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Free 2011 Tax Forms

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Free 2011 Tax Forms

Free 2011 tax forms Publication 15 - Main Content Table of Contents 1. Free 2011 tax forms Employer Identification Number (EIN) 2. Free 2011 tax forms Who Are Employees?Relief provisions. Free 2011 tax forms Business Owned and Operated by Spouses 3. Free 2011 tax forms Family Employees 4. Free 2011 tax forms Employee's Social Security Number (SSN)Registering for SSNVS. Free 2011 tax forms 5. Free 2011 tax forms Wages and Other CompensationAccountable plan. Free 2011 tax forms Nonaccountable plan. Free 2011 tax forms Per diem or other fixed allowance. Free 2011 tax forms 50% test. Free 2011 tax forms Health Savings Accounts and medical savings accounts. Free 2011 tax forms Nontaxable fringe benefits. Free 2011 tax forms When fringe benefits are treated as paid. Free 2011 tax forms Valuation of fringe benefits. Free 2011 tax forms Withholding on fringe benefits. Free 2011 tax forms Depositing taxes on fringe benefits. Free 2011 tax forms 6. Free 2011 tax forms TipsOrdering rule. Free 2011 tax forms 7. Free 2011 tax forms Supplemental Wages 8. Free 2011 tax forms Payroll Period 9. Free 2011 tax forms Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Free 2011 tax forms Required Notice to Employees About the Earned Income Credit (EIC) 11. Free 2011 tax forms Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Free 2011 tax forms Filing Form 941 or Form 944 13. Free 2011 tax forms Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Free 2011 tax forms Federal Unemployment (FUTA) TaxSuccessor employer. Free 2011 tax forms Household employees. Free 2011 tax forms When to deposit. Free 2011 tax forms Household employees. Free 2011 tax forms Electronic filing by reporting agents. Free 2011 tax forms 16. Free 2011 tax forms How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Free 2011 tax forms Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Free 2011 tax forms The EIN is a nine-digit number the IRS issues. Free 2011 tax forms The digits are arranged as follows: 00-0000000. Free 2011 tax forms It is used to identify the tax accounts of employers and certain others who have no employees. Free 2011 tax forms Use your EIN on all of the items you send to the IRS and SSA. Free 2011 tax forms For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Free 2011 tax forms If you do not have an EIN, you may apply for one online. Free 2011 tax forms Go to the IRS. Free 2011 tax forms gov and click on the Apply for an EIN Online link under Tools. Free 2011 tax forms 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. Free 2011 tax forms Do not use an SSN in place of an EIN. Free 2011 tax forms You should have only one EIN. Free 2011 tax forms 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). Free 2011 tax forms Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Free 2011 tax forms The IRS will tell you which number to use. Free 2011 tax forms If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Free 2011 tax forms 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. Free 2011 tax forms 2. Free 2011 tax forms Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Free 2011 tax forms See Publication 15-A for details on statutory employees and nonemployees. Free 2011 tax forms Employee status under common law. Free 2011 tax forms   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. Free 2011 tax forms This is so even when you give the employee freedom of action. Free 2011 tax forms What matters is that you have the right to control the details of how the services are performed. Free 2011 tax forms See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Free 2011 tax forms   Generally, people in business for themselves are not employees. Free 2011 tax forms For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Free 2011 tax forms However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Free 2011 tax forms   If an employer-employee relationship exists, it does not matter what it is called. Free 2011 tax forms The employee may be called an agent or independent contractor. Free 2011 tax forms It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Free 2011 tax forms Statutory employees. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Free 2011 tax forms A full-time life insurance salesperson who sells primarily for one company. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms The orders must be for merchandise for resale or supplies for use in the customer's business. Free 2011 tax forms The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Free 2011 tax forms    Statutory nonemployees. Free 2011 tax forms   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Free 2011 tax forms They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Free 2011 tax forms H-2A agricultural workers. Free 2011 tax forms   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Free 2011 tax forms Treating employees as nonemployees. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms The applicable rates depend on whether you filed required Forms 1099. Free 2011 tax forms 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. Free 2011 tax forms You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Free 2011 tax forms You continue to owe the full employer share of social security and Medicare taxes. Free 2011 tax forms The employee remains liable for the employee share of social security and Medicare taxes. Free 2011 tax forms See Internal Revenue Code section 3509 for details. Free 2011 tax forms Also see the Instructions for Form 941-X. Free 2011 tax forms   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. Free 2011 tax forms Section 3509 is not available for reclassifying statutory employees. Free 2011 tax forms See Statutory employees , earlier in this section. Free 2011 tax forms   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Free 2011 tax forms 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Free 2011 tax forms For Medicare taxes; employer rate of 1. Free 2011 tax forms 45% plus 20% of the employee rate of 1. Free 2011 tax forms 45%, for a total rate of 1. Free 2011 tax forms 74% of wages. Free 2011 tax forms For Additional Medicare Tax; 0. Free 2011 tax forms 18% (20% of the employee rate of 0. Free 2011 tax forms 9%) of wages subject to Additional Medicare Tax. Free 2011 tax forms For income tax withholding, the rate is 1. Free 2011 tax forms 5% of wages. Free 2011 tax forms   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Free 2011 tax forms 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Free 2011 tax forms For Medicare taxes; employer rate of 1. Free 2011 tax forms 45% plus 40% of the employee rate of 1. Free 2011 tax forms 45%, for a total rate of 2. Free 2011 tax forms 03% of wages. Free 2011 tax forms For Additional Medicare Tax; 0. Free 2011 tax forms 36% (40% of the employee rate of 0. Free 2011 tax forms 9%) of wages subject to Additional Medicare Tax. Free 2011 tax forms For income tax withholding, the rate is 3. Free 2011 tax forms 0% of wages. Free 2011 tax forms Relief provisions. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Free 2011 tax forms See Publication 1976, Do You Qualify for Relief Under Section 530. Free 2011 tax forms IRS help. Free 2011 tax forms   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. Free 2011 tax forms Voluntary Classification Settlement Program (VCSP). Free 2011 tax forms   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. Free 2011 tax forms To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Free 2011 tax forms For more information visit IRS. Free 2011 tax forms gov and enter “VCSP” in the search box. Free 2011 tax forms 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. Free 2011 tax forms See Publication 541, Partnerships, for more details. Free 2011 tax forms The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Free 2011 tax forms Exception—Qualified joint venture. Free 2011 tax forms   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. Free 2011 tax forms 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). Free 2011 tax forms   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. Free 2011 tax forms Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Free 2011 tax forms   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Free 2011 tax forms 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. Free 2011 tax forms Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Free 2011 tax forms 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. Free 2011 tax forms    Note. Free 2011 tax forms If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Free 2011 tax forms   For more information on qualified joint ventures, visit IRS. Free 2011 tax forms gov and enter “qualified joint venture” in the search box. Free 2011 tax forms Exception—Community income. Free 2011 tax forms   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. Free 2011 tax forms S. Free 2011 tax forms possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Free 2011 tax forms You may still make an election to be taxed as a qualified joint venture instead of a partnership. Free 2011 tax forms See Exception—Qualified joint venture , earlier. Free 2011 tax forms 3. Free 2011 tax forms Family Employees Child employed by parents. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms However, see Covered services of a child or spouse , later in this section. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms One spouse employed by another. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms Covered services of a child or spouse. Free 2011 tax forms   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. Free 2011 tax forms Parent employed by son or daughter. Free 2011 tax forms   When the employer is a son or daughter employing his or her parent the following rules apply. