxes for 2011 free For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. File taxes for 2011 free See Capital Gains Tax Rates in chapter 4. File taxes for 2011 free Your deduction for a net capital loss may be limited. File taxes for 2011 free See Treatment of Capital Losses in chapter 4. File taxes for 2011 free Capital gain or loss. File taxes for 2011 free   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. File taxes for 2011 free You also may have a capital gain if your section 1231 transactions result in a net gain. File taxes for 2011 free Section 1231 transactions. File taxes for 2011 free   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. File taxes for 2011 free They also include certain involuntary conversions of business or investment property, including capital assets. File taxes for 2011 free See Section 1231 Gains and Losses in chapter 3 for more information. File taxes for 2011 free Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. File taxes for 2011 free Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. File taxes for 2011 free For exceptions, see Noncapital Assets, later. File taxes for 2011 free The following items are examples of capital assets. File taxes for 2011 free Stocks and bonds. File taxes for 2011 free A home owned and occupied by you and your family. File taxes for 2011 free Timber grown on your home property or investment property, even if you make casual sales of the timber. File taxes for 2011 free Household furnishings. File taxes for 2011 free A car used for pleasure or commuting. File taxes for 2011 free Coin or stamp collections. File taxes for 2011 free Gems and jewelry. File taxes for 2011 free Gold, silver, and other metals. File taxes for 2011 free Personal-use property. File taxes for 2011 free   Generally, property held for personal use is a capital asset. File taxes for 2011 free Gain from a sale or exchange of that property is a capital gain. File taxes for 2011 free Loss from the sale or exchange of that property is not deductible. File taxes for 2011 free You can deduct a loss relating to personal-use property only if it results from a casualty or theft. File taxes for 2011 free Investment property. File taxes for 2011 free   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. File taxes for 2011 free This treatment does not apply to property used to produce rental income. File taxes for 2011 free See Business assets, later, under Noncapital Assets. File taxes for 2011 free Release of restriction on land. File taxes for 2011 free   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. File taxes for 2011 free Noncapital Assets A noncapital asset is property that is not a capital asset. File taxes for 2011 free The following kinds of property are not capital assets. File taxes for 2011 free Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. File taxes for 2011 free Inventories are discussed in Publication 538, Accounting Periods and Methods. File taxes for 2011 free But, see the Tip below. File taxes for 2011 free Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. File taxes for 2011 free Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). File taxes for 2011 free Sales of this type of property are discussed in chapter 3. File taxes for 2011 free Real property used in your trade or business or as rental property, even if the property is fully depreciated. File taxes for 2011 free A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. File taxes for 2011 free But, see the Tip below. File taxes for 2011 free U. File taxes for 2011 free S. File taxes for 2011 free Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. File taxes for 2011 free Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. File taxes for 2011 free It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. File taxes for 2011 free The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. File taxes for 2011 free Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. File taxes for 2011 free Supplies of a type you regularly use or consume in the ordinary course of your trade or business. File taxes for 2011 free You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. File taxes for 2011 free See chapter 4 of Publication 550 for details. File taxes for 2011 free Property held mainly for sale to customers. File taxes for 2011 free   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. File taxes for 2011 free Inventories are discussed in Publication 538. File taxes for 2011 free Business assets. File taxes for 2011 free   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. File taxes for 2011 free The sale or disposition of business property is discussed in chapter 3. File taxes for 2011 free Letters and memoranda. File taxes for 2011 free   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. File taxes for 2011 free Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. File taxes for 2011 free For this purpose, letters and memoranda addressed to you are considered prepared for you. File taxes for 2011 free If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. File taxes for 2011 free Commodities derivative financial instrument. File taxes for 2011 free   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). File taxes for 2011 free Commodities derivative dealer. File taxes for 2011 free   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. File taxes for 2011 free Hedging transaction. File taxes for 2011 free   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. File taxes for 2011 free Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. File taxes for 2011 free Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. File taxes for 2011 free Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. File taxes for 2011 free If these rules apply, gains may be treated as ordinary income and losses may not be deductible. File taxes for 2011 free See Transfers to Spouse in chapter 1 for rules that apply to spouses. File taxes for 2011 free Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. File taxes for 2011 free It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. File taxes for 2011 free Depreciable property transaction. File taxes for 2011 free   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. File taxes for 2011 free A person and the person's controlled entity or entities. File taxes for 2011 free A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. File taxes for 2011 free An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). File taxes for 2011 free An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). File taxes for 2011 free Controlled entity. File taxes for 2011 free   A person's controlled entity is either of the following. File taxes for 2011 free A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. File taxes for 2011 free An entity whose relationship with that person is one of the following. File taxes for 2011 free A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. File taxes for 2011 free Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. File taxes for 2011 free Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. File taxes for 2011 free Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. File taxes for 2011 free Controlled partnership transaction. File taxes for 2011 free   A gain recognized in a controlled partnership transaction may be ordinary income. File taxes for 2011 free The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. File taxes for 2011 free   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. File taxes for 2011 free A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. File taxes for 2011 free Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. File taxes for 2011 free Determining ownership. File taxes for 2011 free   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. File taxes for 2011 free Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. File taxes for 2011 free (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. File taxes for 2011 free ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. File taxes for 2011 free Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. File taxes for 2011 free For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. File taxes for 2011 free But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. File taxes for 2011 free Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. File taxes for 2011 free This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. File taxes for 2011 free For the list of related persons, see Related persons next. File taxes for 2011 free If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. File taxes for 2011 free The gain on each item is taxable. File taxes for 2011 free The loss on any item is nondeductible. File taxes for 2011 free Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. File taxes for 2011 free Related persons. File taxes for 2011 free   The following is a list of related persons. File taxes for 2011 free Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. File taxes for 2011 free ), and lineal descendants (children, grandchildren, etc. File taxes for 2011 free ). File taxes for 2011 free An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. File taxes for 2011 free Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. File taxes for 2011 free A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. File taxes for 2011 free A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. File taxes for 2011 free Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. File taxes for 2011 free A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. File taxes for 2011 free A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. File taxes for 2011 free Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. File taxes for 2011 free Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. File taxes for 2011 free An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. File taxes for 2011 free Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. File taxes for 2011 free A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. File taxes for 2011 free Partnership interests. File taxes for 2011 free   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. File taxes for 2011 free Controlled groups. File taxes for 2011 free   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. File taxes for 2011 free   For more information, see section 267(f) of the Internal Revenue Code. File