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Fill 1040x Form E Taxes

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Fill 1040x Form E Taxes

Fill 1040x form e taxes 5. Fill 1040x form e taxes   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Fill 1040x form e taxes Making the election. Fill 1040x form e taxes Form 3115. Fill 1040x form e taxes Income TaxesAccrual of contested income taxes. Fill 1040x form e taxes Employment Taxes Other TaxesAdditional Medicare Tax. Fill 1040x form e taxes What's New Additional Medicare Tax. Fill 1040x form e taxes  Beginning in 2013, you must withhold a 0. Fill 1040x form e taxes 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Fill 1040x form e taxes Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Fill 1040x form e taxes See Employment Taxes , and Self-employment tax , later. Fill 1040x form e taxes Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Fill 1040x form e taxes You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Fill 1040x form e taxes Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Fill 1040x form e taxes When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Fill 1040x form e taxes This applies whether you use the cash method or an accrual method of accounting. Fill 1040x form e taxes Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Fill 1040x form e taxes You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Fill 1040x form e taxes Limit on accrual of taxes. Fill 1040x form e taxes   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Fill 1040x form e taxes However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Fill 1040x form e taxes Example. Fill 1040x form e taxes Your state imposes a tax on personal property used in a trade or business conducted in the state. Fill 1040x form e taxes This tax is assessed and becomes a lien as of July 1 (accrual date). Fill 1040x form e taxes In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Fill 1040x form e taxes Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Fill 1040x form e taxes You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Fill 1040x form e taxes Uniform capitalization rules. Fill 1040x form e taxes   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Fill 1040x form e taxes They also apply to certain taxpayers who acquire property for resale. Fill 1040x form e taxes Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Fill 1040x form e taxes For more information, see chapter 1. Fill 1040x form e taxes Carrying charges. Fill 1040x form e taxes   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Fill 1040x form e taxes You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Fill 1040x form e taxes For more information, see chapter 7. Fill 1040x form e taxes Refunds of taxes. Fill 1040x form e taxes   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Fill 1040x form e taxes For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Fill 1040x form e taxes    You must include in income any interest you receive on tax refunds. Fill 1040x form e taxes Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Fill 1040x form e taxes The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Fill 1040x form e taxes Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Fill 1040x form e taxes See Taxes for local benefits , later. Fill 1040x form e taxes If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Fill 1040x form e taxes However, you can elect to ratably accrue the taxes during the year. Fill 1040x form e taxes See Electing to ratably accrue , later. Fill 1040x form e taxes Taxes for local benefits. Fill 1040x form e taxes   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Fill 1040x form e taxes These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Fill 1040x form e taxes You should increase the basis of your property by the amount of the assessment. Fill 1040x form e taxes   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Fill 1040x form e taxes If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Fill 1040x form e taxes Example. Fill 1040x form e taxes To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Fill 1040x form e taxes The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Fill 1040x form e taxes The city is paying the principal and interest with the annual payments made by the property owners. Fill 1040x form e taxes The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Fill 1040x form e taxes The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Fill 1040x form e taxes Charges for services. Fill 1040x form e taxes   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Fill 1040x form e taxes Purchase or sale of real estate. Fill 1040x form e taxes   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Fill 1040x form e taxes   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Fill 1040x form e taxes Treat the seller as paying the taxes up to but not including the date of sale. Fill 1040x form e taxes Treat the buyer as paying the taxes beginning with the date of sale. Fill 1040x form e taxes You can usually find this information on the settlement statement you received at closing. Fill 1040x form e taxes   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Fill 1040x form e taxes Example. Fill 1040x form e taxes Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Fill 1040x form e taxes He has not elected to ratably accrue property taxes. Fill 1040x form e taxes November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Fill 1040x form e taxes He sold the property on June 30, 2013. Fill 1040x form e taxes Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Fill 1040x form e taxes He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Fill 1040x form e taxes Electing to ratably accrue. Fill 1040x form e taxes   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Fill 