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Free efile 2. Free efile Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Free efile The pay may be in cash, property, or services. Free efile It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Free efile For information about deducting employment taxes, see chapter 5. Free efile You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Free efile Empowerment zone employment credit (Form 8844). Free efile Indian employment credit (Form 8845). Free efile Work opportunity credit (Form 5884). Free efile Credit for employer differential wage payments (Form 8932). Free efile Reduce your deduction for employee wages by the amount of employment credits you claim. Free efile For more information about these credits, see the form on which the credit is claimed. Free efile Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Free efile Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Free efile These and other requirements that apply to all business expenses are explained in chapter 1. Free efile In addition, the pay must meet both of the following tests. Free efile Test 1. Free efile It must be reasonable. Free efile Test 2. Free efile It must be for services performed. Free efile The form or method of figuring the pay does not affect its deductibility. Free efile For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Free efile Test 1—Reasonableness You must be able to prove that the pay is reasonable. Free efile Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Free efile If the pay is excessive, the excess pay is disallowed as a deduction. Free efile Factors to consider. Free efile Determine the reasonableness of pay by the facts and circumstances. Free efile Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Free efile To determine if pay is reasonable, also consider the following items and any other pertinent facts. Free efile The duties performed by the employee. Free efile The volume of business handled. Free efile The character and amount of responsibility. Free efile The complexities of your business. Free efile The amount of time required. Free efile The cost of living in the locality. Free efile The ability and achievements of the individual employee performing the service. Free efile The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Free efile Your policy regarding pay for all your employees. Free efile The history of pay for each employee. Free efile Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Free efile Employee-shareholder salaries. Free efile If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Free efile The excessive part of the salary would not be allowed as a salary deduction by the corporation. Free efile For more information on corporate distributions to shareholders, see Publication 542, Corporations. Free efile Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Free efile For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Free efile Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Free efile If you give property to an employee as an employee achievement award, your deduction may be limited. Free efile Achievement awards. Free efile An achievement award is an item of tangible personal property that meets all the following requirements. Free efile It is given to an employee for length of service or safety achievement. Free efile It is awarded as part of a meaningful presentation. Free efile It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Free efile Length-of-service award. Free efile An award will qualify as a length-of-service award only if either of the following applies. Free efile The employee receives the award after his or her first 5 years of employment. Free efile The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Free efile Safety achievement award. Free efile An award for safety achievement will qualify as an achievement award unless one of the following applies. Free efile It is given to a manager, administrator, clerical employee, or other professional employee. Free efile During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Free efile Deduction limit. Free efile Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Free efile $400 for awards that are not qualified plan awards. Free efile $1,600 for all awards, whether or not qualified plan awards. Free efile A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Free efile A highly compensated employee is an employee who meets either of the following tests. Free efile The employee was a 5% owner at any time during the year or the preceding year. Free efile The employee received more than $115,000 in pay for the preceding year. Free efile You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Free efile An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Free efile To figure this average cost, ignore awards of nominal value. Free efile Deduct achievement awards as a nonwage business expense on your return or business schedule. Free efile You may not owe employment taxes on the value of some achievement awards you provide to an employee. Free efile See Publication 15-B. Free efile Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Free efile However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Free efile If the bonus is paid in property, see Property , later. Free efile Gifts of nominal value. Free efile If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Free efile Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Free efile For more information on this deduction limit, see Meals and lodging , later. Free efile Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Free efile Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Free efile For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Free efile Fringe Benefits A fringe benefit is a form of pay for the performance of services. Free efile You can generally deduct the cost of fringe benefits. Free efile You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Free efile You also may not owe employment taxes on the value of the fringe benefits. Free efile See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Free efile Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Free efile Certain fringe benefits are discussed next. Free efile See Publication 15-B for more details on these and other fringe benefits. Free efile Meals and lodging. Free efile You can usually deduct the cost of furnishing meals and lodging to your employees. Free efile Deduct the cost in whatever category the expense falls. Free efile For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Free efile