taxes for 2011 free Ownership of stock or partnership interests. File taxes for 2011 free   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. File taxes for 2011 free Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. File taxes for 2011 free (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. File taxes for 2011 free ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. File taxes for 2011 free Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. File taxes for 2011 free An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. File taxes for 2011 free For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. File taxes for 2011 free But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. File taxes for 2011 free Indirect transactions. File taxes for 2011 free   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. File taxes for 2011 free This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. File taxes for 2011 free Property received from a related person. File taxes for 2011 free   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. File taxes for 2011 free This rule applies only to the original transferee. File taxes for 2011 free Example 1. File taxes for 2011 free Your brother sold stock to you for $7,600. File taxes for 2011 free His cost basis was $10,000. File taxes for 2011 free His loss of $2,400 was not deductible. File taxes for 2011 free You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). File taxes for 2011 free Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. File taxes for 2011 free Example 2. File taxes for 2011 free Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. File taxes for 2011 free Your recognized loss is only $700 ($7,600 − $6,900). File taxes for 2011 free You cannot deduct the loss not allowed to your brother. File taxes for 2011 free Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. File taxes for 2011 free Sale of a Business The sale of a business usually is not a sale of one asset. File taxes for 2011 free Instead, all the assets of the business are sold. File taxes for 2011 free Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. File taxes for 2011 free A business usually has many assets. File taxes for 2011 free When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. File taxes for 2011 free The gain or loss on each asset is figured separately. File taxes for 2011 free The sale of capital assets results in capital gain or loss. File taxes for 2011 free The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). File taxes for 2011 free The sale of inventory results in ordinary income or loss. File taxes for 2011 free Partnership interests. File taxes for 2011 free   An interest in a partnership or joint venture is treated as a capital asset when sold. File taxes for 2011 free The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. File taxes for 2011 free For more information, see Disposition of Partner's Interest in Publication 541. File taxes for 2011 free Corporation interests. File taxes for 2011 free   Your interest in a corporation is represented by stock certificates. File taxes for 2011 free When you sell these certificates, you usually realize capital gain or loss. File taxes for 2011 free For information on the sale of stock, see chapter 4 in Publication 550. File taxes for 2011 free Corporate liquidations. File taxes for 2011 free   Corporate liquidations of property generally are treated as a sale or exchange. File taxes for 2011 free Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. File taxes for 2011 free Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. File taxes for 2011 free   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. File taxes for 2011 free For more information, see section 332 of the Internal Revenue Code and the related regulations. File taxes for 2011 free Allocation of consideration paid for a business. File taxes for 2011 free   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. File taxes for 2011 free Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. File taxes for 2011 free This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. File taxes for 2011 free It also determines the buyer's basis in the business assets. File taxes for 2011 free Consideration. File taxes for 2011 free   The buyer's consideration is the cost of the assets acquired. File taxes for 2011 free The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. File taxes for 2011 free Residual method. File taxes for 2011 free   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. File taxes for 2011 free This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. File taxes for 2011 free Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. File taxes for 2011 free   A group of assets constitutes a trade or business if either of the following applies. File taxes for 2011 free Goodwill or going concern value could, under any circumstances, attach to them. File taxes for 2011 free The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. File taxes for 2011 free   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). File taxes for 2011 free The consideration remaining after this reduction must be allocated among the various business assets in a certain order. File taxes for 2011 free See Classes of assets next for the complete order. File taxes for 2011 free Classes of assets. File taxes for 2011 free   The following definitions are the classifications for deemed or actual asset acquisitions. File taxes for 2011 free Allocate the consideration among the assets in the following order. File taxes for 2011 free The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. File taxes for 2011 free The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. File taxes for 2011 free Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). File taxes for 2011 free Class II assets are certificates of deposit, U. File taxes for 2011 free S. File taxes for 2011 free Government securities, foreign currency, and actively traded personal property, including stock and securities. File taxes for 2011 free Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. File taxes for 2011 free However, see section 1. File taxes for 2011 free 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. File taxes for 2011 free Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. File taxes for 2011 free Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. File taxes for 2011 free    Note. File taxes for 2011 free Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. File taxes for 2011 free Class VI assets are section 197 intangibles (other than goodwill and going concern value). File taxes for 2011 free Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). File taxes for 2011 free   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. File taxes for 2011 free For example, if an asset is described in both Class II and Class IV, choose Class II. File taxes for 2011 free Example. File taxes for 2011 free The total paid in the sale of the assets of Company SKB is $21,000. File taxes for 2011 free No cash or deposit accounts or similar accounts were sold. File taxes for 2011 free The company's U. File taxes for 2011 free S. File taxes for 2011 free Government securities sold had a fair market value of $3,200. File taxes for 2011 free The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. File taxes for 2011 free Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. File taxes for 2011 free S. File taxes for 2011 free Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. File taxes for 2011 free Agreement. File taxes for 2011 free   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. File taxes for 2011 free This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. File taxes for 2011 free Reporting requirement. File taxes for 2011 free   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. File taxes for 2011 free Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. File taxes for 2011 free Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. File taxes for 2011 free See the Instructions for Form 8594. File taxes for 2011 free Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. File taxes for 2011 free It includes such items as patents, copyrights, and the goodwill value of a business. File taxes for 2011 free Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. File taxes for 2011 free The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. File taxes for 2011 free See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. File taxes for 2011 free Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. File taxes for 2011 free The following discussions explain special rules that apply to certain dispositions of intangible property. File taxes for 2011 free Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. File taxes for 2011 free They include the following assets. File taxes for 2011 free Goodwill. File taxes for 2011 free Going concern value. File taxes for 2011 free Workforce in place. File taxes for 2011 free Business books and records, operating systems, and other information bases. File taxes for 2011 free Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. File taxes for 2011 free Customer-based intangibles. File taxes for 2011 free Supplier-based intangibles. File taxes for 2011 free Licenses, permits, and other rights granted by a governmental unit. File taxes for 2011 free Covenants not to compete entered into in connection with the acquisition of a business. File taxes for 2011 free Franchises, trademarks, and trade names. File taxes for 2011 free See chapter 8 of Publication 535 for a description of each intangible. File taxes for 2011 free Dispositions. File taxes for 2011 free   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. File taxes for 2011 free Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. File taxes for 2011 free If you retain more than one section 197 intangible, increase each intangible's adjusted basis. File taxes for 2011 free Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. File taxes for 2011 free   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. File taxes for 2011 free For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. File taxes for 2011 free Covenant not to compete. File taxes for 2011 free   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. File taxes for 2011 free Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. File taxes for 2011 free