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Filing State Taxes Free

Filing state taxes free Publication 15 - Main Content Table of Contents 1. Filing state taxes free Employer Identification Number (EIN) 2. Filing state taxes free Who Are Employees?Relief provisions. Filing state taxes free Business Owned and Operated by Spouses 3. Filing state taxes free Family Employees 4. Filing state taxes free Employee's Social Security Number (SSN)Registering for SSNVS. Filing state taxes free 5. Filing state taxes free Wages and Other CompensationAccountable plan. Filing state taxes free Nonaccountable plan. Filing state taxes free Per diem or other fixed allowance. Filing state taxes free 50% test. Filing state taxes free Health Savings Accounts and medical savings accounts. Filing state taxes free Nontaxable fringe benefits. Filing state taxes free When fringe benefits are treated as paid. Filing state taxes free Valuation of fringe benefits. Filing state taxes free Withholding on fringe benefits. Filing state taxes free Depositing taxes on fringe benefits. Filing state taxes free 6. Filing state taxes free TipsOrdering rule. Filing state taxes free 7. Filing state taxes free Supplemental Wages 8. Filing state taxes free Payroll Period 9. Filing state taxes free Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Filing state taxes free Required Notice to Employees About the Earned Income Credit (EIC) 11. Filing state taxes free Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Filing state taxes free Filing Form 941 or Form 944 13. Filing state taxes free Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Filing state taxes free Federal Unemployment (FUTA) TaxSuccessor employer. Filing state taxes free Household employees. Filing state taxes free When to deposit. Filing state taxes free Household employees. Filing state taxes free Electronic filing by reporting agents. Filing state taxes free 16. Filing state taxes free How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Filing state taxes free Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Filing state taxes free The EIN is a nine-digit number the IRS issues. Filing state taxes free The digits are arranged as follows: 00-0000000. Filing state taxes free It is used to identify the tax accounts of employers and certain others who have no employees. Filing state taxes free Use your EIN on all of the items you send to the IRS and SSA. Filing state taxes free For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Filing state taxes free If you do not have an EIN, you may apply for one online. Filing state taxes free Go to the IRS. Filing state taxes free gov and click on the Apply for an EIN Online link under Tools. Filing state taxes free You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Filing state taxes free Do not use an SSN in place of an EIN. Filing state taxes free You should have only one EIN. Filing state taxes free If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Filing state taxes free Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Filing state taxes free The IRS will tell you which number to use. Filing state taxes free If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Filing state taxes free If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Filing state taxes free 2. Filing state taxes free Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Filing state taxes free See Publication 15-A for details on statutory employees and nonemployees. Filing state taxes free Employee status under common law. Filing state taxes free   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Filing state taxes free This is so even when you give the employee freedom of action. Filing state taxes free What matters is that you have the right to control the details of how the services are performed. Filing state taxes free See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Filing state taxes free   Generally, people in business for themselves are not employees. Filing state taxes free For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Filing state taxes free However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Filing state taxes free   If an employer-employee relationship exists, it does not matter what it is called. Filing state taxes free The employee may be called an agent or independent contractor. Filing state taxes free It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Filing state taxes free Statutory employees. Filing state taxes free   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Filing state taxes free Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Filing state taxes free An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Filing state taxes free A full-time life insurance salesperson who sells primarily for one company. Filing state taxes free A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Filing state taxes free A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Filing state taxes free The orders must be for merchandise for resale or supplies for use in the customer's business. Filing state taxes free The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Filing state taxes free    Statutory nonemployees. Filing state taxes free   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Filing state taxes free They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Filing state taxes free H-2A agricultural workers. Filing state taxes free   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Filing state taxes free Treating employees as nonemployees. Filing state taxes free   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Filing state taxes free You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Filing state taxes free The applicable rates depend on whether you filed required Forms 1099. Filing state taxes free You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Filing state taxes free You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Filing state taxes free You continue to owe the full employer share of social security and Medicare taxes. Filing state taxes free The employee remains liable for the employee share of social security and Medicare taxes. Filing state taxes free See Internal Revenue Code section 3509 for details. Filing state taxes free Also see the Instructions for Form 941-X. Filing state taxes free   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Filing state taxes free Section 3509 is not available for reclassifying statutory employees. Filing state taxes free See Statutory employees , earlier in this section. Filing state taxes free   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Filing state taxes free 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Filing state taxes free For Medicare taxes; employer rate of 1. Filing state taxes free 45% plus 20% of the employee rate of 1. Filing state taxes free 45%, for a total rate of 1. Filing state taxes free 74% of wages. Filing state taxes free For Additional Medicare Tax; 0. Filing state taxes free 18% (20% of the employee rate of 0. Filing state taxes free 9%) of wages subject to Additional Medicare Tax. Filing state taxes free For income tax withholding, the rate is 1. Filing state taxes free 5% of wages. Filing state taxes free   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Filing state taxes free 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Filing state taxes free For Medicare taxes; employer rate of 1. Filing state taxes free 45% plus 40% of the employee rate of 1. Filing state taxes free 45%, for a total rate of 2. Filing state taxes free 03% of wages. Filing state taxes free For Additional Medicare Tax; 0. Filing state taxes free 36% (40% of the employee rate of 0. Filing state taxes free 9%) of wages subject to Additional Medicare Tax. Filing state taxes free For income tax withholding, the rate is 3. Filing state taxes free 0% of wages. Filing state taxes free Relief provisions. Filing state taxes free   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Filing state taxes free To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Filing state taxes free You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Filing state taxes free See Publication 1976, Do You Qualify for Relief Under Section 530. Filing state taxes free IRS help. Filing state taxes free   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Filing state taxes free Voluntary Classification Settlement Program (VCSP). Filing state taxes free   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Filing state taxes free To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Filing state taxes free For more information visit IRS. Filing state taxes free gov and enter “VCSP” in the search box. Filing state taxes free Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Filing state taxes free See Publication 541, Partnerships, for more details. Filing state taxes free The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Filing state taxes free Exception—Qualified joint venture. Filing state taxes free   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. Filing state taxes free A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). Filing state taxes free   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Filing state taxes free Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Filing state taxes free   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Filing state taxes free If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Filing state taxes free Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Filing state taxes free However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. Filing state taxes free    Note. Filing state taxes free If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Filing state taxes free   For more information on qualified joint ventures, visit IRS. Filing state taxes free gov and enter “qualified joint venture” in the search box. Filing state taxes free Exception—Community income. Filing state taxes free   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Filing state taxes free S. Filing state taxes free possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Filing state taxes free You may still make an election to be taxed as a qualified joint venture instead of a partnership. Filing state taxes free See Exception—Qualified joint venture , earlier. Filing state taxes free 3. Filing state taxes free Family Employees Child employed by parents. Filing state taxes free   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Filing state taxes free If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Filing state taxes free However, see Covered services of a child or spouse , later in this section. Filing state taxes free Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Filing state taxes free Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Filing state taxes free One spouse employed by another. Filing state taxes free   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Filing state taxes free However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Filing state taxes free Covered services of a child or spouse. Filing state taxes free   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Filing state taxes free Parent employed by son or daughter. Filing state taxes free   When the employer is a son or daughter employing his or her parent the following rules apply. Filing state taxes free Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Filing state taxes free Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Filing state taxes free    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Filing state taxes free   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Filing state taxes free 4. Filing state taxes free Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Filing state taxes free This requirement also applies to resident and nonresident alien employees. Filing state taxes free You should ask your employee to show you his or her social security card. Filing state taxes free The employee may show the card if it is available. Filing state taxes free Do not accept a social security card that says “Not valid for employment. Filing state taxes free ” A social security number issued with this legend does not permit employment. Filing state taxes free You may, but are not required to, photocopy the social security card if the employee provides it. Filing state taxes free If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Filing state taxes free