1040x form e taxes Example. Fill 1040x form e taxes Juan Sanchez is a calendar year taxpayer who uses an accrual method. Fill 1040x form e taxes His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Fill 1040x form e taxes July 1 is the assessment and lien date. Fill 1040x form e taxes If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Fill 1040x form e taxes Separate elections. Fill 1040x form e taxes   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Fill 1040x form e taxes Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Fill 1040x form e taxes See Form 3115 , later. Fill 1040x form e taxes Making the election. Fill 1040x form e taxes   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Fill 1040x form e taxes The statement should show all the following items. Fill 1040x form e taxes The trades or businesses to which the election applies and the accounting method or methods used. Fill 1040x form e taxes The period to which the taxes relate. Fill 1040x form e taxes The computation of the real estate tax deduction for that first year. Fill 1040x form e taxes   Generally, you must file your return by the due date (including extensions). Fill 1040x form e taxes However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Fill 1040x form e taxes Attach the statement to the amended return and write “Filed pursuant to section 301. Fill 1040x form e taxes 9100-2” on the statement. Fill 1040x form e taxes File the amended return at the same address where you filed the original return. Fill 1040x form e taxes Form 3115. Fill 1040x form e taxes    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Fill 1040x form e taxes For more information, including applicable time frames for filing, see the Instructions for Form 3115. Fill 1040x form e taxes Note. Fill 1040x form e taxes If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Fill 1040x form e taxes R. Fill 1040x form e taxes B. Fill 1040x form e taxes 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Fill 1040x form e taxes R. Fill 1040x form e taxes B. Fill 1040x form e taxes 689, and Revenue Procedure 2012-20, 2012-14 I. Fill 1040x form e taxes R. Fill 1040x form e taxes B. Fill 1040x form e taxes 700, or any successor. Fill 1040x form e taxes Revenue Procedure 2011-14 is available at  www. Fill 1040x form e taxes irs. Fill 1040x form e taxes gov/irb/2011-04IRB/ar08. Fill 1040x form e taxes html. Fill 1040x form e taxes Income Taxes This section discusses federal, state, local, and foreign income taxes. Fill 1040x form e taxes Federal income taxes. Fill 1040x form e taxes   You cannot deduct federal income taxes. Fill 1040x form e taxes State and local income taxes. Fill 1040x form e taxes   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Fill 1040x form e taxes An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Fill 1040x form e taxes   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Fill 1040x form e taxes Accrual of contested income taxes. Fill 1040x form e taxes   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Fill 1040x form e taxes   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Fill 1040x form e taxes You cannot deduct them in the year in which the liability is finally determined. Fill 1040x form e taxes    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Fill 1040x form e taxes Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Fill 1040x form e taxes   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Fill 1040x form e taxes You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Fill 1040x form e taxes For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Fill 1040x form e taxes Foreign income taxes. Fill 1040x form e taxes   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Fill 1040x form e taxes S. Fill 1040x form e taxes possession. Fill 1040x form e taxes However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Fill 1040x form e taxes S. Fill 1040x form e taxes tax under the foreign earned income exclusion or the foreign housing exclusion. Fill 1040x form e taxes For information on these exclusions, see Publication 54, Tax Guide for U. Fill 1040x form e taxes S. Fill 1040x form e taxes Citizens and Resident Aliens Abroad. Fill 1040x form e taxes For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Fill 1040x form e taxes Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Fill 1040x form e taxes Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Fill 1040x form e taxes You may also need to pay certain employment taxes from your own funds. Fill 1040x form e taxes These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Fill 1040x form e taxes Note. Fill 1040x form e taxes Additional Medicare Tax is only imposed on the employee. Fill 1040x form e taxes There is no employer share of Additional Medicare Tax. Fill 1040x form e taxes Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Fill 1040x form e taxes You can deduct the employment taxes you must pay from your own funds as taxes. Fill 1040x form e taxes Example. Fill 1040x form e taxes You pay your employee $18,000 a year. Fill 1040x form e taxes However, after you withhold various taxes, your employee receives $14,500. Fill 1040x form e taxes You also pay an additional $1,500 in employment taxes. Fill 1040x form e taxes You should deduct the full $18,000 as wages. Fill 1040x form e taxes You can deduct the $1,500 you pay from your own funds as taxes. Fill 1040x form e taxes For more information on employment taxes, see Publication 15 (Circular E). Fill 1040x form e taxes Unemployment fund taxes. Fill 1040x form e taxes   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Fill 1040x form e taxes Deduct these payments as taxes. Fill 1040x form e taxes Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Fill 1040x form e taxes Excise taxes. Fill 