Anti-churning rules. File taxes for 2011 free   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. File taxes for 2011 free However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. File taxes for 2011 free Recognize gain on the transfer of the property. File taxes for 2011 free Pay income tax on the gain at the highest tax rate. File taxes for 2011 free   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. File taxes for 2011 free But each partner or shareholder must pay the tax on his or her share of gain. File taxes for 2011 free   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. File taxes for 2011 free You must file the tax return by the due date (including extensions). File taxes for 2011 free You must also notify the transferee of the election in writing by the due date of the return. File taxes for 2011 free   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). File taxes for 2011 free Attach the statement to the amended return and write “Filed pursuant to section 301. File taxes for 2011 free 9100-2” at the top of the statement. File taxes for 2011 free File the amended return at the same address the original return was filed. File taxes for 2011 free For more information about making the election, see Regulations section 1. File taxes for 2011 free 197-2(h)(9). File taxes for 2011 free For information about reporting the tax on your income tax return, see the Instructions for Form 4797. File taxes for 2011 free Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. File taxes for 2011 free This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. File taxes for 2011 free For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. File taxes for 2011 free This treatment applies to your transfer of a patent if you meet all the following conditions. File taxes for 2011 free You are the holder of the patent. File taxes for 2011 free You transfer the patent other than by gift, inheritance, or devise. File taxes for 2011 free You transfer all substantial rights to the patent or an undivided interest in all such rights. File taxes for 2011 free You do not transfer the patent to a related person. File taxes for 2011 free Holder. File taxes for 2011 free   You are the holder of a patent if you are either of the following. File taxes for 2011 free The individual whose effort created the patent property and who qualifies as the original and first inventor. File taxes for 2011 free The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. File taxes for 2011 free All substantial rights. File taxes for 2011 free   All substantial rights to patent property are all rights that have value when they are transferred. File taxes for 2011 free A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. File taxes for 2011 free   All substantial rights to a patent are not transferred if any of the following apply to the transfer. File taxes for 2011 free The rights are limited geographically within a country. File taxes for 2011 free The rights are limited to a period less than the remaining life of the patent. File taxes for 2011 free The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. File taxes for 2011 free The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. File taxes for 2011 free Related persons. File taxes for 2011 free   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. File taxes for 2011 free Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. File taxes for 2011 free Substitute “25% or more” ownership for “more than 50%. File taxes for 2011 free ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. File taxes for 2011 free For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. File taxes for 2011 free The brother-sister exception does not apply because the trust relationship is independent of family status. File taxes for 2011 free Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. File taxes for 2011 free A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. File taxes for 2011 free Significant power, right, or continuing interest. File taxes for 2011 free   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. File taxes for 2011 free   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. File taxes for 2011 free A right to disapprove any assignment of the interest, or any part of it. File taxes for 2011 free A right to end the agreement at will. File taxes for 2011 free A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. File taxes for 2011 free A right to make the recipient sell or advertise only your products or services. File taxes for 2011 free A right to make the recipient buy most supplies and equipment from you. File taxes for 2011 free A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. File taxes for 2011 free Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. File taxes for 2011 free However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. File taxes for 2011 free See section 1237 of the Internal Revenue Code. File taxes for 2011 free Timber Standing timber held as investment property is a capital asset. File taxes for 2011 free Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. File taxes for 2011 free If you held the timber primarily for sale to customers, it is not a capital asset. File taxes for 2011 free Gain or loss on its sale is ordinary business income or loss. File taxes for 2011 free It is reported in the gross receipts or sales and cost of goods sold items of your return. File taxes for 2011 free Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. File taxes for 2011 free These sales constitute a very minor part of their farm businesses. File taxes for 2011 free In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. File taxes for 2011 free , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. File taxes for 2011 free Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. File taxes for 2011 free Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. File taxes for 2011 free This is true whether the timber is cut under contract or whether you cut it yourself. File taxes for 2011 free Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. File taxes for 2011 free See chapter 3. File taxes for 2011 free Gain or loss is reported on Form 4797. File taxes for 2011 free Christmas trees. File taxes for 2011 free   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. File taxes for 2011 free They qualify for both rules discussed below. File taxes for 2011 free Election to treat cutting as a sale or exchange. File taxes for 2011 free   Under the general rule, the cutting of timber results in no gain or loss. File taxes for 2011 free It is not until a sale or exchange occurs that gain or loss is realized. File taxes for 2011 free But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year the timber is cut. File taxes for 2011 free Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. File taxes for 2011 free Any later sale results in ordinary business income or loss. File taxes for 2011 free See Example, later. File taxes for 2011 free   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or for use in your trade or business. File taxes for 2011 free Making the election. File taxes for 2011 free   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of the gain or loss. File taxes for 2011 free You do not have to make the election in the first year you cut timber. File taxes for 2011 free You can make it in any year to which the election would apply. File taxes for 2011 free If the timber is partnership property, the election is made on the partnership return. File taxes for 2011 free This election cannot be made on an amended return. File taxes for 2011 free   Once you have made the election, it remains in effect for all later years unless you cancel it. File taxes for 2011 free   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. File taxes for 2011 free The prior election (and revocation) is disregarded for purposes of making a subsequent election. File taxes for 2011 free See Form T (Timber), Forest Activities Schedule, for more information. File taxes for 2011 free Gain or loss. File taxes for 2011 free   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. File taxes for 2011 free   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. File taxes for 2011 free Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 of the Internal Revenue Code and the related regulations. File taxes for 2011 free   Timber depletion is discussed in chapter 9 of Publication 535. File taxes for 2011 free Example. File taxes for 2011 free In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. File taxes for 2011 free It had an adjusted basis for depletion of $40 per MBF. File taxes for 2011 free You are a calendar year taxpayer. File taxes for 2011 free On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. File taxes for 2011 free It was cut in April for sale. File taxes for 2011 free On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. File taxes for 2011 free You report the difference between the fair market value and your adjusted basis for depletion as a gain. File taxes for 2011 free This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. File taxes for 2011 free You figure your gain as follows. File taxes for 2011 free FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value becomes your basis in the cut timber and a later sale of the cut timber including any by-product or tree tops will result in ordinary business income or loss. File taxes for 2011 free Outright sales of timber. File taxes for 2011 free   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined below). File taxes for 2011 free However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see below). File taxes for 2011 free Cutting contract. File taxes for 2011 free   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. File taxes for 2011 free You are the owner of the timber. File taxes for 2011 free You held the timber longer than 1 year before its disposal. File taxes for 2011 free You kept an economic interest in the timber. File taxes for 2011 free   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. File taxes for 2011 free   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. File taxes for 2011 free Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. File taxes for 2011 free Date of disposal. File taxes for 2011 free   The date of disposal is the date the timber is cut. File taxes for 2011 free