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms    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. Free 2011 tax forms   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Free 2011 tax forms 4. Free 2011 tax forms 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. Free 2011 tax forms This requirement also applies to resident and nonresident alien employees. Free 2011 tax forms You should ask your employee to show you his or her social security card. Free 2011 tax forms The employee may show the card if it is available. Free 2011 tax forms Do not accept a social security card that says “Not valid for employment. Free 2011 tax forms ” A social security number issued with this legend does not permit employment. Free 2011 tax forms You may, but are not required to, photocopy the social security card if the employee provides it. Free 2011 tax forms 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. Free 2011 tax forms See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Free 2011 tax forms Applying for a social security card. Free 2011 tax forms   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. Free 2011 tax forms You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Free 2011 tax forms socialsecurity. Free 2011 tax forms gov/online/ss-5. Free 2011 tax forms html. Free 2011 tax forms The employee must complete and sign Form SS-5; it cannot be filed by the employer. Free 2011 tax forms 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. Free 2011 tax forms Applying for a social security number. Free 2011 tax forms   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. Free 2011 tax forms If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Free 2011 tax forms 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. Free 2011 tax forms Furnish copies B, C, and 2 of Form W-2c to the employee. Free 2011 tax forms 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. Free 2011 tax forms For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Free 2011 tax forms socialsecurity. Free 2011 tax forms gov/employer. Free 2011 tax forms Advise your employee to correct the SSN on his or her original Form W-2. Free 2011 tax forms Correctly record the employee's name and SSN. Free 2011 tax forms   Record the name and number of each employee as they are shown on the employee's social security card. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms IRS individual taxpayer identification numbers (ITINs) for aliens. Free 2011 tax forms   Do not accept an ITIN in place of an SSN for employee identification or for work. Free 2011 tax forms An ITIN is only available to resident and nonresident aliens who are not eligible for U. Free 2011 tax forms S. Free 2011 tax forms employment and need identification for other tax purposes. Free 2011 tax forms 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). Free 2011 tax forms    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Free 2011 tax forms 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. Free 2011 tax forms Do not use an ITIN in place of an SSN on Form W-2. Free 2011 tax forms Verification of social security numbers. Free 2011 tax forms   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. Free 2011 tax forms Visit www. Free 2011 tax forms socialsecurity. Free 2011 tax forms gov/employer/ssnv. Free 2011 tax forms htm for more information. Free 2011 tax forms Registering for SSNVS. Free 2011 tax forms   You must register online and receive authorization from your employer to use SSNVS. Free 2011 tax forms To register, visit SSA's website at www. Free 2011 tax forms ssa. Free 2011 tax forms gov/employer and click on the Business Services Online link. Free 2011 tax forms Follow the registration instructions to obtain a user identification (ID) and password. Free 2011 tax forms You will need to provide the following information about yourself and your company. Free 2011 tax forms Name. Free 2011 tax forms SSN. Free 2011 tax forms Date of birth. Free 2011 tax forms Type of employer. Free 2011 tax forms EIN. Free 2011 tax forms Company name, address, and telephone number. Free 2011 tax forms Email address. Free 2011 tax forms   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Free 2011 tax forms You must enter the activation code online to use SSNVS. Free 2011 tax forms 5. Free 2011 tax forms Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Free 2011 tax forms The pay may be in cash or in other forms. Free 2011 tax forms It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Free 2011 tax forms It does not matter how you measure or make the payments. Free 2011 tax forms 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. Free 2011 tax forms Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Free 2011 tax forms More information. Free 2011 tax forms   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Free 2011 tax forms Also, see section 15 for exceptions to the general rules for wages. Free 2011 tax forms Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Free 2011 tax forms 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. Free 2011 tax forms Employee business expense reimbursements. Free 2011 tax forms   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Free 2011 tax forms How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Free 2011 tax forms If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Free 2011 tax forms   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Free 2011 tax forms Accountable plan. Free 2011 tax forms   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Free 2011 tax forms They must have paid or incurred deductible expenses while performing services as your employees. Free 2011 tax forms 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. Free 2011 tax forms They must substantiate these expenses to you within a reasonable period of time. Free 2011 tax forms They must return any amounts in excess of substantiated expenses within a reasonable period of time. Free 2011 tax forms   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms   A reasonable period of time depends on the facts and circumstances. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms Nonaccountable plan. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms   See section 7 for more information on supplemental wages. Free 2011 tax forms Per diem or other fixed allowance. Free 2011 tax forms   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Free 2011 tax forms In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Free 2011 tax forms The 2013 standard mileage rate for auto expenses was 56. Free 2011 tax forms 5 cents per mile. Free 2011 tax forms The rate for 2014 is 56 cents per mile. Free 2011 tax forms   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Free 2011 tax forms 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). Free 2011 tax forms   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Free 2011 tax forms This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Free 2011 tax forms Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Free 2011 tax forms ” Wages not paid in money. Free 2011 tax forms   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. Free 2011 tax forms ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Free 2011 tax forms 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. Free 2011 tax forms   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. Free 2011 tax forms Withhold income tax on these payments only if you and the employee agree to do so. Free 2011 tax forms 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. Free 2011 tax forms Moving expenses. Free 2011 tax forms   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. Free 2011 tax forms Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Free 2011 tax forms For more information on moving expenses, see Publication 521, Moving Expenses. Free 2011 tax forms Meals and lodging. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms    “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. Free 2011 tax forms 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. Free 2011 tax forms   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Free 2011 tax forms A written statement that the meals or lodging are for your convenience is not sufficient. Free 2011 tax forms 50% test. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms For more information, see Publication 15-B. Free 2011 tax forms Health insurance plans. Free 2011 tax forms   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. Free 2011 tax forms Generally, this exclusion also applies to qualified long-term care insurance contracts. Free 2011 tax forms 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). Free 2011 tax forms 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. Free 2011 tax forms See Announcement 92-16 for more information. Free 2011 tax forms You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Free 2011 tax forms Health Savings Accounts and medical savings accounts. Free 2011 tax forms   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. Free 2011 tax forms To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Free 2011 tax forms Medical care reimbursements. Free 2011 tax forms   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. Free 2011 tax forms See Publication 15-B for an exception for highly compensated employees. Free 2011 tax forms Differential wage payments. Free 2011 tax forms   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. Free 2011 tax forms   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Free 2011 tax forms Employers should report differential wage payments in box 1 of Form W-2. Free 2011 tax forms For more information about the tax treatment of differential wage payments, visit IRS. Free 2011 tax forms gov and enter “employees in a combat zone” in the search box. Free 2011 tax forms Fringe benefits. Free 2011 tax forms   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Free 2011 tax forms The benefits are subject to income tax withholding and employment taxes. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms There are other special rules you and your employees may use to value certain fringe benefits. Free 2011 tax forms See Publication 15-B for more information. Free 2011 tax forms Nontaxable fringe benefits. Free 2011 tax forms   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Free 2011 tax forms See Publication 15-B for details. Free 2011 tax forms The following are some examples of nontaxable fringe benefits. Free 2011 tax forms Services provided to your employees at no additional cost to you. Free 2011 tax forms Qualified employee discounts. Free 2011 tax forms Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Free 2011 tax forms Examples include a company car for business use and subscriptions to business magazines. Free 2011 tax forms 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). Free 2011 tax forms Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Free 2011 tax forms Qualified moving expense reimbursement. Free 2011 tax forms See Moving expenses , earlier in this section, for details. Free 2011 tax forms The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Free 2011 tax forms Qualified tuition reduction an educational organization provides to its employees for education. Free 2011 tax forms For more information, see Publication 970, Tax Benefits for Education. Free 2011 tax forms Employer-provided cell phones provided primarily for a noncompensatory business reason. Free 2011 tax forms   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. Free 2011 tax forms No-additional-cost services. Free 2011 tax forms Qualified employee discounts. Free 2011 tax forms Meals provided at an employer operated eating facility. Free 2011 tax forms Reduced tuition for education. Free 2011 tax forms  For more information, including the definition of a highly compensated employee, see Publication 15-B. Free 2011 tax forms When fringe benefits are treated as paid. Free 2011 tax forms   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. Free 2011 tax forms You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Free 2011 tax forms You do not have to make this choice for all employees. Free 2011 tax forms 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. Free 2011 tax forms See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Free 2011 tax forms Valuation of fringe benefits. Free 2011 tax forms   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Free 2011 tax forms Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Free 2011 tax forms Withholding on fringe benefits. Free 2011 tax forms   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. Free 2011 tax forms However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Free 2011 tax forms   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Free 2011 tax forms You must, however, withhold social security and Medicare taxes on the use of the vehicle. Free 2011 tax forms See Publication 15-B for more information on this election. Free 2011 tax forms Depositing taxes on fringe benefits. Free 2011 tax forms   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Free 2011 tax forms To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Free 2011 tax forms   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. Free 2011 tax forms See Valuation of fringe benefits , earlier. Free 2011 tax forms If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Free 2011 tax forms See section 11 for information on deposit penalties. Free 2011 tax forms   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. Free 2011 tax forms However, you must recover the income taxes before April 1 of the following year. Free 2011 tax forms Sick pay. Free 2011 tax forms   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. Free 2011 tax forms These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Free 2011 tax forms In either case, these payments are subject to social security, Medicare, and FUTA taxes. Free 2011 tax forms 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. Free 2011 tax forms The payments are always subject to federal income tax. Free 2011 tax forms See Publication 15-A for more information. Free 2011 tax forms 6. Free 2011 tax forms Tips Tips your employee receives from customers are generally subject to withholding. Free 2011 tax forms Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Free 2011 tax forms 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. Free 2011 tax forms Both directly and indirectly tipped employees must report tips to you. Free 2011 tax forms No report is required for months when tips are less than $20. Free 2011 tax forms Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms You are permitted to establish a system for electronic tip reporting by employees. Free 2011 tax forms See Regulations section 31. Free 2011 tax forms 6053-1(d). Free 2011 tax forms Collecting taxes on tips. Free 2011 tax forms   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Free 2011 tax forms 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. Free 2011 tax forms If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Free 2011 tax forms   You can collect these taxes from the employee's wages or from other funds he or she makes available. Free 2011 tax forms See Tips treated as supplemental wages in section 7 for more information. Free 2011 tax forms 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. Free 2011 tax forms You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Free 2011 tax forms You are responsible for the employer Medicare tax for the whole year on all wages and tips. Free 2011 tax forms File Form 941 or Form 944 to report withholding and employment taxes on tips. Free 2011 tax forms Ordering rule. Free 2011 tax forms   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. Free 2011 tax forms If there are not enough funds available, withhold taxes in the following order. Free 2011 tax forms Withhold on regular wages and other compensation. Free 2011 tax forms Withhold social security and Medicare taxes on tips. Free 2011 tax forms Withhold income tax on tips. Free 2011 tax forms Reporting tips. Free 2011 tax forms   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). Free 2011 tax forms Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Free 2011 tax forms Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Free 2011 tax forms ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Free 2011 tax forms See section 13 and the General Instructions for Forms W-2 and W-3. Free 2011 tax forms   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. Free 2011 tax forms See Revenue Ruling 2012-18, 2012-26 I. Free 2011 tax forms R. Free 2011 tax forms B. Free 2011 tax forms 1032, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/irb/2012-26_IRB/ar07. Free 2011 tax forms html. Free 2011 tax forms Allocated tips. Free 2011 tax forms   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Free 2011 tax forms However, do not withhold income, social security, or Medicare taxes on allocated tips. Free 2011 tax forms   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. Free 2011 tax forms   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Free 2011 tax forms 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. Free 2011 tax forms For information on filing Form 8027 electronically with the IRS, see Publication 1239. Free 2011 tax forms Tip Rate Determination and Education Program. Free 2011 tax forms   Employers may participate in the Tip Rate Determination and Education Program. Free 2011 tax forms 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. Free 2011 tax forms The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Free 2011 tax forms A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Free 2011 tax forms To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Free 2011 tax forms Additionally, visit IRS. Free 2011 tax forms gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Free 2011 tax forms 7. Free 2011 tax forms Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Free 2011 tax forms 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. Free 2011 tax forms Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Free 2011 tax forms How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Free 2011 tax forms See Regulations section 31. Free 2011 tax forms 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Free 2011 tax forms Also see Revenue Ruling 2008-29, 2008-24 I. Free 2011 tax forms R. Free 2011 tax forms B. Free 2011 tax forms 1149, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/irb/2008-24_IRB/ar08. Free 2011 tax forms html. Free 2011 tax forms Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Free 2011 tax forms   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Free 2011 tax forms 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. Free 2011 tax forms 6% (or the highest rate of income tax for the year). Free 2011 tax forms Withhold using the 39. Free 2011 tax forms 6% rate without regard to the employee's Form W-4. Free 2011 tax forms In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Free 2011 tax forms For more information, see Treasury Decision 9276, 2006-37 I. Free 2011 tax forms R. Free 2011 tax forms B. Free 2011 tax forms 423, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/irb/2006-37_IRB/ar09. Free 2011 tax forms html. Free 2011 tax forms Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Free 2011 tax forms   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. Free 2011 tax forms Supplemental wages combined with regular wages. Free 2011 tax forms   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. Free 2011 tax forms Supplemental wages identified separately from regular wages. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms Withhold a flat 25% (no other percentage allowed). Free 2011 tax forms If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Free 2011 tax forms 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. Free 2011 tax forms Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Free 2011 tax forms Subtract the tax withheld from the regular wages. Free 2011 tax forms Withhold the remaining tax from the supplemental wages. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Free 2011 tax forms Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Free 2011 tax forms Example 1. Free 2011 tax forms You pay John Peters a base salary on the 1st of each month. Free 2011 tax forms He is single and claims one withholding allowance. Free 2011 tax forms In January he is paid $1,000. Free 2011 tax forms Using the wage bracket tables, you withhold $50 from this amount. Free 2011 tax forms 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. Free 2011 tax forms You figure the withholding based on the total of $3,000. Free 2011 tax forms The correct withholding from the tables is $338. Free 2011 tax forms Example 2. Free 2011 tax forms You pay Sharon Warren a base salary on the 1st of each month. Free 2011 tax forms She is single and claims one allowance. Free 2011 tax forms Her May 1 pay is $2,000. Free 2011 tax forms Using the wage bracket tables, you withhold $188. Free 2011 tax forms On May 14 she receives a bonus of $1,000. Free 2011 tax forms 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). Free 2011 tax forms Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Free 2011 tax forms Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Free 2011 tax forms Withhold $150 from the bonus payment. Free 2011 tax forms Example 3. Free 2011 tax forms The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Free 2011 tax forms You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Free 2011 tax forms Example 4. Free 2011 tax forms The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Free 2011 tax forms 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). Free 2011 tax forms Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Free 2011 tax forms 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). Free 2011 tax forms Withhold $443 from the second bonus payment. Free 2011 tax forms Tips treated as supplemental wages. Free 2011 tax forms   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Free 2011 tax forms If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Free 2011 tax forms If you have not withheld income tax from the regular wages, add the tips to the regular wages. Free 2011 tax forms Then withhold income tax on the total. Free 2011 tax forms 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. Free 2011 tax forms Vacation pay. Free 2011 tax forms   Vacation pay is subject to withholding as if it were a regular wage payment. Free 2011 tax forms When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Free 2011 tax forms 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. Free 2011 tax forms 8. Free 2011 tax forms Payroll Period Your payroll period is a period of service for which you usually pay wages. Free 2011 tax forms When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Free 2011 tax forms No regular payroll period. Free 2011 tax forms   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Free 2011 tax forms Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Free 2011 tax forms 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. Free 2011 tax forms Employee paid for period less than 1 week. Free 2011 tax forms   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. Free 2011 tax forms If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Free 2011 tax forms You then figure withholding based on the daily or miscellaneous period. Free 2011 tax forms 9. Free 2011 tax forms Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Free 2011 tax forms   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Free 2011 tax forms 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. Free 2011 tax forms Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Free 2011 tax forms irs. Free 2011 tax forms gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Free 2011 tax forms   Ask all new employees to give you a signed Form W-4 when they start work. Free 2011 tax forms Make the form effective with the first wage payment. Free 2011 tax forms 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. Free 2011 tax forms Form in Spanish. Free 2011 tax forms   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. Free 2011 tax forms For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Free 2011 tax forms The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Free 2011 tax forms Electronic system to receive Form W-4. Free 2011 tax forms   You may establish a system to electronically receive Forms W-4 from your employees. Free 2011 tax forms See Regulations section 31. Free 2011 tax forms 3402(f)(5)-1(c) for more information. Free 2011 tax forms Effective date of Form W-4. Free 2011 tax forms   A Form W-4 remains in effect until the employee gives you a new one. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Free 2011 tax forms Successor employer. Free 2011 tax forms   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. Free 2011 tax forms See Revenue Procedure 2004-53, 2004-34 I. Free 2011 tax forms R. Free 2011 tax forms B. Free 2011 tax forms 320, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/irb/2004-34_IRB/ar13. Free 2011 tax forms html. Free 2011 tax forms Completing Form W-4. Free 2011 tax forms   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Free 2011 tax forms Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Free 2011 tax forms 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. Free 2011 tax forms Employees may claim fewer withholding allowances than they are entitled to claim. Free 2011 tax forms 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. Free 2011 tax forms See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Free 2011 tax forms Along with Form W-4, you may wish to order Publication 505 for use by your employees. Free 2011 tax forms Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Free 2011 tax forms 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. Free 2011 tax forms Exemption from federal income tax withholding. Free 2011 tax forms   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. Free 2011 tax forms See the Form W-4 instructions for more information. Free 2011 tax forms However, the wages are still subject to social security and Medicare taxes. Free 2011 tax forms See also Invalid Forms W-4 , later in this section. Free 2011 tax forms   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms Withholding income taxes on the wages of nonresident alien employees. Free 2011 tax forms   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Free 2011 tax forms However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Free 2011 tax forms Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Free 2011 tax forms Withholding adjustment for nonresident alien employees. Free 2011 tax forms   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. Free 2011 tax forms Nonresident alien students from India and business apprentices from India are not subject to this procedure. Free 2011 tax forms Instructions. Free 2011 tax forms   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. Free 2011 tax forms Step 1. Free 2011 tax forms   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. Free 2011 tax forms    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Free 2011 tax forms 30     Biweekly 86. Free 2011 tax forms 50     Semimonthly 93. Free 2011 tax forms 80     Monthly 187. Free 2011 tax forms 50     Quarterly 562. Free 2011 tax forms 50     Semiannually 1,125. Free 2011 tax forms 00     Annually 2,250. Free 2011 tax forms 00     Daily or Miscellaneous (each day of the payroll period) 8. Free 2011 tax forms 70   Step 2. Free 2011 tax forms   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Free 2011 tax forms Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Free 2011 tax forms Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Free 2011 tax forms Example. Free 2011 tax forms An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Free 2011 tax forms 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). Free 2011 tax forms 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. Free 2011 tax forms 50 from the chart under Step 1 ($586. Free 2011 tax forms 50 total). Free 2011 tax forms The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Free 2011 tax forms 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. Free 2011 tax forms The $86. Free 2011 tax forms 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. Free 2011 tax forms Also, the $86. Free 2011 tax forms 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. Free 2011 tax forms Supplemental wage payment. Free 2011 tax forms   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Free 2011 tax forms 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. Free 2011 tax forms Nonresident alien employee's Form W-4. Free 2011 tax forms   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. Free 2011 tax forms   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. Free 2011 tax forms 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. Free 2011 tax forms Form 8233. Free 2011 tax forms   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. Free 2011 tax forms See Publication 515 for details. Free 2011 tax forms IRS review of requested Forms W-4. Free 2011 tax forms   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Free 2011 tax forms You may also be directed to send certain Forms W-4 to the IRS. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms 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. Free 2011 tax forms R. Free 2011 tax forms B. Free 2011 tax forms 455, which is available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/irb/2007-35_IRB/ar10. Free 2011 tax forms html. Free 2011 tax forms When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Free 2011 tax forms 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). Free 2011 tax forms 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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Online EIN: Frequently Asked Questions