See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Filing state taxes free Applying for a social security card. Filing state taxes free   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. Filing state taxes free You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Filing state taxes free socialsecurity. Filing state taxes free gov/online/ss-5. Filing state taxes free html. Filing state taxes free The employee must complete and sign Form SS-5; it cannot be filed by the employer. Filing state taxes free You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Filing state taxes free Applying for a social security number. Filing state taxes free   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Filing state taxes free If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Filing state taxes free When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Filing state taxes free Furnish copies B, C, and 2 of Form W-2c to the employee. Filing state taxes free Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Filing state taxes free For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Filing state taxes free socialsecurity. Filing state taxes free gov/employer. Filing state taxes free Advise your employee to correct the SSN on his or her original Form W-2. Filing state taxes free Correctly record the employee's name and SSN. Filing state taxes free   Record the name and number of each employee as they are shown on the employee's social security card. Filing state taxes free If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Filing state taxes free Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. Filing state taxes free If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. Filing state taxes free It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Filing state taxes free IRS individual taxpayer identification numbers (ITINs) for aliens. Filing state taxes free   Do not accept an ITIN in place of an SSN for employee identification or for work. Filing state taxes free An ITIN is only available to resident and nonresident aliens who are not eligible for U. Filing state taxes free S. Filing state taxes free employment and need identification for other tax purposes. Filing state taxes free You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Filing state taxes free    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Filing state taxes free If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. Filing state taxes free Do not use an ITIN in place of an SSN on Form W-2. Filing state taxes free Verification of social security numbers. Filing state taxes free   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Filing state taxes free Visit www. Filing state taxes free socialsecurity. Filing state taxes free gov/employer/ssnv. Filing state taxes free htm for more information. Filing state taxes free Registering for SSNVS. Filing state taxes free   You must register online and receive authorization from your employer to use SSNVS. Filing state taxes free To register, visit SSA's website at www. Filing state taxes free ssa. Filing state taxes free gov/employer and click on the Business Services Online link. Filing state taxes free Follow the registration instructions to obtain a user identification (ID) and password. Filing state taxes free You will need to provide the following information about yourself and your company. Filing state taxes free Name. Filing state taxes free SSN. Filing state taxes free Date of birth. Filing state taxes free Type of employer. Filing state taxes free EIN. Filing state taxes free Company name, address, and telephone number. Filing state taxes free Email address. Filing state taxes free   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Filing state taxes free You must enter the activation code online to use SSNVS. Filing state taxes free 5. Filing state taxes free Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Filing state taxes free The pay may be in cash or in other forms. Filing state taxes free It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Filing state taxes free It does not matter how you measure or make the payments. Filing state taxes free Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Filing state taxes free Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Filing state taxes free More information. Filing state taxes free   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Filing state taxes free Also, see section 15 for exceptions to the general rules for wages. Filing state taxes free Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Filing state taxes free Publication 15-B provides information on other forms of compensation, including: Accident 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, and Working condition benefits. Filing state taxes free Employee business expense reimbursements. Filing state taxes free   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Filing state taxes free How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Filing state taxes free If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Filing state taxes free   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Filing state taxes free Accountable plan. Filing state taxes free   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Filing state taxes free They must have paid or incurred deductible expenses while performing services as your employees. Filing state taxes free The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Filing state taxes free They must substantiate these expenses to you within a reasonable period of time. Filing state taxes free They must return any amounts in excess of substantiated expenses within a reasonable period of time. Filing state taxes free   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Filing state taxes free   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Filing state taxes free This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Filing state taxes free   A reasonable period of time depends on the facts and circumstances. Filing state taxes free Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Filing state taxes free Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Filing state taxes free Nonaccountable plan. Filing state taxes free   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Filing state taxes free Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Filing state taxes free   See section 7 for more information on supplemental wages. Filing state taxes free Per diem or other fixed allowance. Filing state taxes free   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Filing state taxes free In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Filing state taxes free The 2013 standard mileage rate for auto expenses was 56. Filing state taxes free 5 cents per mile. Filing state taxes free The rate for 2014 is 56 cents per mile. Filing state taxes free   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Filing state taxes free Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Filing state taxes free   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Filing state taxes free This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Filing state taxes free Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Filing state taxes free ” Wages not paid in money. Filing state taxes free   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Filing state taxes free ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Filing state taxes free Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Filing state taxes free   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Filing state taxes free Withhold income tax on these payments only if you and the employee agree to do so. Filing state taxes free Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Filing state taxes free Moving expenses. Filing state taxes free   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Filing state taxes free Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Filing state taxes free For more information on moving expenses, see Publication 521, Moving Expenses. Filing state taxes free Meals and lodging. Filing state taxes free   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Filing state taxes free The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Filing state taxes free    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Filing state taxes free For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Filing state taxes free   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Filing state taxes free A written statement that the meals or lodging are for your convenience is not sufficient. Filing state taxes free 50% test. Filing state taxes free   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Filing state taxes free If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Filing state taxes free For more information, see Publication 15-B. Filing state taxes free Health insurance plans. Filing state taxes free   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Filing state taxes free Generally, this exclusion also applies to qualified long-term care insurance contracts. Filing state taxes free However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Filing state taxes free For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Filing state taxes free See Announcement 92-16 for more information. Filing state taxes free You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Filing state taxes free Health Savings Accounts and medical savings accounts. Filing state taxes free   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Filing state taxes free To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Filing state taxes free Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Filing state taxes free However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Filing state taxes free For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Filing state taxes free Medical care reimbursements. Filing state taxes free   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Filing state taxes free See Publication 15-B for an exception for highly compensated employees. Filing state taxes free Differential wage payments. Filing state taxes free   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Filing state taxes free   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Filing state taxes free Employers should report differential wage payments in box 1 of Form W-2. Filing state taxes free For more information about the tax treatment of differential wage payments, visit IRS. Filing state taxes free gov and enter “employees in a combat zone” in the search box. Filing state taxes free Fringe benefits. Filing state taxes free   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Filing state taxes free The benefits are subject to income tax withholding and employment taxes. Filing state taxes free Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Filing state taxes free In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Filing state taxes free There are other special rules you and your employees may use to value certain fringe benefits. Filing state taxes free See Publication 15-B for more information. Filing state taxes free Nontaxable fringe benefits. Filing state taxes free   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Filing state taxes free See Publication 15-B for details. Filing state taxes free The following are some examples of nontaxable fringe benefits. Filing state taxes free Services provided to your employees at no additional cost to you. Filing state taxes free Qualified employee discounts. Filing state taxes free Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Filing state taxes free Examples include a company car for business use and subscriptions to business magazines. Filing state taxes free Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Filing state taxes free Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Filing state taxes free Qualified moving expense reimbursement. Filing state taxes free See Moving expenses , earlier in this section, for details. Filing state taxes free The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Filing state taxes free Qualified tuition reduction an educational organization provides to its employees for education. Filing state taxes free For more information, see Publication 970, Tax Benefits for Education. Filing state taxes free Employer-provided cell phones provided primarily for a noncompensatory