However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. File taxes for 2011 free   This election applies only to figure the holding period of the timber. File taxes for 2011 free It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). File taxes for 2011 free   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. File taxes for 2011 free The statement must identify the advance payments subject to the election and the contract under which they were made. File taxes for 2011 free   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). File taxes for 2011 free Attach the statement to the amended return and write “Filed pursuant to section 301. File taxes for 2011 free 9100-2” at the top of the statement. File taxes for 2011 free File the amended return at the same address the original return was filed. File taxes for 2011 free Owner. File taxes for 2011 free   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. File taxes for 2011 free You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. File taxes for 2011 free Tree stumps. File taxes for 2011 free   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. File taxes for 2011 free Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. File taxes for 2011 free However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. File taxes for 2011 free Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. File taxes for 2011 free   See Form T (Timber) and its separate instructions for more information about dispositions of timber. File taxes for 2011 free Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. File taxes for 2011 free , are capital assets except when they are held for sale by a dealer. File taxes for 2011 free Any gain or loss from their sale or exchange generally is a capital gain or loss. File taxes for 2011 free If you are a dealer, the amount received from the sale is ordinary business income. File taxes for 2011 free Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. File taxes for 2011 free You owned the coal or iron ore longer than 1 year before its disposal. File taxes for 2011 free You kept an economic interest in the coal or iron ore. File taxes for 2011 free For this rule, the date the coal or iron ore is mined is considered the date of its disposal. File taxes for 2011 free Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). File taxes for 2011 free This amount is included on Form 4797 along with your other section 1231 gains and losses. File taxes for 2011 free You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. File taxes for 2011 free If you own only an option to buy the coal in place, you do not qualify as an owner. File taxes for 2011 free In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. File taxes for 2011 free The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. File taxes for 2011 free Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. File taxes for 2011 free If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. File taxes for 2011 free Special rule. File taxes for 2011 free   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. File taxes for 2011 free A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). File taxes for 2011 free An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. File taxes for 2011 free Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. File taxes for 2011 free This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. File taxes for 2011 free An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). File taxes for 2011 free A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. File taxes for 2011 free Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. File taxes for 2011 free For more information, see chapter 4 of Publication 550. File taxes for 2011 free Prev  Up  Next   Home   More Online Publications
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The File Taxes For 2011 Free

File taxes for 2011 free Publication 15-B - Main Content Table of Contents 1. File taxes for 2011 free Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. File taxes for 2011 free Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. File taxes for 2011 free Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. File taxes for 2011 free Rules for Withholding, Depositing, and ReportingTransfer of property. File taxes for 2011 free Amount of deposit. File taxes for 2011 free Limitation. File taxes for 2011 free Conformity rules. File taxes for 2011 free Election not to withhold income tax. File taxes for 2011 free How To Get Tax Help 1. File taxes for 2011 free Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. File taxes for 2011 free For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. File taxes for 2011 free Performance of services. File taxes for 2011 free   A person who performs services for you does not have to be your employee. File taxes for 2011 free A person may perform services for you as an independent contractor, partner, or director. File taxes for 2011 free Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. File taxes for 2011 free Provider of benefit. File taxes for 2011 free   You are the provider of a fringe benefit if it is provided for services performed for you. File taxes for 2011 free You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. File taxes for 2011 free For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. File taxes for 2011 free Recipient of benefit. File taxes for 2011 free   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. File taxes for 2011 free That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. File taxes for 2011 free For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. File taxes for 2011 free Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. File taxes for 2011 free Section 2 discusses the exclusions that apply to certain fringe benefits. File taxes for 2011 free Any benefit not excluded under the rules discussed in section 2 is taxable. File taxes for 2011 free Including taxable benefits in pay. File taxes for 2011 free   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. File taxes for 2011 free Any amount the law excludes from pay. File taxes for 2011 free Any amount the recipient paid for the benefit. File taxes for 2011 free The rules used to determine the value of a fringe benefit are discussed in section 3. File taxes for 2011 free   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. File taxes for 2011 free However, you can use special rules to withhold, deposit, and report the employment taxes. File taxes for 2011 free These rules are discussed in section 4. File taxes for 2011 free   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. File taxes for 2011 free However, you may have to report the benefit on one of the following information returns. File taxes for 2011 free If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. File taxes for 2011 free For more information, see the instructions for the forms listed above. File taxes for 2011 free Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. File taxes for 2011 free If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. File taxes for 2011 free Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. File taxes for 2011 free However, a cafeteria plan can include a qualified 401(k) plan as a benefit. File taxes for 2011 free Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. File taxes for 2011 free Qualified benefits. File taxes for 2011 free   A cafeteria plan can include the following benefits discussed in section 2. File taxes for 2011 free Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). File taxes for 2011 free Adoption assistance. File taxes for 2011 free Dependent care assistance. File taxes for 2011 free Group-term life insurance coverage (including costs that cannot be excluded from wages). File taxes for 2011 free Health savings accounts (HSAs). File taxes for 2011 free Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. File taxes for 2011 free Benefits not allowed. File taxes for 2011 free   A cafeteria plan cannot include the following benefits discussed in section 2. File taxes for 2011 free Archer MSAs. File taxes for 2011 free See Accident and Health Benefits in section 2. File taxes for 2011 free Athletic facilities. File taxes for 2011 free De minimis (minimal) benefits. File taxes for 2011 free Educational assistance. File taxes for 2011 free Employee discounts. File taxes for 2011 free Employer-provided cell phones. File taxes for 2011 free Lodging on your business premises. File taxes for 2011 free Meals. File taxes for 2011 free Moving expense reimbursements. File taxes for 2011 free No-additional-cost services. File taxes for 2011 free Transportation (commuting) benefits. File taxes for 2011 free Tuition reduction. File taxes for 2011 free Working condition benefits. File taxes for 2011 free It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). File taxes for 2011 free $2,500 limit on a health flexible spending arrangement (FSA). File taxes for 2011 free   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. File taxes for 2011 free For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. File taxes for 2011 free   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). File taxes for 2011 free While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. File taxes for 2011 free A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. File taxes for 2011 free   For more information, see Notice 2012-40, 2012-26 I. File taxes for 2011 free R. File taxes for 2011 free B. File taxes for 2011 free 1046, available at www. File taxes for 2011 free irs. File taxes for 2011 free gov/irb/2012-26_IRB/ar09. File taxes for 2011 free html. File taxes for 2011 free Employee. File taxes for 2011 free   For these plans, treat the following individuals as employees. File taxes for 2011 free A current common-law employee. File taxes for 2011 free See section 2 in Publication 15 (Circular E) for more information. File taxes for 2011 free A full-time life insurance agent who is a current statutory employee. File taxes for 2011 free A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File taxes for 2011 free Exception for S corporation shareholders. File taxes for 2011 free   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File taxes for 2011 free A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File taxes for 2011 free Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File taxes for 2011 free