If you are unfamiliar with the Online EIN application, you may find this section helpful in answering your questions.

Q. When can I use my Internet EIN to make tax payments or file returns?
A
. This EIN is your permanent number and can be used immediately for most of your business needs, including:

  • Opening a bank account
  • Applying for business licenses
  • Filing a tax return by mail

However, it will take up to two weeks before your EIN becomes part of the IRS's permanent records. You must wait until this occurs before you can:

  • File an electronic return
  • Make an electronic payment
  • Pass an IRS Taxpayer Identification Number (TIN) matching program

Q. Sometimes I don't know all the information required on the application. Why do I have to complete the application online when I can send in paper or fax with missing information?
A. When paper or faxed Forms SS-4 are received by the IRS with information missing, additional time is needed to process that application, delaying the issuance of your Employer Identification Number. Applicants can get their EIN much quicker if all the required information is completed.

Q. The legal name of my business includes the symbol for a dollar sign ($). Does the IRS accept symbols as part of a business name?
A.
No. The only characters IRS systems can accept in a business name are: 1) alpha (A-Z), 2) numeric (0-9), 3) hyphen (-), and 4) ampersand (&). If the legal name of your business includes anything other than those listed above, you will need to decide how best to enter your business name into the online EIN application. Following are some suggestions:

If your legal name contains: Then:
A symbol or character, such as a “plus” symbol (+), “at” symbol (@), or a period (.) 1) Spell out the symbol or 2) drop the symbol and leave a space. Example: If the legal name of your business is Jones.Com, then input it as Jones Dot Com or Jones Com
Backward (\) or forward (/) slash Substitute a hyphen (-)
Apostrophe (') Drop the apostrophe and do not leave a space.

Q. What do I do if my entire address won't fit on your address line on the Internet application?
A
. IRS systems only allow 35 characters on the street address line. If your address does not fit in 35 characters, please make sure you provide the most essential address information (i.e., apartment numbers, suite numbers, etc). We’ll then validate the address you’ve provided with the United States Postal Service’s database and offer you an opportunity to make any changes to the address, if necessary.

Q. Are any entity types excluded from applying for an EIN over the Internet?
A
.  No. All customers whose principal business, office or agency, or legal residence (in the case of an individual) is located in the United States or in one of the U.S. Territories can apply for an EIN online. The principal officer, general partner, grantor, owner, trustor etc. must have a valid Taxpayer Identification Number (Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number) in order to use the online application.

If you were incorporated outside of the United States or the U.S. territories, you cannot apply for an EIN online. Please call us at (267) 941-1099 (this is not a toll free number) between the hours of 6:00 a.m. to 11:00 p.m. Eastern Time.

Q. What if I forget the number I obtained over the Internet?
A.
IRS records will be updated immediately with your EIN. Simply call (800) 829-4933 and select EIN from the list of options. Once connected with an IRS employee, tell the assistor you received an EIN from the Internet but can't remember it. The IRS employee will ask the necessary disclosure and security questions prior to providing the number.

Q. Do all the EINs obtained on the Internet start with 20, 26, 27, 45 or 46?
A.
Yes. The unique prefixes (20, 26, 27, 45 or 46) identify the EIN as a number issued via the Internet. Note: We cannot process your application online if the responsible party is an entity with an EIN previously obtained through the Internet. Please use one of our other methods to apply. See How to Apply for an EIN. We apologize for any inconvenience this may cause you.

Q. Do I need a certain computer or software to obtain an EIN over the Internet?
A
. No. You can go to IRS.gov through any computer that has Internet access. You should have a current Internet browser, which will allow you to view and complete the application process. However, you will need Adobe Reader installed if you would like to receive a confirmation letter online.

Q. Now that I have my EIN, when can I use it to make tax deposits?
A.
Based on the information you submit on your application or if you indicate you will have employees, you will automatically be enrolled in the Electronic Federal Tax Payment System—EFTPS—so you can make all your deposits online or by phone. Within a few days you will receive by mail your EFTPS enrollment confirmation, as well as a Personal Identification Number (PIN) and complete instructions for using EFTPS. You will need to wait until you receive your EFTPS information in the mail before you can make a payment electronically. Once you receive your EFTPS Confirmation Package, you can begin making EFTPS payments.

EFTPS is a service provided free by the U.S. Department of the Treasury that allows individual and business taxpayers to initiate all Federal tax payments using the Internet or phone. You can input your tax payments 24 hours a day, 7 days a week using a secure government website or an automated voice response phone system. Refer to Publication 4275, EFTPS Express Enrollment for New Businesses for additional information about EFTPS.