business reason. Filing state taxes free   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Filing state taxes free No-additional-cost services. Filing state taxes free Qualified employee discounts. Filing state taxes free Meals provided at an employer operated eating facility. Filing state taxes free Reduced tuition for education. Filing state taxes free  For more information, including the definition of a highly compensated employee, see Publication 15-B. Filing state taxes free When fringe benefits are treated as paid. Filing state taxes free   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Filing state taxes free You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Filing state taxes free You do not have to make this choice for all employees. Filing state taxes free You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Filing state taxes free See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Filing state taxes free Valuation of fringe benefits. Filing state taxes free   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Filing state taxes free Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Filing state taxes free Withholding on fringe benefits. Filing state taxes free   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Filing state taxes free However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Filing state taxes free   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Filing state taxes free You must, however, withhold social security and Medicare taxes on the use of the vehicle. Filing state taxes free See Publication 15-B for more information on this election. Filing state taxes free Depositing taxes on fringe benefits. Filing state taxes free   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Filing state taxes free To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Filing state taxes free   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Filing state taxes free See Valuation of fringe benefits , earlier. Filing state taxes free If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Filing state taxes free See section 11 for information on deposit penalties. Filing state taxes free   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Filing state taxes free However, you must recover the income taxes before April 1 of the following year. Filing state taxes free Sick pay. Filing state taxes free   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Filing state taxes free These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Filing state taxes free In either case, these payments are subject to social security, Medicare, and FUTA taxes. Filing state taxes free Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Filing state taxes free The payments are always subject to federal income tax. Filing state taxes free See Publication 15-A for more information. Filing state taxes free 6. Filing state taxes free Tips Tips your employee receives from customers are generally subject to withholding. Filing state taxes free Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Filing state taxes free The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Filing state taxes free Both directly and indirectly tipped employees must report tips to you. Filing state taxes free No report is required for months when tips are less than $20. Filing state taxes free Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Filing state taxes free The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. Filing state taxes free Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Filing state taxes free You are permitted to establish a system for electronic tip reporting by employees. Filing state taxes free See Regulations section 31. Filing state taxes free 6053-1(d). Filing state taxes free Collecting taxes on tips. Filing state taxes free   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Filing state taxes free The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Filing state taxes free If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Filing state taxes free   You can collect these taxes from the employee's wages or from other funds he or she makes available. Filing state taxes free See Tips treated as supplemental wages in section 7 for more information. Filing state taxes free Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Filing state taxes free You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Filing state taxes free You are responsible for the employer Medicare tax for the whole year on all wages and tips. Filing state taxes free File Form 941 or Form 944 to report withholding and employment taxes on tips. Filing state taxes free Ordering rule. Filing state taxes free   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Filing state taxes free If there are not enough funds available, withhold taxes in the following order. Filing state taxes free Withhold on regular wages and other compensation. Filing state taxes free Withhold social security and Medicare taxes on tips. Filing state taxes free Withhold income tax on tips. Filing state taxes free Reporting tips. Filing state taxes free   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Filing state taxes free Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Filing state taxes free Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Filing state taxes free ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Filing state taxes free See section 13 and the General Instructions for Forms W-2 and W-3. Filing state taxes free   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Filing state taxes free See Revenue Ruling 2012-18, 2012-26 I. Filing state taxes free R. Filing state taxes free B. Filing state taxes free 1032, available at www. Filing state taxes free irs. Filing state taxes free gov/irb/2012-26_IRB/ar07. Filing state taxes free html. Filing state taxes free Allocated tips. Filing state taxes free   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Filing state taxes free However, do not withhold income, social security, or Medicare taxes on allocated tips. Filing state taxes free   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Filing state taxes free   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Filing state taxes free For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Filing state taxes free For information on filing Form 8027 electronically with the IRS, see Publication 1239. Filing state taxes free Tip Rate Determination and Education Program. Filing state taxes free   Employers may participate in the Tip Rate Determination and Education Program. Filing state taxes free The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Filing state taxes free The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Filing state taxes free A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Filing state taxes free To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Filing state taxes free Additionally, visit IRS. Filing state taxes free gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Filing state taxes free 7. Filing state taxes free Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Filing state taxes free They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Filing state taxes free Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Filing state taxes free How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Filing state taxes free See Regulations section 31. Filing state taxes free 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Filing state taxes free Also see Revenue Ruling 2008-29, 2008-24 I. Filing state taxes free R. Filing state taxes free B. Filing state taxes free 1149, available at www. Filing state taxes free irs. Filing state taxes free gov/irb/2008-24_IRB/ar08. Filing state taxes free html. Filing state taxes free Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Filing state taxes free   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Filing state taxes free If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Filing state taxes free 6% (or the highest rate of income tax for the year). Filing state taxes free Withhold using the 39. Filing state taxes free 6% rate without regard to the employee's Form W-4. Filing state taxes free In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Filing state taxes free For more information, see Treasury Decision 9276, 2006-37 I. Filing state taxes free R. Filing state taxes free B. Filing state taxes free 423, available at www. Filing state taxes free irs. Filing state taxes free gov/irb/2006-37_IRB/ar09. Filing state taxes free html. Filing state taxes free Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Filing state taxes free   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Filing state taxes free Supplemental wages combined with regular wages. Filing state taxes free   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Filing state taxes free Supplemental wages identified separately from regular wages. Filing state taxes free   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Filing state taxes free If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Filing state taxes free Withhold a flat 25% (no other percentage allowed). Filing state taxes free If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Filing state taxes free If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Filing state taxes free Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Filing state taxes free Subtract the tax withheld from the regular wages. Filing state taxes free Withhold the remaining tax from the supplemental wages. Filing state taxes free If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Filing state taxes free If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Filing state taxes free This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Filing state taxes free Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Filing state taxes free Example 1. Filing state taxes free You pay John Peters a base salary on the 1st of each month. Filing state taxes free He is single and claims one withholding allowance. Filing state taxes free In January he is paid $1,000. Filing state taxes free Using the wage bracket tables, you withhold $50 from this amount. Filing state taxes free In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Filing state taxes free You figure the withholding based on the total of $3,000. Filing state taxes free The correct withholding from the tables is $338. Filing state taxes free Example 2. Filing state taxes free You pay Sharon Warren a base salary on the 1st of each month. Filing state taxes free She is single and claims one allowance. Filing state taxes free Her May 1 pay is $2,000. Filing state taxes free Using the wage bracket tables, you withhold $188. Filing state taxes free On May 14 she receives a bonus of $1,000. Filing state taxes free Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Filing state taxes free Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Filing state taxes free Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Filing state taxes free Withhold $150 from the bonus payment. Filing state taxes free Example 3. Filing state taxes free The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Filing state taxes free You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Filing state taxes free Example 4. Filing state taxes free The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Filing state taxes free Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Filing state taxes free Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Filing state taxes free Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Filing state taxes free Withhold $443 from the second bonus payment. Filing state taxes free Tips treated as supplemental wages. Filing state taxes free   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Filing state taxes free If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Filing state taxes free If you have not withheld income tax from the regular wages, add the tips to the regular wages. Filing state taxes free Then withhold income tax on the total. Filing state taxes free If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Filing state taxes free Vacation pay. Filing state taxes free   Vacation pay is subject to withholding as if it were a regular wage payment. Filing state taxes free When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Filing state taxes free If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Filing state