Plans that favor highly compensated employees. File taxes for 2011 free   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. File taxes for 2011 free A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. File taxes for 2011 free   A highly compensated employee for this purpose is any of the following employees. File taxes for 2011 free An officer. File taxes for 2011 free A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. File taxes for 2011 free An employee who is highly compensated based on the facts and circumstances. File taxes for 2011 free A spouse or dependent of a person described in (1), (2), or (3). File taxes for 2011 free Plans that favor key employees. File taxes for 2011 free   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. File taxes for 2011 free A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. File taxes for 2011 free However, a plan you maintain under a collective bargaining agreement does not favor key employees. File taxes for 2011 free   A key employee during 2014 is generally an employee who is either of the following. File taxes for 2011 free An officer having annual pay of more than $170,000. File taxes for 2011 free An employee who for 2014 is either of the following. File taxes for 2011 free A 5% owner of your business. File taxes for 2011 free A 1% owner of your business whose annual pay was more than $150,000. File taxes for 2011 free Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. File taxes for 2011 free Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. File taxes for 2011 free Eligible employer. File taxes for 2011 free   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. File taxes for 2011 free If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. File taxes for 2011 free If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. File taxes for 2011 free Eligibility and participation requirements. File taxes for 2011 free   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. File taxes for 2011 free You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. File taxes for 2011 free S. File taxes for 2011 free source. File taxes for 2011 free Contribution requirements. File taxes for 2011 free   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. File taxes for 2011 free If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. File taxes for 2011 free More information. File taxes for 2011 free   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. File taxes for 2011 free 2. File taxes for 2011 free Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. File taxes for 2011 free These rules exclude all or part of the value of certain benefits from the recipient's pay. File taxes for 2011 free The excluded benefits are not subject to federal income tax withholding. File taxes for 2011 free Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. File taxes for 2011 free This section discusses the exclusion rules for the following fringe benefits. File taxes for 2011 free Accident and health benefits. File taxes for 2011 free Achievement awards. File taxes for 2011 free Adoption assistance. File taxes for 2011 free Athletic facilities. File taxes for 2011 free De minimis (minimal) benefits. File taxes for 2011 free Dependent care assistance. File taxes for 2011 free Educational assistance. File taxes for 2011 free Employee discounts. File taxes for 2011 free Employee stock options. File taxes for 2011 free Employer-provided cell phones. File taxes for 2011 free Group-term life insurance coverage. File taxes for 2011 free Health savings accounts (HSAs). File taxes for 2011 free Lodging on your business premises. File taxes for 2011 free Meals. File taxes for 2011 free Moving expense reimbursements. File taxes for 2011 free No-additional-cost services. File taxes for 2011 free Retirement planning services. File taxes for 2011 free Transportation (commuting) benefits. File taxes for 2011 free Tuition reduction. File taxes for 2011 free Working condition benefits. File taxes for 2011 free See Table 2-1, later, for an overview of the employment tax treatment of these benefits. File taxes for 2011 free Table 2-1. File taxes for 2011 free Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. File taxes for 2011 free ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. File taxes for 2011 free Exempt, except for certain payments to S corporation employees who are 2% shareholders. File taxes for 2011 free Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). File taxes for 2011 free Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. File taxes for 2011 free De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). File taxes for 2011 free Educational assistance Exempt up to $5,250 of benefits each year. File taxes for 2011 free (See Educational Assistance , later in this section. File taxes for 2011 free ) Employee discounts Exempt3 up to certain limits. File taxes for 2011 free (See Employee Discounts , later in this section. File taxes for 2011 free ) Employee stock options See Employee Stock Options , later in this section. File taxes for 2011 free Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. File taxes for 2011 free Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. File taxes for 2011 free (Special rules apply to former employees. File taxes for 2011 free ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. File taxes for 2011 free (See Health Savings Accounts , later in this section. File taxes for 2011 free ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. File taxes for 2011 free Meals Exempt if furnished on your business premises for your convenience. File taxes for 2011 free Exempt if de minimis. File taxes for 2011 free Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. File taxes for 2011 free No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). File taxes for 2011 free (See Transportation (Commuting) Benefits , later in this section. File taxes for 2011 free ) Exempt if de minimis. File taxes for 2011 free Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). File taxes for 2011 free Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. File taxes for 2011 free 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. File taxes for 2011 free 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. File taxes for 2011 free 4 Exemption does not apply to certain key employees under a plan that favors those employees. File taxes for 2011 free 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. File taxes for 2011 free 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. File taxes for 2011 free 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. File taxes for 2011 free Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. File taxes for 2011 free Also, show it in box 12 with code “C. File taxes for 2011 free ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. File taxes for 2011 free Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. File taxes for 2011 free Contributions to the cost of accident or health insurance including qualified long-term care insurance. File taxes for 2011 free Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. File taxes for 2011 free Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). File taxes for 2011 free This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. File taxes for 2011 free Payments or reimbursements of medical expenses. File taxes for 2011 free Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). File taxes for 2011 free The payments must be figured without regard to any period of absence from work. File taxes for 2011 free Accident or health plan. File taxes for 2011 free   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. File taxes for 2011 free The plan may be insured or noninsured and does not need to be in writing. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat the following individuals as employees. File taxes for 2011 free A current common-law employee. File taxes for 2011 free A full-time life insurance agent who is a current statutory employee. File taxes for 2011 free A retired employee. File taxes for 2011 free A former employee you maintain coverage for based on the employment relationship. File taxes for 2011 free A widow or widower of an individual who died while an employee. File taxes for 2011 free A widow or widower of a retired employee. File taxes for 2011 free For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File taxes for 2011 free Special rule for certain government plans. File taxes for 2011 free   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. File taxes for 2011 free See section 105(j) for details. File taxes for 2011 free Exception for S corporation shareholders. File taxes for 2011 free   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File taxes for 2011 free A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File taxes for 2011 free Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File taxes for 2011 free Exclusion from wages. File taxes for 2011 free   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. File taxes for 2011 free Exception for certain long-term care benefits. File taxes for 2011 free   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. File taxes for 2011 free This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. File taxes for 2011 free However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. File taxes for 2011 free S corporation shareholders. File taxes for 2011 free   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. File taxes for 2011 free However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. File taxes for 2011 free Exception for highly compensated employees. File taxes for 2011 free   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. File taxes for 2011 free However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. File taxes for 2011 free   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. File taxes for 2011 free   A highly compensated employee for this exception is any of the following individuals. File taxes for 2011 free One of the five highest paid officers. File taxes for 2011 free An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. File taxes for 2011 free An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). File taxes for 2011 free   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. File taxes for 2011 free COBRA premiums. File taxes for 2011 free   