1040x form e taxes   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Fill 1040x form e taxes However, see Fuel taxes , later. Fill 1040x form e taxes   For more information on excise taxes, see Publication 510. Fill 1040x form e taxes Franchise taxes. Fill 1040x form e taxes   You can deduct corporate franchise taxes as a business expense. Fill 1040x form e taxes Fuel taxes. Fill 1040x form e taxes   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Fill 1040x form e taxes Do not deduct these taxes as a separate item. Fill 1040x form e taxes   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Fill 1040x form e taxes For more information, see Publication 510. Fill 1040x form e taxes Occupational taxes. Fill 1040x form e taxes   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Fill 1040x form e taxes Personal property tax. Fill 1040x form e taxes   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Fill 1040x form e taxes Sales tax. Fill 1040x form e taxes   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Fill 1040x form e taxes If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Fill 1040x form e taxes If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Fill 1040x form e taxes If the property is depreciable, add the sales tax to the basis for depreciation. Fill 1040x form e taxes For more information on basis, see Publication 551. Fill 1040x form e taxes    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Fill 1040x form e taxes Also, do not include these taxes in gross receipts or sales. Fill 1040x form e taxes Self-employment tax. Fill 1040x form e taxes   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Fill 1040x form e taxes This deduction only affects your income tax. Fill 1040x form e taxes It does not affect your net earnings from self-employment or your self-employment tax. Fill 1040x form e taxes   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Fill 1040x form e taxes   For more information on self-employment tax, see Publication 334. Fill 1040x form e taxes Additional Medicare Tax. Fill 1040x form e taxes   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Fill 1040x form e taxes See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Fill 1040x form e taxes Prev  Up  Next   Home   More Online Publications
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The Fill 1040x Form E Taxes

Fill 1040x form e taxes 3. Fill 1040x form e taxes   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. Fill 1040x form e taxes Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. Fill 1040x form e taxes In addition, you will contribute matching or nonelective contributions. Fill 1040x form e taxes SIMPLE plans can only be maintained on a calendar-year basis. Fill 1040x form e taxes A SIMPLE plan can be set up in either of the following ways. Fill 1040x form e taxes Using SIMPLE IRAs (SIMPLE IRA plan). Fill 1040x form e taxes As part of a 401(k) plan (SIMPLE 401(k) plan). Fill 1040x form e taxes Many financial institutions will help you set up a SIMPLE plan. Fill 1040x form e taxes SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. Fill 1040x form e taxes Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. Fill 1040x form e taxes For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. Fill 1040x form e taxes Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. Fill 1040x form e taxes You meet the employee limit. Fill 1040x form e taxes You do not maintain another qualified plan unless the other plan is for collective bargaining employees. Fill 1040x form e taxes Employee limit. Fill 1040x form e taxes   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. Fill 1040x form e taxes Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. Fill 1040x form e taxes Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). Fill 1040x form e taxes   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. Fill 1040x form e taxes Grace period for employers who cease to meet the 100-employee limit. Fill 1040x form e taxes   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. Fill 1040x form e taxes   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. Fill 1040x form e taxes Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. Fill 1040x form e taxes Coverage under the plan has not significantly changed during the grace period. Fill 1040x form e taxes The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. Fill 1040x form e taxes    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. Fill 1040x form e taxes Other qualified plan. Fill 1040x form e taxes   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. Fill 1040x form e taxes Exception. Fill 1040x form e taxes   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. Fill 1040x form e taxes Who Can Participate in a SIMPLE IRA Plan? Eligible employee. Fill 1040x form e taxes   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. Fill 1040x form e taxes The term “employee” includes a self-employed individual who received earned income. Fill 1040x form e taxes   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. Fill 1040x form e taxes For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. Fill 1040x form e taxes However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. Fill 1040x form e taxes Excludable employees. Fill 1040x form e taxes   The following employees do not need to be covered under a SIMPLE IRA plan. Fill 1040x form e taxes Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Fill 1040x form e taxes Nonresident alien employees who have received no U. Fill 1040x form e taxes S. Fill 1040x form e taxes source wages, salaries, or other personal services compensation from you. Fill 1040x form e taxes Compensation. Fill 1040x form e taxes   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Fill 1040x form e