taxes free 8. Filing state taxes free Payroll Period Your payroll period is a period of service for which you usually pay wages. Filing state taxes free When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Filing state taxes free No regular payroll period. Filing state taxes free   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Filing state taxes free Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Filing state taxes free If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Filing state taxes free Employee paid for period less than 1 week. Filing state taxes free   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Filing state taxes free If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Filing state taxes free You then figure withholding based on the daily or miscellaneous period. Filing state taxes free 9. Filing state taxes free Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Filing state taxes free   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Filing state taxes free Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. Filing state taxes free Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Filing state taxes free irs. Filing state taxes free gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Filing state taxes free   Ask all new employees to give you a signed Form W-4 when they start work. Filing state taxes free Make the form effective with the first wage payment. Filing state taxes free If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Filing state taxes free Form in Spanish. Filing state taxes free   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Filing state taxes free For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Filing state taxes free The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Filing state taxes free Electronic system to receive Form W-4. Filing state taxes free   You may establish a system to electronically receive Forms W-4 from your employees. Filing state taxes free See Regulations section 31. Filing state taxes free 3402(f)(5)-1(c) for more information. Filing state taxes free Effective date of Form W-4. Filing state taxes free   A Form W-4 remains in effect until the employee gives you a new one. Filing state taxes free When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Filing state taxes free If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Filing state taxes free For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. Filing state taxes free A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Filing state taxes free Successor employer. Filing state taxes free   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Filing state taxes free See Revenue Procedure 2004-53, 2004-34 I. Filing state taxes free R. Filing state taxes free B. Filing state taxes free 320, available at www. Filing state taxes free irs. Filing state taxes free gov/irb/2004-34_IRB/ar13. Filing state taxes free html. Filing state taxes free Completing Form W-4. Filing state taxes free   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Filing state taxes free Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Filing state taxes free However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Filing state taxes free Employees may claim fewer withholding allowances than they are entitled to claim. Filing state taxes free They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Filing state taxes free See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Filing state taxes free Along with Form W-4, you may wish to order Publication 505 for use by your employees. Filing state taxes free Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Filing state taxes free If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Filing state taxes free Exemption from federal income tax withholding. Filing state taxes free   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Filing state taxes free See the Form W-4 instructions for more information. Filing state taxes free However, the wages are still subject to social security and Medicare taxes. Filing state taxes free See also Invalid Forms W-4 , later in this section. Filing state taxes free   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Filing state taxes free To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. Filing state taxes free If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Filing state taxes free If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Filing state taxes free Withholding income taxes on the wages of nonresident alien employees. Filing state taxes free   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Filing state taxes free However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Filing state taxes free Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Filing state taxes free Withholding adjustment for nonresident alien employees. Filing state taxes free   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Filing state taxes free Nonresident alien students from India and business apprentices from India are not subject to this procedure. Filing state taxes free Instructions. Filing state taxes free   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Filing state taxes free Step 1. Filing state taxes free   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Filing state taxes free    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Filing state taxes free 30     Biweekly 86. Filing state taxes free 50     Semimonthly 93. Filing state taxes free 80     Monthly 187. Filing state taxes free 50     Quarterly 562. Filing state taxes free 50     Semiannually 1,125. Filing state taxes free 00     Annually 2,250. Filing state taxes free 00     Daily or Miscellaneous (each day of the payroll period) 8. Filing state taxes free 70   Step 2. Filing state taxes free   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Filing state taxes free Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Filing state taxes free Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Filing state taxes free If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Filing state taxes free If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Filing state taxes free The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Filing state taxes free The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Filing state taxes free Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Filing state taxes free This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Filing state taxes free Example. Filing state taxes free An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Filing state taxes free The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Filing state taxes free The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Filing state taxes free 50 from the chart under Step 1 ($586. Filing state taxes free 50 total). Filing state taxes free The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Filing state taxes free Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Filing state taxes free The $86. Filing state taxes free 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Filing state taxes free Also, the $86. Filing state taxes free 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Filing state taxes free Supplemental wage payment. Filing state taxes free   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Filing state taxes free 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Filing state taxes free Nonresident alien employee's Form W-4. Filing state taxes free   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Filing state taxes free   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Filing state taxes free A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. Filing state taxes free Form 8233. Filing state taxes free   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. Filing state taxes free See Publication 515 for details. Filing state taxes free IRS review of requested Forms W-4. Filing state taxes free   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Filing state taxes free You may also be directed to send certain Forms W-4 to the IRS. Filing state taxes free You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Filing state taxes free Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. Filing state taxes free The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Filing state taxes free R. Filing state taxes free B. Filing state taxes free 455, which is available at www. Filing state taxes free irs. Filing state taxes free gov/irb/2007-35_IRB/ar10. Filing state taxes free html. Filing state taxes free When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Filing state taxes free After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Filing state taxes free However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter
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Understanding your CP49 Notice

We sent you this notice to tell you we used all or part of your refund to pay a tax debt.


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Call us at the toll free number on the top right corner of your notice. Please have your paperwork (such as cancelled checks, amended return, etc.) ready when you call.

Part of the refund you used is mine. You used it to pay taxes my spouse owes. I don't owe any taxes. What can I do?
You can file a Form 8379, Injured Spouse Allocation to claim your share of the refund.

You only used part of my refund. What happens to the part you didn't use?
You'll receive a refund check for any part we didn't use.

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Page Last Reviewed or Updated: 04-Mar-2014

The Filing State Taxes Free

Filing state taxes free 8. Filing state taxes free   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Filing state taxes free Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Filing state taxes free Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Filing state taxes free Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Filing state taxes free Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Filing state taxes free This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Filing state taxes free A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Filing state taxes free An exchange is a transfer of property for other property or services. Filing state taxes free Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Filing state taxes free If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Filing state taxes free If the adjusted basis of the property is more than the amount you realize, you will have a loss. Filing state taxes free Basis and adjusted basis. Filing state taxes free   The basis of property you buy is usually its cost. Filing state taxes free The adjusted basis of property is basis plus certain additions and minus certain deductions. Filing state taxes free See chapter 6 for more information about basis and adjusted basis. Filing state taxes free Amount realized. Filing state taxes free   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Filing state taxes free The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Filing state taxes free   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Filing state taxes free Amount recognized. Filing state taxes free   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Filing state taxes free A recognized gain is a gain you must include in gross income and report on your income tax return. Filing state taxes free A recognized loss is a loss you deduct from gross income. Filing state taxes free However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Filing state taxes free See Like-Kind Exchanges next. Filing state taxes free Also, a loss from the disposition of property held for personal use is not deductible. Filing state taxes free Like-Kind Exchanges Certain exchanges of property are not taxable. Filing state taxes free This means any gain from the exchange is not recognized, and any loss cannot be deducted. Filing state taxes free Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Filing state taxes free The exchange of property for the same kind of property is the most common type of nontaxable exchange. Filing state taxes free To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Filing state taxes free Qualifying property. Filing state taxes free Like-kind property. Filing state taxes free These two requirements are discussed later. Filing state taxes free Multiple-party transactions. Filing state