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). File taxes for 2011 free The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. File taxes for 2011 free Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. File taxes for 2011 free The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. File taxes for 2011 free The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat the following individuals as employees. File taxes for 2011 free A current employee. File taxes for 2011 free A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. File taxes for 2011 free A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File taxes for 2011 free Exception for S corporation shareholders. File taxes for 2011 free   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File taxes for 2011 free A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File taxes for 2011 free Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File taxes for 2011 free Exclusion from wages. File taxes for 2011 free   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. File taxes for 2011 free The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). File taxes for 2011 free See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. File taxes for 2011 free    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. File taxes for 2011 free   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. File taxes for 2011 free The part of the cost that is more than your allowable deduction (up to the value of the awards). File taxes for 2011 free The amount by which the value of the awards exceeds your allowable deduction. File taxes for 2011 free Exclude the remaining value of the awards from the employee's wages. File taxes for 2011 free Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. File taxes for 2011 free It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. File taxes for 2011 free To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. File taxes for 2011 free It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). File taxes for 2011 free A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. File taxes for 2011 free You give reasonable notice of the plan to eligible employees. File taxes for 2011 free Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. File taxes for 2011 free For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File taxes for 2011 free The employee was a 5% owner at any time during the year or the preceding year. File taxes for 2011 free The employee received more than $115,000 in pay for the preceding year. File taxes for 2011 free You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File taxes for 2011 free You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. File taxes for 2011 free However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. File taxes for 2011 free For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. File taxes for 2011 free You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. File taxes for 2011 free Use code “T” to identify this amount. File taxes for 2011 free Exception for S corporation shareholders. File taxes for 2011 free   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. File taxes for 2011 free A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File taxes for 2011 free Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. File taxes for 2011 free Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. File taxes for 2011 free For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. File taxes for 2011 free On-premises facility. File taxes for 2011 free   The athletic facility must be located on premises you own or lease. File taxes for 2011 free It does not have to be located on your business premises. File taxes for 2011 free However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat the following individuals as employees. File taxes for 2011 free A current employee. File taxes for 2011 free A former employee who retired or left on disability. File taxes for 2011 free A widow or widower of an individual who died while an employee. File taxes for 2011 free A widow or widower of a former employee who retired or left on disability. File taxes for 2011 free A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File taxes for 2011 free A partner who performs services for a partnership. File taxes for 2011 free De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. File taxes for 2011 free A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. File taxes for 2011 free Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. File taxes for 2011 free Examples of de minimis benefits include the following. File taxes for 2011 free Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. File taxes for 2011 free See Employer-Provided Cell Phones , later in this section, for details. File taxes for 2011 free Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. File taxes for 2011 free Holiday gifts, other than cash, with a low fair market value. File taxes for 2011 free Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. File taxes for 2011 free Meals. File taxes for 2011 free See Meals , later in this section, for details. File taxes for 2011 free Occasional parties or picnics for employees and their guests. File taxes for 2011 free Occasional tickets for theater or sporting events. File taxes for 2011 free Transportation fare. File taxes for 2011 free See Transportation (Commuting) Benefits , later in this section, for details. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat any recipient of a de minimis benefit as an employee. File taxes for 2011 free Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. File taxes for 2011 free The services must be for a qualifying person's care and must be provided to allow the employee to work. File taxes for 2011 free These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. File taxes for 2011 free For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat the following individuals as employees. File taxes for 2011 free A current employee. File taxes for 2011 free A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File taxes for 2011 free Yourself (if you are a sole proprietor). File taxes for 2011 free A partner who performs services for a partnership. File taxes for 2011 free Exclusion from wages. File taxes for 2011 free   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. File taxes for 2011 free   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. File taxes for 2011 free This limit is reduced to $2,500 for married employees filing separate returns. File taxes for 2011 free   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. File taxes for 2011 free Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. File taxes for 2011 free For more information on the earned income limit, see Publication 503. File taxes for 2011 free Exception for highly compensated employees. File taxes for 2011 free   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. File taxes for 2011 free   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File taxes for 2011 free The employee was a 5% owner at any time during the year or the preceding year. File taxes for 2011 free The employee received more than $115,000 in pay for the preceding year. File taxes for 2011 free You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File taxes for 2011 free Form W-2. File taxes for 2011 free   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. File taxes for 2011 free Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. File taxes for 2011 free Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. File taxes for 2011 free Example. File taxes for 2011 free   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. File taxes for 2011 free In addition, it provides occasional on-site dependent care to its employees at no cost. File taxes for 2011 free Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. File taxes for 2011 free In addition, Emily used the on-site dependent care several times. File taxes for 2011 free The fair market value of the on-site care was $700. File taxes for 2011 free Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). File taxes for 2011 free Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. File taxes for 2011 free Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. File taxes for 2011 free The exclusion also applies to graduate level courses. File taxes for 2011 free Educational assistance means amounts you pay or incur for your employees' education expenses. File taxes for 2011 free These expenses generally include the cost of books, equipment, fees, supplies, and tuition. File taxes for 2011 free However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. File taxes for 2011 free Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. File taxes for 2011 free Nor do they include the cost of lodging, meals, or transportation. File taxes for 2011 free Educational assistance program. File taxes for 2011 free   An educational assistance program is a separate written plan that provides educational assistance only to your employees. File taxes for 2011 free The program qualifies only if all of the following tests are met. File taxes for 2011 free The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. File taxes for 2011 free To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. File taxes for 2011 free The program does not provide more than 5% of its benefits during the year for shareholders or owners. File taxes for 2011 free A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. File taxes for 2011 free The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. File taxes for 2011 free You give reasonable notice of the program to eligible employees. File taxes for 2011 free Your program can cover former employees if their employment is the reason for the coverage. File taxes for 2011 free   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File taxes for 2011 free The employee was a 5% owner at any time during the year or the preceding year. File taxes for 2011 free The employee received more than $115,000 in pay for the preceding year. File taxes for 2011 free You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat the following individuals as employees. File taxes for 2011 free A current employee. File taxes for 2011 free A former employee who retired, left on disability, or was laid off. File taxes for 2011 free A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File taxes