Page Last Reviewed or Updated: 03-Jan-2014

The Free 2011 Tax Forms

Free 2011 tax forms 1. Free 2011 tax forms   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Free 2011 tax forms It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Free 2011 tax forms This chapter discusses the general rules for depreciating property and answers the following questions. Free 2011 tax forms What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Free 2011 tax forms What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Free 2011 tax forms You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Free 2011 tax forms To be depreciable, the property must meet all the following requirements. Free 2011 tax forms It must be property you own. Free 2011 tax forms It must be used in your business or income-producing activity. Free 2011 tax forms It must have a determinable useful life. Free 2011 tax forms It must be expected to last more than one year. Free 2011 tax forms The following discussions provide information about these requirements. Free 2011 tax forms Property You Own To claim depreciation, you usually must be the owner of the property. Free 2011 tax forms You are considered as owning property even if it is subject to a debt. Free 2011 tax forms Example 1. Free 2011 tax forms You made a down payment to purchase rental property and assumed the previous owner's mortgage. Free 2011 tax forms You own the property and you can depreciate it. Free 2011 tax forms Example 2. Free 2011 tax forms You bought a new van that you will use only for your courier business. Free 2011 tax forms You will be making payments on the van over the next 5 years. Free 2011 tax forms You own the van and you can depreciate it. Free 2011 tax forms Leased property. Free 2011 tax forms   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Free 2011 tax forms This means you bear the burden of exhaustion of the capital investment in the property. Free 2011 tax forms Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Free 2011 tax forms You can, however, depreciate any capital improvements you make to the property. Free 2011 tax forms See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Free 2011 tax forms   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Free 2011 tax forms However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Free 2011 tax forms Incidents of ownership. Free 2011 tax forms   Incidents of ownership in property include the following. Free 2011 tax forms The legal title to the property. Free 2011 tax forms The legal obligation to pay for the property. Free 2011 tax forms The responsibility to pay maintenance and operating expenses. Free 2011 tax forms The duty to pay any taxes on the property. Free 2011 tax forms The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Free 2011 tax forms Life tenant. Free 2011 tax forms   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Free 2011 tax forms However, see Certain term interests in property under Excepted Property, later. Free 2011 tax forms Cooperative apartments. Free 2011 tax forms   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Free 2011 tax forms   Figure your depreciation deduction as follows. Free 2011 tax forms Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Free 2011 tax forms If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Free 2011 tax forms Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Free 2011 tax forms Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Free 2011 tax forms Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Free 2011 tax forms Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Free 2011 tax forms Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Free 2011 tax forms Multiply the result of (2) by the percentage you figured in (3). Free 2011 tax forms This is your depreciation on the stock. Free 2011 tax forms   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Free 2011 tax forms You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Free 2011 tax forms Example. Free 2011 tax forms You figure your share of the cooperative housing corporation's depreciation to be $30,000. Free 2011 tax forms Your adjusted basis in the stock of the corporation is $50,000. Free 2011 tax forms You use one half of your apartment solely for business purposes. Free 2011 tax forms Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Free 2011 tax forms Change to business use. Free 2011 tax forms   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Free 2011 tax forms The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Free 2011 tax forms The fair market value of the property on the date you change your apartment to business use. Free 2011 tax forms This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Free 2011 tax forms The corporation's adjusted basis in the property on that date. Free 2011 tax forms Do not subtract depreciation when figuring the corporation's adjusted basis. Free 2011 tax forms   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Free 2011 tax forms The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Free 2011 tax forms   For a discussion of fair market value and adjusted basis, see Publication 551. Free 2011 tax forms Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Free 2011 tax forms If you use property to produce income (investment use), the income must be taxable. Free 2011 tax forms You cannot depreciate property that you use solely for personal activities. Free 2011 tax forms Partial business or investment use. Free 2011 tax forms   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Free 2011 tax forms For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Free 2011 tax forms    You must keep records showing the business, investment, and personal use of your property. Free 2011 tax forms For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Free 2011 tax forms    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Free 2011 tax forms For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Free 2011 tax forms Office in the home. Free 2011 tax forms   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Free 2011 tax forms For information about depreciating your home office, see Publication 587. Free 2011 tax forms Inventory. Free 2011 tax forms   You cannot depreciate inventory because it is not held for use in your business. Free 2011 tax forms Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Free 2011 tax forms   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Free 2011 tax forms See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Free 2011 tax forms   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Free 2011 tax forms If it is unclear, examine carefully all the facts in the operation of the particular business. Free 2011 tax forms The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Free 2011 tax forms Example. Free 2011 tax forms Maple Corporation is in the business of leasing cars. Free 2011 tax forms At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Free 2011 tax forms Maple does not have a showroom, used car lot, or individuals to sell the cars. Free 2011 tax forms Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Free 2011 tax forms Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Free 2011 tax forms If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Free 2011 tax forms In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Free 2011 tax forms Containers. Free 2011 tax forms   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Free 2011 tax forms However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Free 2011 tax forms They qualify as property used in your business. Free 2011 tax forms Title to the containers does not pass to the buyer. Free 2011 tax forms   To determine if these requirements are met, consider the following questions. Free 2011 tax forms Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Free 2011 tax forms This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Free 2011 tax forms Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Free 2011 tax forms Example. Free 2011 tax forms You maintain a library for use in your profession. Free 2011 tax forms You can depreciate it. Free 2011 tax forms However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Free 2011 tax forms Instead, you deduct their cost as a business expense. Free 2011 tax forms What Property Cannot Be Depreciated? Certain property cannot be depreciated. Free 2011 tax forms This includes land and certain excepted property. Free 2011 tax forms Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Free 2011 tax forms The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Free 2011 tax forms Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Free 2011 tax forms These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Free 2011 tax forms Example. Free 2011 tax forms You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Free 2011 tax forms Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Free 2011 tax forms If you replace the building, you would have to destroy the bushes and trees right next to it. Free 2011 tax forms These bushes and trees are closely associated with the building, so they have a determinable useful life. Free 2011 tax forms Therefore, you can depreciate them. Free 2011 tax forms Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Free 2011 tax forms Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Free 2011 tax forms Property placed in service and disposed of in the same year. Free 2011 tax forms Determining when property is placed in service is explained later. Free 2011 tax forms Equipment used to build capital improvements. Free 2011 tax forms You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Free 2011 tax forms See Uniform Capitalization Rules in Publication 551. Free 2011 tax forms Section 197 intangibles. Free 2011 tax forms You must amortize these costs. Free 2011 tax forms Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Free 2011 tax forms Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Free 2011 tax forms See Intangible Property , later. Free 2011 tax forms Certain term interests. Free 2011 tax forms Certain term interests in property. Free 2011 tax forms   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Free 2011 tax forms A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Free 2011 tax forms Related persons. Free 2011 tax forms   For a description of related persons, see Related Persons, later. Free 2011 tax forms For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Free 2011 tax forms Basis adjustments. Free 2011 tax forms   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Free 2011 tax forms   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Free 2011 tax forms However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Free 2011 tax forms The term interest is held by an organization exempt from tax. Free 2011 tax forms The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Free 2011 tax forms Exceptions. Free 2011 tax forms   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Free 2011 tax forms They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Free 2011 tax forms When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Free 2011 tax forms You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Free 2011 tax forms Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Free 2011 tax forms Even if you are not using the property, it is in service when it is ready and available for its specific use. Free 2011 tax forms Example 1. Free 2011 tax forms Donald Steep bought a machine for his business. Free 2011 tax forms The machine was delivered last year. Free 2011 tax forms However, it was not installed and operational until this year. Free 2011 tax forms It is considered placed in service this year. Free 2011 tax forms If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Free 2011 tax forms Example 2. Free 2011 tax forms On April 6, Sue Thorn bought a house to use as residential rental property. Free 2011 tax forms She made several repairs and had it ready for rent on July 5. Free 2011 tax forms At that time, she began to advertise it for rent in the local newspaper. Free 2011 tax forms The house is considered placed in service in July when it was ready and available for rent. Free 2011 tax forms She can begin to depreciate it in July. Free 2011 tax forms Example 3. Free 2011 tax forms James Elm is a building