taxes Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. Fill 1040x form e taxes If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. Fill 1040x form e taxes How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. Fill 1040x form e taxes Each form is a model savings incentive match plan for employees (SIMPLE) plan document. Fill 1040x form e taxes Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. Fill 1040x form e taxes Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. Fill 1040x form e taxes Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. Fill 1040x form e taxes The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. Fill 1040x form e taxes Keep the original form. Fill 1040x form e taxes Do not file it with the IRS. Fill 1040x form e taxes Other uses of the forms. Fill 1040x form e taxes   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. Fill 1040x form e taxes Meeting employer notification requirements for the SIMPLE IRA plan. Fill 1040x form e taxes Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. Fill 1040x form e taxes Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. Fill 1040x form e taxes Deadline for setting up a SIMPLE IRA plan. Fill 1040x form e taxes   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. Fill 1040x form e taxes This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. Fill 1040x form e taxes If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. Fill 1040x form e taxes A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. Fill 1040x form e taxes Setting up a SIMPLE IRA. Fill 1040x form e taxes   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. Fill 1040x form e taxes A SIMPLE IRA must be set up for each eligible employee. Fill 1040x form e taxes Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. Fill 1040x form e taxes   A SIMPLE IRA cannot be a Roth IRA. Fill 1040x form e taxes Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Fill 1040x form e taxes Deadline for setting up a SIMPLE IRA. Fill 1040x form e taxes   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. Fill 1040x form e taxes See Time limits for contributing funds , later, under Contribution Limits. Fill 1040x form e taxes Credit for startup costs. Fill 1040x form e taxes   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. Fill 1040x form e taxes For more information, see Credit for startup costs under Reminders, earlier. Fill 1040x form e taxes Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. Fill 1040x form e taxes The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. Fill 1040x form e taxes Your decision to make either matching contributions or nonelective contributions (discussed later). Fill 1040x form e taxes A summary description provided by the financial institution. Fill 1040x form e taxes Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. Fill 1040x form e taxes Election period. Fill 1040x form e taxes   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). Fill 1040x form e taxes However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. Fill 1040x form e taxes   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. Fill 1040x form e taxes For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. Fill 1040x form e taxes Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. Fill 1040x form e taxes Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. Fill 1040x form e taxes You, as the employer, must make either matching contributions or nonelective contributions, defined later. Fill 1040x form e taxes No other contributions can be made to the SIMPLE IRA plan. Fill 1040x form e taxes These contributions, which you can deduct, must be made timely. Fill 1040x form e taxes See Time limits for contributing funds , later. Fill 1040x form e taxes Salary reduction contributions. Fill 1040x form e taxes   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. Fill 1040x form e taxes These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. Fill 1040x form e taxes You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. Fill 1040x form e taxes   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. Fill 1040x form e taxes Catch-up contributions. Fill 1040x form e taxes   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Fill 1040x form e taxes The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. Fill 1040x form e taxes Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. Fill 1040x form e taxes However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Fill 1040x form e taxes The catch-up contribution limit. Fill 1040x form e taxes The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. Fill 1040x form e taxes Employer matching contributions. Fill 1040x form e taxes   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. Fill 1040x form e taxes This requirement does not apply if you make nonelective contributions as discussed later. Fill 1040x form e taxes Example. Fill 1040x form e taxes In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. Fill 1040x form e taxes Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Fill 1040x form e taxes You make 3% matching contributions. Fill 1040x form e taxes The total contribution you make for John is $2,000, figured as follows. Fill 1040x form e taxes Salary reduction contributions ($25,000 × . Fill 1040x form e taxes 05) $1,250 Employer matching contribution ($25,000 × . Fill 1040x form e taxes 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. Fill 1040x form e taxes Salary reduction contributions ($40,000 × . Fill 1040x form e taxes 10) $4,000 Employer matching contribution ($40,000 × . Fill 1040x form e taxes 03) 1,200 Total contributions $5,200 Lower percentage. Fill 1040x form e taxes   If you choose a matching contribution less than 3%, the percentage must be at least 1%. Fill 1040x form e taxes