taxes free   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Filing state taxes free Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Filing state taxes free Receipt of title from third party. Filing state taxes free   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Filing state taxes free Basis of property received. Filing state taxes free   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Filing state taxes free See chapter 6 for more information. Filing state taxes free Money paid. Filing state taxes free   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Filing state taxes free The basis of the property received is the basis of the property given up, increased by the money paid. Filing state taxes free Example. Filing state taxes free You traded an old tractor with an adjusted basis of $15,000 for a new one. Filing state taxes free The new tractor costs $300,000. Filing state taxes free You were allowed $80,000 for the old tractor and paid $220,000 cash. Filing state taxes free You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Filing state taxes free If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Filing state taxes free In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Filing state taxes free Reporting the exchange. Filing state taxes free   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Filing state taxes free The Instructions for Form 8824 explain how to report the details of the exchange. Filing state taxes free   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Filing state taxes free You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Filing state taxes free See chapter 9 for more information. Filing state taxes free Qualifying property. Filing state taxes free   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Filing state taxes free Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Filing state taxes free Nonqualifying property. Filing state taxes free   The rules for like-kind exchanges do not apply to exchanges of the following property. Filing state taxes free Property you use for personal purposes, such as your home and family car. Filing state taxes free Stock in trade or other property held primarily for sale, such as crops and produce. Filing state taxes free Stocks, bonds, or notes. Filing state taxes free However, see Qualifying property above. Filing state taxes free Other securities or evidences of indebtedness, such as accounts receivable. Filing state taxes free Partnership interests. Filing state taxes free However, you may have a nontaxable exchange under other rules. Filing state taxes free See Other Nontaxable Exchanges in chapter 1 of Publication 544. Filing state taxes free Like-kind property. Filing state taxes free   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Filing state taxes free Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Filing state taxes free Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Filing state taxes free For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Filing state taxes free   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Filing state taxes free An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Filing state taxes free The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Filing state taxes free For example, the exchange of a bull for a cow is not a like-kind exchange. Filing state taxes free An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Filing state taxes free    Note. Filing state taxes free Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Filing state taxes free Personal property. Filing state taxes free   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Filing state taxes free Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Filing state taxes free Property classified in any General Asset Class may not be classified within a Product Class. Filing state taxes free Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Filing state taxes free General Asset Classes. Filing state taxes free   General Asset Classes describe the types of property frequently used in many businesses. Filing state taxes free They include, but are not limited to, the following property. Filing state taxes free Office furniture, fixtures, and equipment (asset class 00. Filing state taxes free 11). Filing state taxes free Information systems, such as computers and peripheral equipment (asset class 00. Filing state taxes free 12). Filing state taxes free Data handling equipment except computers (asset class 00. Filing state taxes free 13). Filing state taxes free Automobiles and taxis (asset class 00. Filing state taxes free 22). Filing state taxes free Light general purpose trucks (asset class 00. Filing state taxes free 241). Filing state taxes free Heavy general purpose trucks (asset class 00. Filing state taxes free 242). Filing state taxes free Tractor units for use over-the-road (asset class 00. Filing state taxes free 26). Filing state taxes free Trailers and trailer-mounted containers (asset class 00. Filing state taxes free 27). Filing state taxes free Industrial steam and electric generation and/or distribution systems (asset class 00. Filing state taxes free 4). Filing state taxes free Product Classes. Filing state taxes free   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Filing state taxes free The latest version of the manual can be accessed at www. Filing state taxes free census. Filing state taxes free gov/eos/www/naics/. Filing state taxes free Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Filing state taxes free ntis. Filing state taxes free gov/products/naics. Filing state taxes free aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Filing state taxes free A CD-ROM version with search and retrieval software is also available from NTIS. Filing state taxes free    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Filing state taxes free Partially nontaxable exchange. Filing state taxes free   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Filing state taxes free You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Filing state taxes free A loss is not deductible. Filing state taxes free Example 1. Filing state taxes free You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Filing state taxes free You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Filing state taxes free However, only $10,000, the cash received, is recognized (included in income). Filing state taxes free Example 2. Filing state taxes free Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Filing state taxes free Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Filing state taxes free Example 3. Filing state taxes free Assume in Example 1 that the FMV of the land you received was only $15,000. Filing state taxes free Your $5,000 loss is not recognized. Filing state taxes free Unlike property given up. Filing state taxes free   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Filing state taxes free The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Filing state taxes free Like-kind exchanges between related persons. Filing state taxes free   Special rules apply to like-kind exchanges between related persons. Filing state taxes free These rules affect both direct and indirect exchanges. Filing state taxes free Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Filing state taxes free The gain or loss on the original exchange must be recognized as of the date of the later disposition. Filing state taxes free The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Filing state taxes free Related persons. Filing state taxes free   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Filing state taxes free ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Filing state taxes free   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Filing state taxes free Example. Filing state taxes free You used a grey pickup truck in your farming business. Filing state taxes free Your sister used a red pickup truck in her landscaping business. Filing state taxes free In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Filing state taxes free At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Filing state taxes free The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Filing state taxes free You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Filing state taxes free Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Filing state taxes free However, because this was a like-kind exchange, you recognized no gain. Filing state taxes free Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Filing state taxes free She recognized gain only to the extent of the money she received, $200. Filing state taxes free Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Filing state taxes free In 2013, you sold the red pickup truck to a third party for $7,000. Filing state taxes free Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Filing state taxes free On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Filing state taxes free You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Filing state taxes free In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Filing state taxes free Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Filing state taxes free Exceptions to the rules for related persons. Filing state taxes free   The following property dispositions are excluded from these rules. Filing state taxes free Dispositions due to the death of either related person. Filing state taxes free Involuntary conversions. Filing state taxes free Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Filing state taxes free Multiple property exchanges. Filing state taxes free   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Filing state taxes free However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Filing state taxes free Transfer and receive properties in two or more exchange groups. Filing state taxes free Transfer or receive more than one property within a single exchange group. Filing state taxes free   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Filing state taxes free Deferred exchange. Filing state taxes free   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Filing state taxes free A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Filing state taxes free The property you receive is replacement property. Filing state taxes free The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Filing state taxes free In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Filing state taxes free   For more information see Deferred Exchanges in chapter 1 of Publication 544. Filing state taxes free Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Filing state taxes free This rule does not apply if the recipient is a nonresident alien. Filing state taxes free Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Filing state taxes free Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Filing state taxes free The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Filing state taxes free This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Filing state taxes free This rule applies for determining loss as well as gain. Filing state taxes free Any gain recognized on a transfer in trust increases the basis. Filing state taxes free For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Filing state taxes free Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Filing state taxes free You may also have a capital gain if your section 1231 transactions result in a net gain. Filing state taxes free See Section 1231 Gains and Losses in  chapter 9. Filing state taxes free To figure your net capital gain or loss, 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). Filing state taxes free Your net capital gains may be taxed at a lower tax rate than ordinary income. Filing state taxes free See Capital Gains Tax Rates , later. Filing state taxes free Your deduction for a net capital loss may be limited. Filing state taxes free See Treatment of Capital Losses , later. Filing state taxes free Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Filing state taxes free The following items are examples of capital assets. Filing state taxes free A home owned and occupied by you and your family. Filing state taxes free Household furnishings. Filing state taxes free A car used for pleasure. Filing state taxes free If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Filing state taxes free Stocks and bonds. Filing state taxes free However, there are special rules for gains on qualified