contractor who specializes in constructing office buildings. Free 2011 tax forms He bought a truck last year that had to be modified to lift materials to second-story levels. Free 2011 tax forms The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Free 2011 tax forms The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Free 2011 tax forms Conversion to business use. Free 2011 tax forms   If you place property in service in a personal activity, you cannot claim depreciation. Free 2011 tax forms However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Free 2011 tax forms You place the property in service in the business or income-producing activity on the date of the change. Free 2011 tax forms Example. Free 2011 tax forms You bought a home and used it as your personal home several years before you converted it to rental property. Free 2011 tax forms Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Free 2011 tax forms You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Free 2011 tax forms Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Free 2011 tax forms For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Free 2011 tax forms Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Free 2011 tax forms You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Free 2011 tax forms See What Is the Basis of Your Depreciable Property , later. Free 2011 tax forms Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Free 2011 tax forms You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Free 2011 tax forms You sell or exchange the property. Free 2011 tax forms You convert the property to personal use. Free 2011 tax forms You abandon the property. Free 2011 tax forms You transfer the property to a supplies or scrap account. Free 2011 tax forms The property is destroyed. Free 2011 tax forms If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Free 2011 tax forms What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Free 2011 tax forms MACRS is discussed in chapter 4. Free 2011 tax forms You cannot use MACRS to depreciate the following property. Free 2011 tax forms Property you placed in service before 1987. Free 2011 tax forms Certain property owned or used in 1986. Free 2011 tax forms Intangible property. Free 2011 tax forms Films, video tapes, and recordings. Free 2011 tax forms Certain corporate or partnership property acquired in a nontaxable transfer. Free 2011 tax forms Property you elected to exclude from MACRS. Free 2011 tax forms The following discussions describe the property listed above and explain what depreciation method should be used. Free 2011 tax forms Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Free 2011 tax forms Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Free 2011 tax forms For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Free 2011 tax forms Use of real property changed. Free 2011 tax forms   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Free 2011 tax forms Improvements made after 1986. Free 2011 tax forms   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Free 2011 tax forms Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Free 2011 tax forms For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Free 2011 tax forms Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Free 2011 tax forms If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Free 2011 tax forms For the following discussions, do not treat property as owned before you placed it in service. Free 2011 tax forms If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Free 2011 tax forms Personal property. Free 2011 tax forms   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Free 2011 tax forms You or someone related to you owned or used the property in 1986. Free 2011 tax forms You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Free 2011 tax forms You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Free 2011 tax forms You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Free 2011 tax forms Real property. Free 2011 tax forms   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Free 2011 tax forms You or someone related to you owned the property in 1986. Free 2011 tax forms You lease the property to a person who owned the property in 1986 (or someone related to that person). Free 2011 tax forms You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Free 2011 tax forms MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Free 2011 tax forms It does not apply to the carried-over part of the basis. Free 2011 tax forms Exceptions. Free 2011 tax forms   The rules above do not apply to the following. Free 2011 tax forms Residential rental property or nonresidential real property. Free 2011 tax forms Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Free 2011 tax forms For information on how to figure depreciation under ACRS, see Publication 534. Free 2011 tax forms Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Free 2011 tax forms Related persons. Free 2011 tax forms   For this purpose, the following are related persons. Free 2011 tax forms An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Free 2011 tax forms A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Free 2011 tax forms Two corporations that are members of the same controlled group. Free 2011 tax forms A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Free 2011 tax forms The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free 2011 tax forms The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Free 2011 tax forms A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Free 2011 tax forms Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Free 2011 tax forms A corporation and a partnership if the same persons own both of the following. Free 2011 tax forms More than 10% of the value of the outstanding stock of the corporation. Free 2011 tax forms More than 10% of the capital or profits interest in the partnership. Free 2011 tax forms The executor and beneficiary of any estate. Free 2011 tax forms A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Free 2011 tax forms Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Free 2011 tax forms The related person and a person who is engaged in trades or businesses under common control. Free 2011 tax forms See section 52(a) and 52(b) of the Internal Revenue Code. Free 2011 tax forms When to determine relationship. Free 2011 tax forms   You must determine whether you are related to another person at the time you acquire the property. Free 2011 tax forms   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Free 2011 tax forms For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Free 2011 tax forms Constructive ownership of stock or partnership interest. Free 2011 tax forms   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Free 2011 tax forms Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free 2011 tax forms However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Free 2011 tax forms An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Free 2011 tax forms An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Free 2011 tax forms For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Free 2011 tax forms However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Free 2011 tax forms Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Free 2011 tax forms However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Free 2011 tax forms You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Free 2011 tax forms Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Free 2011 tax forms To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Free 2011 tax forms Subtract the salvage value, if any, from the adjusted basis. Free 2011 tax forms The balance is the total depreciation you can take over the useful life of the property. Free 2011 tax forms Divide the balance by the number of years in the useful life. Free 2011 tax forms This gives you your yearly depreciation deduction. Free 2011 tax forms Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Free 2011 tax forms If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Free 2011 tax forms Example. Free 2011 tax forms In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Free 2011 tax forms He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Free 2011 tax forms He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Free 2011 tax forms He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Free 2011 tax forms Next year, Frank can deduct $300 for the full year. Free 2011 tax forms Patents and copyrights. Free 2011 tax forms   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Free 2011 tax forms The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Free 2011 tax forms However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Free 2011 tax forms Computer software. Free 2011 tax forms   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Free 2011 tax forms   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Free 2011 tax forms It is readily available for purchase by the general public. Free 2011 tax forms It is subject to a nonexclusive license. Free 2011 tax forms It has not been substantially modified. Free 2011 tax forms   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Free 2011 tax forms If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Free 2011 tax forms    Tax-exempt use property subject to a lease. Free 2011 tax forms   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. Free 2011 tax forms Certain created intangibles. Free 2011 tax forms   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Free 2011 tax forms For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Free 2011 tax forms   The following are not eligible. Free 2011 tax forms Any intangible asset acquired from another person. Free 2011 tax forms Created financial interests. Free 2011 tax forms Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Free 2011 tax forms Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Free 2011 tax forms Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Free 2011 tax forms   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Free 2011 tax forms For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Free 2011 tax forms Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Free 2011 tax forms Motion picture films or video tapes. Free 2011 tax forms Sound recordings. Free 2011 tax forms Copyrights. Free 2011 tax forms Books. Free 2011 tax forms Patents. Free 2011 tax forms Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Free 2011 tax forms The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Free 2011 tax forms For more information, see section 167(g) of the Internal Revenue Code. Free 2011 tax forms Films, video tapes, and recordings. Free 2011 tax forms   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Free 2011 tax forms For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Free 2011 tax forms You can depreciate this property using either the straight line method or the income forecast method. Free 2011 tax forms Participations and residuals. Free 2011 tax forms   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Free 2011 tax forms The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Free 2011 tax forms For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Free 2011 tax forms   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Free 2011 tax forms Videocassettes. Free 2011 tax forms   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Free 2011 tax forms If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Free 2011 tax forms Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Free 2011 tax forms You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Free 2011 tax forms However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Free 2011 tax forms The nontaxable transfers covered by this rule include the following. Free 2011 tax forms A distribution in complete liquidation of a subsidiary. Free 2011 tax forms A transfer to a corporation controlled by the transferor. Free 2011 tax forms An exchange of property solely for corporate stock or securities in a reorganization. Free 2011 tax forms A contribution of property to a partnership in exchange for a partnership interest. Free 2011 tax forms A partnership distribution of property to a partner. Free 2011 tax forms Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Free 2011 tax forms