You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Fill 1040x form e taxes You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. Fill 1040x form e taxes Nonelective contributions. Fill 1040x form e taxes   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. Fill 1040x form e taxes If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. Fill 1040x form e taxes Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). Fill 1040x form e taxes   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Fill 1040x form e taxes Example 1. Fill 1040x form e taxes In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. Fill 1040x form e taxes Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Fill 1040x form e taxes You make a 2% nonelective contribution. Fill 1040x form e taxes Both of you are under age 50. Fill 1040x form e taxes The total contribution you make for Jane is $4,320, figured as follows. Fill 1040x form e taxes Salary reduction contributions ($36,000 × . Fill 1040x form e taxes 10) $3,600 2% nonelective contributions ($36,000 × . Fill 1040x form e taxes 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. Fill 1040x form e taxes Salary reduction contributions ($50,000 × . Fill 1040x form e taxes 10) $5,000 2% nonelective contributions ($50,000 × . Fill 1040x form e taxes 02) 1,000 Total contributions $6,000 Example 2. Fill 1040x form e taxes Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. Fill 1040x form e taxes Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . Fill 1040x form e taxes 02) 1,500 Total contributions $13,500 Time limits for contributing funds. Fill 1040x form e taxes   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. Fill 1040x form e taxes You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. Fill 1040x form e taxes Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. Fill 1040x form e taxes When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. Fill 1040x form e taxes You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. Fill 1040x form e taxes Example 1. Fill 1040x form e taxes Your tax year is the fiscal year ending June 30. Fill 1040x form e taxes Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. Fill 1040x form e taxes Example 2. Fill 1040x form e taxes You are a sole proprietor whose tax year is the calendar year. Fill 1040x form e taxes Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. Fill 1040x form e taxes Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Fill 1040x form e taxes For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. Fill 1040x form e taxes Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Fill 1040x form e taxes (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. Fill 1040x form e taxes ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. Fill 1040x form e taxes SIMPLE IRA plan contributions are not subject to federal income tax withholding. Fill 1040x form e taxes However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. Fill 1040x form e taxes Matching and nonelective contributions are not subject to these taxes. Fill 1040x form e taxes Reporting on Form W-2. Fill 1040x form e taxes   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. Fill 1040x form e taxes You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Fill 1040x form e taxes You must also include them in box 12. Fill 1040x form e taxes Mark the “Retirement plan” checkbox in box 13. Fill 1040x form e taxes For more information, see the Form W-2 instructions. Fill 1040x form e taxes Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. Fill 1040x form e taxes Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. Fill 1040x form e taxes However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. Fill 1040x form e taxes Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Fill 1040x form e taxes Early withdrawals generally are subject to a 10% additional tax. Fill 1040x form e taxes However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. Fill 1040x form e taxes More information. Fill 1040x form e taxes   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. Fill 1040x form e taxes More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. Fill 1040x form e taxes SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. Fill 1040x form e taxes A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. Fill 1040x form e taxes However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. Fill 1040x form e taxes Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. Fill 1040x form e taxes If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. Fill 1040x form e taxes See Catch-up contributions , earlier under Contribution Limits. Fill 1040x form e taxes You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. Fill 1040x form e taxes No other contributions can be made to the trust. Fill 1040x form e taxes No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. Fill 1040x form e taxes The employee's rights to any contributions are nonforfeitable. Fill 1040x form e taxes No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). Fill 1040x form e taxes Compensation is defined earlier in this chapter. Fill 1040x form e taxes Employee notification. Fill 1040x form e taxes   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. Fill 1040x form e taxes See Notification Requirement in this chapter. Fill 1040x form e taxes Credit for startup costs. Fill 1040x form e taxes   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. Fill 1040x form e taxes For more information, see Credit for startup costs under Reminders, earlier. Fill 1040x form e taxes Note on Forms. Fill 1040x form e taxes   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. Fill 1040x form e taxes To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. Fill 1040x form e taxes Prev  Up  Next   Home   More Online Publications