small business stock. Filing state taxes free For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Filing state taxes free Personal-use property. Filing state taxes free   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Filing state taxes free Loss from the sale or exchange of personal-use property is not deductible. Filing state taxes free You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Filing state taxes free For information on casualties and thefts, see chapter 11. Filing state taxes free Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Filing state taxes free The time you own an asset before disposing of it is the holding period. Filing state taxes free If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Filing state taxes free Report it in Part I of Schedule D (Form 1040). Filing state taxes free If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Filing state taxes free Report it in Part II of Schedule D (Form 1040). Filing state taxes free Holding period. Filing state taxes free   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Filing state taxes free The day you disposed of the property is part of your holding period. Filing state taxes free Example. Filing state taxes free If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Filing state taxes free If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Filing state taxes free Inherited property. Filing state taxes free   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Filing state taxes free This rule does not apply to livestock used in a farm business. Filing state taxes free See Holding period under Livestock , later. Filing state taxes free Nonbusiness bad debt. Filing state taxes free   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Filing state taxes free See chapter 4 of Publication 550. Filing state taxes free Nontaxable exchange. Filing state taxes free   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Filing state taxes free That is, it begins on the same day as your holding period for the old property. Filing state taxes free Gift. Filing state taxes free   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Filing state taxes free Real property. Filing state taxes free   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Filing state taxes free   However, taking possession of real property under an option agreement is not enough to start the holding period. Filing state taxes free The holding period cannot start until there is an actual contract of sale. Filing state taxes free The holding period of the seller cannot end before that time. Filing state taxes free Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Filing state taxes free Net short-term capital gain or loss. Filing state taxes free   Combine your short-term capital gains and losses. Filing state taxes free Do this by adding all of your short-term capital gains. Filing state taxes free Then add all of your short-term capital losses. Filing state taxes free Subtract the lesser total from the greater. Filing state taxes free The difference is your net short-term capital gain or loss. Filing state taxes free Net long-term capital gain or loss. Filing state taxes free   Follow the same steps to combine your long-term capital gains and losses. Filing state taxes free The result is your net long-term capital gain or loss. Filing state taxes free Net gain. Filing state taxes free   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Filing state taxes free However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Filing state taxes free See Capital Gains Tax Rates , later. Filing state taxes free Net loss. Filing state taxes free   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Filing state taxes free But there are limits on how much loss you can deduct and when you can deduct it. Filing state taxes free See Treatment of Capital Losses next. Filing state taxes free Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Filing state taxes free For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Filing state taxes free If your other income is low, you may not be able to use the full $3,000. Filing state taxes free The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Filing state taxes free Capital loss carryover. Filing state taxes free   Generally, you have a capital loss carryover if either of the following situations applies to you. Filing state taxes free Your net loss on Schedule D (Form 1040), is more than the yearly limit. Filing state taxes free Your taxable income without your deduction for exemptions is less than zero. Filing state taxes free If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Filing state taxes free    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Filing state taxes free Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Filing state taxes free These lower rates are called the maximum capital gains rates. Filing state taxes free The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Filing state taxes free See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Filing state taxes free Also see Publication 550. Filing state taxes free Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Filing state taxes free A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Filing state taxes free Property held for sale in the ordinary course of your farm business. Filing state taxes free   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Filing state taxes free Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Filing state taxes free The treatment of this property is discussed in chapter 3. Filing state taxes free Land and depreciable properties. Filing state taxes free   Land and depreciable property you use in farming are not capital assets. Filing state taxes free Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Filing state taxes free However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Filing state taxes free The sales of these business assets are reported on Form 4797. Filing state taxes free See chapter 9 for more information. Filing state taxes free Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Filing state taxes free Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Filing state taxes free A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Filing state taxes free The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Filing state taxes free A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Filing state taxes free Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Filing state taxes free Hedging transactions. Filing state taxes free Transactions that are not hedging transactions. Filing state taxes free Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Filing state taxes free There is a limit on the amount of capital losses you can deduct each year. Filing state taxes free Hedging transactions are not subject to the mark-to-market rules. Filing state taxes free If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Filing state taxes free They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Filing state taxes free The gain or loss on the termination of these hedges is generally ordinary gain or loss. Filing state taxes free Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Filing state taxes free Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Filing state taxes free Examples include fuel and feed. Filing state taxes free If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Filing state taxes free Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Filing state taxes free It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Filing state taxes free Retain the identification of each hedging transaction with your books and records. Filing state taxes free Also, identify the item(s) or aggregate risk that is being hedged in your records. Filing state taxes free Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Filing state taxes free For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Filing state taxes free Accounting methods for hedging transactions. Filing state taxes free   The accounting method you use for a hedging transaction must clearly reflect income. Filing state taxes free This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Filing state taxes free There are requirements and limits on the method you can use for certain hedging transactions. Filing state taxes free See Regulations section 1. Filing state taxes free 446-4(e) for those requirements and limits. Filing state taxes free   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Filing state taxes free Cash method. Filing state taxes free Farm-price method. Filing state taxes free Unit-livestock-price method. Filing state taxes free   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Filing state taxes free   Your books and records must describe the accounting method used for each type of hedging transaction. Filing state taxes free They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Filing state taxes free You must make the additional identification no more than 35 days after entering into the hedging transaction. Filing state taxes free Example of a hedging transaction. Filing state taxes free   You file your income tax returns on the cash method. Filing state taxes free On July 2 you anticipate a yield of 50,000 bushels of corn this year. Filing state taxes free The December futures price is $5. Filing state taxes free 75 a bushel, but there are indications that by harvest time the price will drop. Filing state taxes free To protect yourself against a drop in the price, you enter into the following hedging transaction. Filing state taxes free You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Filing state taxes free 75 a bushel. Filing state taxes free   The price did not drop as anticipated but rose to $6 a bushel. Filing state taxes free In November, you sell your crop at a local elevator for $6 a bushel. Filing state taxes free You also close out your futures position by buying ten December contracts for $6 a bushel. Filing state taxes free You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Filing state taxes free   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Filing state taxes free Your loss on the hedge is 25 cents a bushel. Filing state taxes free In effect, the net selling price of your corn is $5. Filing state taxes free 75 a bushel. Filing state taxes free   Report the results of your futures transactions and your sale of corn separately on Schedule F. Filing state taxes free See the instructions for the 2013 Schedule F (Form 1040). Filing state taxes free   The loss on your futures transactions is $13,900, figured as follows. Filing state taxes free July 2 - Sold December corn futures (50,000 bu. Filing state taxes free @$5. Filing state taxes free 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Filing state taxes free @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Filing state taxes free   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Filing state taxes free × $6). Filing state taxes free Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Filing state taxes free   Assume you were right and the price went down 25 cents a bushel. Filing state taxes free In effect, you would still net $5. Filing state taxes free 75 a bushel, figured as follows. Filing state taxes free Sold cash corn, per bushel $5. Filing state taxes free 50 Gain on hedge, per bushel . Filing state taxes free 25 Net price, per bushel $5. Filing state taxes free 75       The gain on your futures transactions would have been $11,100, figured as follows. Filing state taxes free July 2 - Sold December corn futures (50,000 bu. Filing state taxes free @$5. Filing state taxes free 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Filing state taxes free @$5. Filing state taxes free 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Filing state taxes free   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Filing state taxes free Livestock This part discusses the sale or exchange of livestock used in your farm business. Filing state taxes free Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Filing state taxes free However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Filing state taxes free See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Filing state taxes free The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Filing state taxes free The sale of this livestock is reported on Schedule F. Filing state taxes free See chapter 3. Filing state taxes free Also, special