You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Free 2011 tax forms You must make this election by the return due date (including extensions) for the tax year you place your property in service. Free 2011 tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). Free 2011 tax forms Attach the election to the amended return and write “Filed pursuant to section 301. Free 2011 tax forms 9100-2” on the election statement. Free 2011 tax forms File the amended return at the same address you filed the original return. Free 2011 tax forms Use of standard mileage rate. Free 2011 tax forms   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Free 2011 tax forms See Publication 463 for a discussion of the standard mileage rate. Free 2011 tax forms What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Free 2011 tax forms To determine basis, you need to know the cost or other basis of your property. Free 2011 tax forms Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Free 2011 tax forms The cost includes the amount you pay in cash, debt obligations, other property, or services. Free 2011 tax forms Exception. Free 2011 tax forms   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Free 2011 tax forms If you make that choice, you cannot include those sales taxes as part of your cost basis. Free 2011 tax forms Assumed debt. Free 2011 tax forms   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Free 2011 tax forms Example. Free 2011 tax forms You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Free 2011 tax forms Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Free 2011 tax forms Settlement costs. Free 2011 tax forms   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Free 2011 tax forms These generally are shown on your settlement statement and include the following. Free 2011 tax forms Legal and recording fees. Free 2011 tax forms Abstract fees. Free 2011 tax forms Survey charges. Free 2011 tax forms Owner's title insurance. Free 2011 tax forms Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Free 2011 tax forms   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Free 2011 tax forms Property you construct or build. Free 2011 tax forms   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Free 2011 tax forms For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Free 2011 tax forms Other Basis Other basis usually refers to basis that is determined by the way you received the property. Free 2011 tax forms For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Free 2011 tax forms If you acquired property in this or some other way, see Publication 551 to determine your basis. Free 2011 tax forms Property changed from personal use. Free 2011 tax forms   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Free 2011 tax forms The fair market value (FMV) of the property on the date of the change in use. Free 2011 tax forms Your original cost or other basis adjusted as follows. Free 2011 tax forms Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Free 2011 tax forms Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Free 2011 tax forms Example. Free 2011 tax forms Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Free 2011 tax forms Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Free 2011 tax forms Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Free 2011 tax forms Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Free 2011 tax forms On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Free 2011 tax forms The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Free 2011 tax forms Property acquired in a nontaxable transaction. Free 2011 tax forms   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Free 2011 tax forms Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Free 2011 tax forms See Like-kind exchanges and involuntary conversions. Free 2011 tax forms under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Free 2011 tax forms   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Free 2011 tax forms See How Do You Use General Asset Accounts in chapter 4. Free 2011 tax forms Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Free 2011 tax forms These events could include the following. Free 2011 tax forms Installing utility lines. Free 2011 tax forms Paying legal fees for perfecting the title. Free 2011 tax forms Settling zoning issues. Free 2011 tax forms Receiving rebates. Free 2011 tax forms Incurring a casualty or theft loss. Free 2011 tax forms For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Free 2011 tax forms If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Free 2011 tax forms For more information, see What Is the Basis for Depreciation in chapter 4. Free 2011 tax forms . Free 2011 tax forms Basis adjustment for depreciation allowed or allowable. Free 2011 tax forms   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Free 2011 tax forms Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Free 2011 tax forms Depreciation allowable is depreciation you are entitled to deduct. Free 2011 tax forms   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Free 2011 tax forms   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Free 2011 tax forms How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Free 2011 tax forms Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Free 2011 tax forms You generally deduct the cost of repairing business property in the same way as any other business expense. Free 2011 tax forms However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Free 2011 tax forms Example. Free 2011 tax forms You repair a small section on one corner of the roof of a rental house. Free 2011 tax forms You deduct the cost of the repair as a rental expense. Free 2011 tax forms However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Free 2011 tax forms You depreciate the cost of the new roof. Free 2011 tax forms Improvements to rented property. Free 2011 tax forms   You can depreciate permanent improvements you make to business property you rent from someone else. Free 2011 tax forms Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Free 2011 tax forms Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Free 2011 tax forms A section 179 deduction for the current year or a section 179 carryover from a prior year. Free 2011 tax forms See chapter 2 for information on the section 179 deduction. Free 2011 tax forms Depreciation for property placed in service during the current year. Free 2011 tax forms Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Free 2011 tax forms See chapter 5 for information on listed property. Free 2011 tax forms A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Free 2011 tax forms Amortization of costs if the current year is the first year of the amortization period. Free 2011 tax forms Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Free 2011 tax forms S. Free 2011 tax forms Income Tax Return for an S Corporation) regardless of when it was placed in service. Free 2011 tax forms You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Free 2011 tax forms Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Free 2011 tax forms Employee. Free 2011 tax forms   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Free 2011 tax forms Instead, use either Form 2106 or Form 2106-EZ. Free 2011 tax forms Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Free 2011 tax forms How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Free 2011 tax forms See Filing an Amended Return , next. Free 2011 tax forms If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Free 2011 tax forms See Changing Your Accounting Method , later. Free 2011 tax forms Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Free 2011 tax forms You claimed the incorrect amount because of a mathematical error made in any year. Free 2011 tax forms You claimed the incorrect amount because of a posting error made in any year. Free 2011 tax forms You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Free 2011 tax forms You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Free 2011 tax forms Adoption of accounting method defined. Free 2011 tax forms   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Free 2011 tax forms   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/pub/irs-irbs/irb11-04. Free 2011 tax forms pdf. Free 2011 tax forms (Note. Free 2011 tax forms Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Free 2011 tax forms For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/pub/irs-irbs/irb12-14. Free 2011 tax forms pdf. Free 2011 tax forms )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/pub/irs-irbs/irb07-29. Free 2011 tax forms pdf. Free 2011 tax forms When to file. Free 2011 tax forms   If an amended return is allowed, you must file it by the later of the following. Free 2011 tax forms 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Free 2011 tax forms A return filed before an unextended due date is considered filed on that due date. Free 2011 tax forms 2 years from the time you paid your tax for that year. Free 2011 tax forms Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Free 2011 tax forms You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Free 2011 tax forms The following are examples of a change in method of accounting for depreciation. Free 2011 tax forms A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Free 2011 tax forms A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Free 2011 tax forms A change in the depreciation method, period of recovery, or convention of a depreciable asset. Free 2011 tax forms A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Free 2011 tax forms A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Free 2011 tax forms Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Free 2011 tax forms An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Free 2011 tax forms A change in use of an asset in the hands of the same taxpayer. Free 2011 tax forms Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Free 2011 tax forms If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Free 2011 tax forms Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Free 2011 tax forms You must submit a request for a letter ruling to make a late election or revoke an election. Free 2011 tax forms Any change in the placed in service date of a depreciable asset. Free 2011 tax forms See section 1. Free 2011 tax forms 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Free 2011 tax forms IRS approval. Free 2011 tax forms   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Free 2011 tax forms If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Free 2011 tax forms B. Free 2011 tax forms 680. Free 2011 tax forms Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Free 2011 tax forms Additional guidance. Free 2011 tax forms    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/pub/irs-irbs/irb11-04. Free 2011 tax forms pdf. Free 2011 tax forms (Note. Free 2011 tax forms Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Free 2011 tax forms For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/pub/irs-irbs/irb12-14. Free 2011 tax forms pdf. Free 2011 tax forms )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Free 2011 tax forms irs. Free 2011 tax forms gov/pub/irs-irbs/irb07-29. Free 2011 tax forms pdf. Free 2011 tax forms Table 1-1. Free 2011 tax forms Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Free 2011 tax forms For more information, see Form 4562 and its instructions. Free 2011 tax forms Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Free 2011 tax forms   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Free 2011 tax forms The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Free 2011 tax forms If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Free 2011 tax forms A negative section 481(a) adjustment results in a decrease in taxable income. Free 2011 tax forms It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Free 2011 tax forms ” A positive section 481(a) adjustment results in an increase in taxable income. Free 2011 tax forms It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Free 2011 tax forms ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Free 2011 tax forms Make the election by completing the appropriate line on Form 3115. Free 2011 tax forms   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Free 2011 tax forms Prev  Up  Next   Home   More Online Publications