for 2011 free Yourself (if you are a sole proprietor). File taxes for 2011 free A partner who performs services for a partnership. File taxes for 2011 free Exclusion from wages. File taxes for 2011 free   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. File taxes for 2011 free Assistance over $5,250. File taxes for 2011 free   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. File taxes for 2011 free Working condition benefits may be excluded from wages. File taxes for 2011 free Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. File taxes for 2011 free See Working Condition Benefits , later, in this section. File taxes for 2011 free Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. File taxes for 2011 free However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat the following individuals as employees. File taxes for 2011 free A current employee. File taxes for 2011 free A former employee who retired or left on disability. File taxes for 2011 free A widow or widower of an individual who died while an employee. File taxes for 2011 free A widow or widower of an employee who retired or left on disability. File taxes for 2011 free A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File taxes for 2011 free A partner who performs services for a partnership. File taxes for 2011 free Exclusion from wages. File taxes for 2011 free   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. File taxes for 2011 free For a discount on services, 20% of the price you charge nonemployee customers for the service. File taxes for 2011 free For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. File taxes for 2011 free   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. File taxes for 2011 free To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. File taxes for 2011 free Exception for highly compensated employees. File taxes for 2011 free   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. File taxes for 2011 free All of your employees. File taxes for 2011 free A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. File taxes for 2011 free   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File taxes for 2011 free The employee was a 5% owner at any time during the year or the preceding year. File taxes for 2011 free The employee received more than $115,000 in pay for the preceding year. File taxes for 2011 free You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File taxes for 2011 free Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. File taxes for 2011 free Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. File taxes for 2011 free The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. File taxes for 2011 free Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. File taxes for 2011 free The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. File taxes for 2011 free However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. File taxes for 2011 free An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. File taxes for 2011 free ” See Regulations section 1. File taxes for 2011 free 83-7. File taxes for 2011 free An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. File taxes for 2011 free The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. File taxes for 2011 free See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. File taxes for 2011 free You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. File taxes for 2011 free irs. File taxes for 2011 free gov/pub/irs-irbs/irb02-19. File taxes for 2011 free pdf. File taxes for 2011 free See Revenue Ruling 2004-60, 2004-24 I. File taxes for 2011 free R. File taxes for 2011 free B. File taxes for 2011 free 1051, available at www. File taxes for 2011 free irs. File taxes for 2011 free gov/irb/2004-24_IRB/ar13. File taxes for 2011 free html. File taxes for 2011 free For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. File taxes for 2011 free Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. File taxes for 2011 free Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. File taxes for 2011 free For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. File taxes for 2011 free Noncompensatory business purposes. File taxes for 2011 free   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. File taxes for 2011 free Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. File taxes for 2011 free Cell phones provided to promote goodwill, boost morale, or attract prospective employees. File taxes for 2011 free   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. File taxes for 2011 free Additional information. File taxes for 2011 free   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. File taxes for 2011 free R. File taxes for 2011 free B. File taxes for 2011 free 407, available at  www. File taxes for 2011 free irs. File taxes for 2011 free gov/irb/2011-38_IRB/ar07. File taxes for 2011 free html. File taxes for 2011 free Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. File taxes for 2011 free It provides a general death benefit that is not included in income. File taxes for 2011 free You provide it to a group of employees. File taxes for 2011 free See The 10-employee rule , later. File taxes for 2011 free It provides an amount of insurance to each employee based on a formula that prevents individual selection. File taxes for 2011 free This formula must use factors such as the employee's age, years of service, pay, or position. File taxes for 2011 free You provide it under a policy you directly or indirectly carry. File taxes for 2011 free Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. File taxes for 2011 free Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. File taxes for 2011 free Group-term life insurance does not include the following insurance. File taxes for 2011 free Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. File taxes for 2011 free Life insurance on the life of your employee's spouse or dependent. File taxes for 2011 free However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. File taxes for 2011 free See De Minimis (Minimal) Benefits , earlier in this section. File taxes for 2011 free Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. File taxes for 2011 free See Regulations section 1. File taxes for 2011 free 79-1 for details. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat the following individuals as employees. File taxes for 2011 free A current common-law employee. File taxes for 2011 free A full-time life insurance agent who is a current statutory employee. File taxes for 2011 free An individual who was formerly your employee under (1) or (2). File taxes for 2011 free A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. File taxes for 2011 free Exception for S corporation shareholders. File taxes for 2011 free   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File taxes for 2011 free A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File taxes for 2011 free Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File taxes for 2011 free The 10-employee rule. File taxes for 2011 free   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. File taxes for 2011 free   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. File taxes for 2011 free For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. File taxes for 2011 free However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. File taxes for 2011 free A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. File taxes for 2011 free Exceptions. File taxes for 2011 free   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. File taxes for 2011 free   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. File taxes for 2011 free If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. File taxes for 2011 free You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. File taxes for 2011 free You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. File taxes for 2011 free See Regulations section 1. File taxes for 2011 free 79-1 for details. File taxes for 2011 free   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. File taxes for 2011 free You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. File taxes for 2011 free The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. File taxes for 2011 free Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. File taxes for 2011 free   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. File taxes for 2011 free They were 65 or older. File taxes for 2011 free They customarily work 20 hours or less a week or 5 months or less in a calendar year. File taxes for 2011 free They have not been employed for the waiting period given in the policy. File taxes for 2011 free This waiting period cannot be more than 6 months. File taxes for 2011 free Exclusion from wages. File taxes for 2011 free   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. File taxes for 2011 free You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. File taxes for 2011 free In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. File taxes for 2011 free Coverage over the limit. File taxes for 2011 free   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. File taxes for 2011 free Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. File taxes for 2011 free Also, show it in box 12 with code “C. File taxes for 2011 free ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. File taxes for 2011 free   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. File taxes for 2011 free For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. File taxes for 2011 free You must prorate the cost from the table if less than a full month of coverage is involved. File taxes for 2011 free Table 2-2. File taxes for 2011 free Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . File taxes for 2011 free 05 25 through 29 . File taxes for 2011 free 06 30 through 34 . File taxes for 2011 free 08 35 through 39 . File taxes for 2011 free 09 40 through 44 . File taxes for 2011 free 10 45 through 49 . File taxes for 2011 free 15 50 through 54 . File taxes for 2011 free 23 55 through 59 . File taxes for 2011 free 43 60 through 64 . File taxes for 2011 free 66 65 through 69 1. File taxes for 2011 free 27 70 and older 2. File taxes for 2011 free 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. File taxes for 2011 free Example. File taxes for 2011 free Tom's employer provides him with group-term life insurance coverage of $200,000. File taxes for 