rules apply to sales or exchanges caused by weather-related conditions. Filing state taxes free See chapter 3. Filing state taxes free Holding period. Filing state taxes free   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Filing state taxes free Livestock. Filing state taxes free   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Filing state taxes free Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Filing state taxes free Livestock used in farm business. Filing state taxes free   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Filing state taxes free The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Filing state taxes free An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Filing state taxes free However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Filing state taxes free Example 1. Filing state taxes free You discover an animal that you intend to use for breeding purposes is sterile. Filing state taxes free You dispose of it within a reasonable time. Filing state taxes free This animal was held for breeding purposes. Filing state taxes free Example 2. Filing state taxes free You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Filing state taxes free These young animals were held for breeding or dairy purposes. Filing state taxes free Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Filing state taxes free See Sales Caused by Weather-Related Conditions in chapter 3. Filing state taxes free Example 3. Filing state taxes free You are in the business of raising hogs for slaughter. Filing state taxes free Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Filing state taxes free You sell the brood sows after obtaining the litter. Filing state taxes free Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Filing state taxes free Example 4. Filing state taxes free You are in the business of raising registered cattle for sale to others for use as breeding cattle. Filing state taxes free The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Filing state taxes free Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Filing state taxes free Such use does not demonstrate that you are holding the cattle for breeding purposes. Filing state taxes free However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Filing state taxes free The same applies to hog and sheep breeders. Filing state taxes free Example 5. Filing state taxes free You breed, raise, and train horses for racing purposes. Filing state taxes free Every year you cull horses from your racing stable. Filing state taxes free In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Filing state taxes free These horses are all considered held for sporting purposes. Filing state taxes free Figuring gain or loss on the cash method. Filing state taxes free   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Filing state taxes free Raised livestock. Filing state taxes free   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Filing state taxes free Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Filing state taxes free The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Filing state taxes free However, see Uniform Capitalization Rules in chapter 6. Filing state taxes free Purchased livestock. Filing state taxes free   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Filing state taxes free Example. Filing state taxes free A farmer sold a breeding cow on January 8, 2013, for $1,250. Filing state taxes free Expenses of the sale were $125. Filing state taxes free The cow was bought July 2, 2009, for $1,300. Filing state taxes free Depreciation (not less than the amount allowable) was $867. Filing state taxes free Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Filing state taxes free Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Filing state taxes free Any loss on the disposition of such property is treated as a long-term capital loss. Filing state taxes free Converted wetland. Filing state taxes free   This is generally land that was drained or filled to make the production of agricultural commodities possible. Filing state taxes free It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Filing state taxes free   A wetland (before conversion) is land that meets all the following conditions. Filing state taxes free It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Filing state taxes free It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Filing state taxes free It supports, under normal circumstances, mostly plants that grow in saturated soil. Filing state taxes free Highly erodible cropland. Filing state taxes free   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Filing state taxes free Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Filing state taxes free Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Filing state taxes free Successor. Filing state taxes free   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Filing state taxes free Timber Standing timber you held as investment property is a capital asset. Filing state taxes free Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Filing state taxes free If you held the timber primarily for sale to customers, it is not a capital asset. Filing state taxes free Gain or loss on its sale is ordinary business income or loss. Filing state taxes free It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Filing state taxes free See the Instructions for Schedule F (Form 1040). Filing state taxes 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. Filing state taxes free Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Filing state taxes free , are ordinary farm income and expenses reported on Schedule F. Filing state taxes free Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Filing state taxes free Timber considered cut. Filing state taxes free   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Filing state taxes free This is true whether the timber is cut under contract or whether you cut it yourself. Filing state taxes free Christmas trees. Filing state taxes 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. Filing state taxes free They qualify for both rules discussed below. Filing state taxes free Election to treat cutting as a sale or exchange. Filing state taxes free   Under the general rule, the cutting of timber results in no gain or loss. Filing state taxes free It is not until a sale or exchange occurs that gain or loss is realized. Filing state taxes 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 it is cut. Filing state taxes 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. Filing state taxes free Any later sale results in ordinary business income or loss. Filing state taxes free See the example below. Filing state taxes 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 use in your trade or business. Filing state taxes free Making the election. Filing state taxes 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 your gain or loss. Filing state taxes free You do not have to make the election in the first year you cut the timber. Filing state taxes free You can make it in any year to which the election would apply. Filing state taxes free If the timber is partnership property, the election is made on the partnership return. Filing state taxes free This election cannot be made on an amended return. Filing state taxes free   Once you have made the election, it remains in effect for all later years unless you revoke it. Filing state taxes free Election under section 631(a) may be revoked. Filing state taxes free   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Filing state taxes free The prior election (and revocation) is disregarded for purposes of making a subsequent election. Filing state taxes free See Form T (Timber), Forest Activities Schedule, for more information. Filing state taxes free Gain or loss. Filing state taxes free   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Filing state taxes free   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Filing state taxes 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 and Regulations section 1. Filing state taxes free 611-3. Filing state taxes free   Depletion of timber is discussed in chapter 7. Filing state taxes free Example. Filing state taxes free   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Filing state taxes free It had an adjusted basis for depletion of $40 per MBF. Filing state taxes free You are a calendar year taxpayer. Filing state taxes free On January 1, 2013, the timber had a FMV of $350 per MBF. Filing state taxes free It was cut in April for sale. Filing state taxes free On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Filing state taxes free You report the difference between the FMV and your adjusted basis for depletion as a gain. Filing state taxes free This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Filing state taxes free You figure your gain as follows. Filing state taxes free FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV 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. Filing state taxes free Outright sales of timber. Filing state taxes 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 later). Filing state taxes 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 Date of disposal below). Filing state taxes free Cutting contract. Filing state taxes 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. Filing state taxes free You are the owner of the timber. Filing state taxes free You held the timber longer than 1 year before its disposal. Filing state taxes free You kept an economic interest in the timber. Filing state taxes 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. Filing state taxes 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. Filing state taxes free Include this amount on Form 4797 along with your other section 1231 gains or losses. Filing state taxes free Date of disposal. Filing state taxes free   The date of disposal is the date the timber is cut. Filing state taxes 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. Filing state taxes free   This election applies only to figure the holding period of the timber. Filing state taxes free It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Filing state taxes 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. Filing state taxes free The statement must identify the advance payments subject to the election and the contract under which they were made. Filing state taxes free   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Filing state taxes free Attach the statement to the amended return and write “Filed pursuant to section 301. Filing state taxes free 9100-2” at the top of the statement. Filing state taxes free File the amended return at the same address the original return was filed. Filing state taxes free Owner. Filing state taxes free   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Filing state taxes 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. Filing state taxes free Tree stumps. Filing state taxes 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. Filing state taxes free Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Filing state taxes free However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Filing state taxes free Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Filing state taxes free   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Filing state taxes free Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Filing state taxes free If you have a gain from the sale, you may be allowed to exclude the gain on your home. Filing state taxes free For more information, see Publication 523, Selling Your Home. Filing state taxes free The gain on the sale of your business property is taxable. Filing state taxes free A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Filing state taxes free Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Filing state taxes free See chapter 9. Filing state taxes free Losses from personal-use property, other than casualty or theft losses, are not deductible. Filing state taxes free If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Filing state taxes free See chapter 10 for information about installment sales. Filing state taxes free When you sell your farm, the gain or loss on each asset is figured separately. Filing state taxes free The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Filing state taxes free Each of the assets sold must be classified as one of the following. Filing state taxes