2011 free Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. File taxes for 2011 free Tom's employer must include $170 in his wages. File taxes for 2011 free The $200,000 of insurance coverage is reduced by $50,000. File taxes for 2011 free The yearly cost of $150,000 of coverage is $270 ($. File taxes for 2011 free 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. File taxes for 2011 free The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. File taxes for 2011 free The employer also enters $170 in box 12 with code “C. File taxes for 2011 free ” Coverage for dependents. File taxes for 2011 free   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. File taxes for 2011 free If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. File taxes for 2011 free The cost of the insurance is determined by using Table 2-2. File taxes for 2011 free Former employees. File taxes for 2011 free   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. File taxes for 2011 free You are not required to collect those taxes. File taxes for 2011 free Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. File taxes for 2011 free Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. File taxes for 2011 free ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. File taxes for 2011 free Exception for key employees. File taxes for 2011 free   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. File taxes for 2011 free This exception generally does not apply to church plans. File taxes for 2011 free When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. File taxes for 2011 free Include the cost in boxes 1, 3, and 5 of Form W-2. File taxes for 2011 free However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. File taxes for 2011 free   For this purpose, the cost of the insurance is the greater of the following amounts. File taxes for 2011 free The premiums you pay for the employee's insurance. File taxes for 2011 free See Regulations section 1. File taxes for 2011 free 79-4T(Q&A 6) for more information. File taxes for 2011 free The cost you figure using Table 2-2. File taxes for 2011 free   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. File taxes for 2011 free See section 416(i) of the Internal Revenue Code for more information. File taxes for 2011 free An officer having annual pay of more than $170,000. File taxes for 2011 free An individual who for 2014 was either of the following. File taxes for 2011 free A 5% owner of your business. File taxes for 2011 free A 1% owner of your business whose annual pay was more than $150,000. File taxes for 2011 free   A former employee who was a key employee upon retirement or separation from service is also a key employee. File taxes for 2011 free   Your plan does not favor key employees as to participation if at least one of the following is true. File taxes for 2011 free It benefits at least 70% of your employees. File taxes for 2011 free At least 85% of the participating employees are not key employees. File taxes for 2011 free It benefits employees who qualify under a set of rules you set up that do not favor key employees. File taxes for 2011 free   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. File taxes for 2011 free   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. File taxes for 2011 free S. File taxes for 2011 free source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. File taxes for 2011 free   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. File taxes for 2011 free Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. File taxes for 2011 free S corporation shareholders. File taxes for 2011 free   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. File taxes for 2011 free When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. File taxes for 2011 free Include the cost in boxes 1, 3, and 5 of Form W-2. File taxes for 2011 free However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. File taxes for 2011 free Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. File taxes for 2011 free Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. File taxes for 2011 free Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. File taxes for 2011 free The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. File taxes for 2011 free For more information about HSAs, visit the Department of Treasury's website at www. File taxes for 2011 free treasury. File taxes for 2011 free gov and enter “HSA” in the search box. File taxes for 2011 free Eligibility. File taxes for 2011 free   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. File taxes for 2011 free For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. File taxes for 2011 free   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. File taxes for 2011 free Exceptions. File taxes for 2011 free   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. File taxes for 2011 free Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. File taxes for 2011 free However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. File taxes for 2011 free For more information, see Other employee health plans in Publication 969. File taxes for 2011 free Employer contributions. File taxes for 2011 free   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. File taxes for 2011 free For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. File taxes for 2011 free   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. File taxes for 2011 free For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. File taxes for 2011 free No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. File taxes for 2011 free Nondiscrimination rules. File taxes for 2011 free    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. File taxes for 2011 free Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. File taxes for 2011 free   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. File taxes for 2011 free 4980G-4. File taxes for 2011 free Exception. File taxes for 2011 free   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. File taxes for 2011 free A highly compensated employee for 2014 is an employee who meets either of the following tests. File taxes for 2011 free The employee was a 5% owner at any time during the year or the preceding year. File taxes for 2011 free The employee received more than $115,000 in pay for the preceding year. File taxes for 2011 free You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File taxes for 2011 free Partnerships and S corporations. File taxes for 2011 free   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. File taxes for 2011 free Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. File taxes for 2011 free Cafeteria plans. File taxes for 2011 free   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. File taxes for 2011 free However, cafeteria plan nondiscrimination rules still apply. File taxes for 2011 free For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. File taxes for 2011 free Contributions that favor lower-paid employees are not prohibited. File taxes for 2011 free Reporting requirements. File taxes for 2011 free   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. File taxes for 2011 free ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. File taxes for 2011 free Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. File taxes for 2011 free It is furnished on your business premises. File taxes for 2011 free It is furnished for your convenience. File taxes for 2011 free The employee must accept it as a condition of employment. File taxes for 2011 free Different tests may apply to lodging furnished by educational institutions. File taxes for 2011 free See section 119(d) of the Internal Revenue Code for details. File taxes for 2011 free The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. File taxes for 2011 free On your business premises. File taxes for 2011 free   For this exclusion, your business premises is generally your employee's place of work. File taxes for 2011 free For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. File taxes for 2011 free For your convenience. File taxes for 2011 free   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. File taxes for 2011 free You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. File taxes for 2011 free This is true even if a law or an employment contract provides that the lodging is furnished as pay. File taxes for 2011 free However, a written statement that the lodging is furnished for your convenience is not sufficient. File taxes for 2011 free Condition of employment. File taxes for 2011 free   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. File taxes for 2011 free Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. File taxes for 2011 free   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. File taxes for 2011 free Example. File taxes for 2011 free A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. File taxes for 2011 free If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. File taxes for 2011 free S corporation shareholders. File taxes for 2011 free   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. File taxes for 2011 free A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File taxes for 2011 free Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File taxes for 2011 free Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. File taxes for 2011 free De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. File taxes for 2011 free The exclusion applies, for example, to the following items. File taxes for 2011 free Coffee, doughnuts, or soft drinks. File taxes for 2011 free Occasional meals or meal money provided to enable an employee to work overtime. File taxes for 2011 free However, the exclusion does not apply to meal money figured on the basis of hours worked. File taxes for 2011 free Occasional parties or picnics for employees and their guests. File taxes for 2011 free This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. File taxes for 2011 free For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. File taxes for 2011 free If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. File taxes for 2011 free The 50% limit on deductions for the cost of meals does not apply. File taxes for 2011 free The deduction limit on meals is discussed in chapter 2 of Publication 535. File taxes for 2011 free Employee. File taxes for 2011 free   For this exclusion, treat any recipient of a de minimis meal as