free Capital asset held 1 year or less. Filing state taxes free Capital asset held longer than 1 year. Filing state taxes free Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Filing state taxes free Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Filing state taxes free Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Filing state taxes free Allocation of consideration paid for a farm. Filing state taxes free   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Filing state taxes free The residual method is required only if the group of assets sold constitutes a trade or business. Filing state taxes free This method determines gain or loss from the transfer of each asset. Filing state taxes free It also determines the buyer's basis in the business assets. Filing state taxes free For more information, see Sale of a Business in chapter 2 of Publication 544. Filing state taxes free Property used in farm operation. Filing state taxes free   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Filing state taxes free Recognized gains and losses on business property must be reported on your return for the year of the sale. Filing state taxes free If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Filing state taxes free Example. Filing state taxes free You sell your farm, including your main home, which you have owned since December 2001. Filing state taxes free You realize gain on the sale as follows. Filing state taxes free   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Filing state taxes free All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Filing state taxes free Treat the balance as section 1231 gain. Filing state taxes free The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Filing state taxes free Partial sale. Filing state taxes free   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Filing state taxes free You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Filing state taxes free For a detailed discussion on installment sales, see Publication 544. Filing state taxes free Adjusted basis of the part sold. Filing state taxes free   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Filing state taxes free , on the part sold. Filing state taxes free If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Filing state taxes free Example. Filing state taxes free You bought a 600-acre farm for $700,000. Filing state taxes free The farm included land and buildings. Filing state taxes free The purchase contract designated $600,000 of the purchase price to the land. Filing state taxes free You later sold 60 acres of land on which you had installed a fence. Filing state taxes free Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Filing state taxes free Use this amount to determine your gain or loss on the sale of the 60 acres. Filing state taxes free Assessed values for local property taxes. Filing state taxes free   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Filing state taxes free Example. Filing state taxes free Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Filing state taxes free However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Filing state taxes free The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Filing state taxes free Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Filing state taxes free The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Filing state taxes free Sale of your home. Filing state taxes free   Your home is a capital asset and not property used in the trade or business of farming. Filing state taxes free If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Filing state taxes free Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Filing state taxes free   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Filing state taxes free For more information on basis, see chapter 6. Filing state taxes free More information. Filing state taxes free   For more information on selling your home, see Publication 523. Filing state taxes free Gain from condemnation. Filing state taxes free   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Filing state taxes free However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Filing state taxes free Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Filing state taxes free The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Filing state taxes free This is true even if you voluntarily return the property to the lender. Filing state taxes free You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Filing state taxes free Buyer's (borrower's) gain or loss. Filing state taxes free   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Filing state taxes free The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Filing state taxes free See Determining Gain or Loss , earlier. Filing state taxes free Worksheet 8-1. Filing state taxes free Worksheet for Foreclosures andRepossessions Part 1. Filing state taxes free Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Filing state taxes free Complete this part only if you were personally liable for the debt. Filing state taxes free Otherwise, go to Part 2. Filing state taxes free   1. Filing state taxes free Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Filing state taxes free Enter the Fair Market Value of the transferred property   3. Filing state taxes free Ordinary income from cancellation of debt upon foreclosure or repossession. Filing state taxes free * Subtract line 2 from line 1. Filing state taxes free If zero or less, enter -0-   Part 2. Filing state taxes free Figure your gain or loss from foreclosure or repossession. Filing state taxes free   4. Filing state taxes free If you completed Part 1, enter the smaller of line 1 or line 2. Filing state taxes free If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Filing state taxes free Enter any proceeds you received from the foreclosure sale   6. Filing state taxes free Add lines 4 and 5   7. Filing state taxes free Enter the adjusted basis of the transferred property   8. Filing state taxes free Gain or loss from foreclosure or repossession. Filing state taxes free Subtract line 7  from line 6   * The income may not be taxable. Filing state taxes free See Cancellation of debt . Filing state taxes free    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Filing state taxes free Amount realized on a nonrecourse debt. Filing state taxes free   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Filing state taxes free The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Filing state taxes free Example 1. Filing state taxes free Ann paid $200,000 for land used in her farming business. Filing state taxes free She paid $15,000 down and borrowed the remaining $185,000 from a bank. Filing state taxes free Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Filing state taxes free The bank foreclosed on the loan 2 years after Ann stopped making payments. Filing state taxes free When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Filing state taxes free The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Filing state taxes free She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Filing state taxes free She has a $20,000 deductible loss. Filing state taxes free Example 2. Filing state taxes free Assume the same facts as in Example 1 except the FMV of the land was $210,000. Filing state taxes free The result is the same. Filing state taxes free The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Filing state taxes free Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Filing state taxes free Amount realized on a recourse debt. Filing state taxes free   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Filing state taxes free   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Filing state taxes free The amount realized does not include the canceled debt that is your income from cancellation of debt. Filing state taxes free See Cancellation of debt , later. Filing state taxes free Example 3. Filing state taxes free Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Filing state taxes free In this case, the amount she realizes is $170,000. Filing state taxes free This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Filing state taxes free Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Filing state taxes free She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Filing state taxes free She is also treated as receiving ordinary income from cancellation of debt. Filing state taxes free That income is $10,000 ($180,000 − $170,000). Filing state taxes free This is the part of the canceled debt not included in the amount realized. Filing state taxes free She reports this as other income on Schedule F, line 8. Filing state taxes free Seller's (lender's) gain or loss on repossession. Filing state taxes free   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Filing state taxes free For more information, see Repossession in Publication 537, Installment Sales. Filing state taxes free Cancellation of debt. Filing state taxes free   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Filing state taxes free This income is separate from any gain or loss realized from the foreclosure or repossession. Filing state taxes free Report the income from cancellation of a business debt on Schedule F, line 8. Filing state taxes free Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Filing state taxes free    You can use Worksheet 8-1 to figure your income from cancellation of debt. Filing state taxes free   However, income from cancellation of debt is not taxed if any of the following apply. Filing state taxes free The cancellation is intended as a gift. Filing state taxes free The debt is qualified farm debt (see chapter 3). Filing state taxes free The debt is qualified real property business debt (see chapter 5 of Publication 334). Filing state taxes free You are insolvent or bankrupt (see  chapter 3). Filing state taxes free The debt is qualified principal residence indebtedness (see chapter 3). Filing state taxes free   Use Form 982 to report the income exclusion. Filing state taxes free Abandonment The abandonment of property is a disposition of property. Filing state taxes free You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Filing state taxes free Business or investment property. Filing state taxes free   Loss from abandonment of business or investment property is deductible as a loss. Filing state taxes free Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Filing state taxes free If your adjusted basis is more than the amount you realize (if any), then you have a loss. Filing state taxes free If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Filing state taxes free This rule also applies to leasehold improvements the lessor made for the lessee. Filing state taxes free However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Filing state taxes free   If the abandoned property is secured by debt, special rules apply. Filing state taxes free The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Filing state taxes free For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Filing state taxes free The abandonment loss is deducted in the tax year in which the loss is sustained. Filing state taxes free Report the loss on Form 4797, Part II, line 10. Filing state taxes free Personal-use property. Filing state taxes free   You cannot deduct any loss from abandonment of your home or other property held for personal use. Filing state taxes free Canceled debt. Filing state taxes free   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Filing state taxes free This income is separate from any loss realized from abandonment of the property. Filing state taxes free Report income from cancellation of a debt related to a business or rental activity as business or rental income. Filing state taxes free Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Filing state taxes free   However, income from cancellation of debt is not taxed in certain circumstances. Filing state taxes free See Cancellation of debt earlier under Foreclosure or Repossession . Filing state taxes free Forms 1099-A and 1099-C. Filing state taxes free   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Filing state taxes free However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Filing state taxes free The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Filing state taxes free For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. 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