If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Free efile Deduction limit on meals. Free efile You can generally deduct only 50% of the cost of furnishing meals to your employees. Free efile However, you can deduct the full cost of the following meals. Free efile Meals whose value you include in an employee's wages. Free efile Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Free efile This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Free efile Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Free efile Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Free efile Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Free efile This does not include meals you furnish on vessels primarily providing luxury water transportation. Free efile Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Free efile This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Free efile Employee benefit programs. Free efile Employee benefit programs include the following. Free efile Accident and health plans. Free efile Adoption assistance. Free efile Cafeteria plans. Free efile Dependent care assistance. Free efile Education assistance. Free efile Life insurance coverage. Free efile Welfare benefit funds. Free efile You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Free efile For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Free efile ). Free efile Life insurance coverage. Free efile You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Free efile See Regulations section 1. Free efile 264-1 for more information. Free efile Welfare benefit funds. Free efile A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Free efile Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Free efile Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Free efile If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Free efile Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Free efile The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Free efile The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Free efile These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Free efile For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Free efile Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Free efile However, if the employee performs no services, treat the amount you advanced as a loan. Free efile If the employee does not repay the loan, treat it as income to the employee. Free efile Below-market interest rate loans. Free efile On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Free efile See Below-Market Loans in chapter 4. Free efile Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Free efile The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Free efile You can claim the deduction only for the tax year in which your employee includes the property's value in income. Free efile Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Free efile You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Free efile Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Free efile These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Free efile Restricted property. Free efile If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Free efile However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Free efile “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Free efile This means that the recipient is not likely to have to give up his or her rights in the property in the future. Free efile Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Free efile However, your deduction may be limited. Free efile If you make the payment under an accountable plan, deduct it in the category of the expense paid. Free efile For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Free efile If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Free efile See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Free efile Sick and Vacation Pay Sick pay. Free efile You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Free efile However, your deduction is limited to amounts not compensated by insurance or other means. Free efile Vacation pay. Free efile Vacation pay is an employee benefit. Free efile It includes amounts paid for unused vacation leave. Free efile You can deduct vacation pay only in the tax year in which the employee actually receives it. Free efile This rule applies regardless of whether you use the cash or accrual method of accounting. Free efile Prev Up Next Home More Online Publications
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The Free Efile
Free efile 29. Free efile Límite sobre Deducciones Detalladas Table of Contents Introduction Useful Items - You may want to see: ¿Está Usted Sujeto al Límite? ¿Qué Deducciones Detalladas Están Limitadas? ¿Qué Deducciones Detalladas no Están Limitadas? ¿Cómo se Calcula el Límite?Ejemplo Introduction Este capítulo trata del límite general sobre las deducciones detalladas en el Anexo A (Formulario 1040). Free efile Los temas abarcan: Quién está sujeto al límite. Free efile Qué deducciones detalladas están limitadas. Free efile Cómo calcular el límite. Free efile Useful Items - You may want to see: Formulario (e Instrucciones) Anexo A (Formulario 1040) Itemized Deductions (Deducciones detalladas), en inglés. Free efile ¿Está Usted Sujeto al Límite? Si tiene ingresos brutos ajustados (AGI, por sus siglas en inglés) de más de $300,000, si es casado que presenta la declaración conjunta o viudo calificado, $275,000, si es cabeza de familia, $250,000, si es soltero o $150,000, si es casado que presenta la declaración por separado, está sujeto al límite sobre determinadas deducciones detalladas. Free efile El ingreso bruto ajustado (AGI) es la cantidad de la línea 38 (Formulario 1040). Free efile ¿Qué Deducciones Detalladas Están Limitadas? Las siguientes deducciones del Anexo A (Formulario 1040) están sujetas al límite general sobre las deducciones detalladas: Impuestos pagados —línea 9. Free efile Intereses pagados —líneas 10,11,12 y 13. Free efile Donaciones a organizaciones caritativas —línea 19. Free efile Gastos laborales y determinadas deducciones misceláneas —línea 27. Free efile Otras deducciones misceláneas —línea 28, excluyendo pérdidas por apuestas y juegos de azar y por hecho fortuito o robo. Free efile ¿Qué Deducciones Detalladas no Están Limitadas? Las siguientes deducciones del Anexo A (Formulario 1040) no están sujetas al límite general sobre las deducciones detalladas. Free efile Sin embargo, igualmente están sujetas a otros límites aplicables. Free efile Gastos médicos y dentales —línea 4. Free efile Gastos de intereses de inversión —línea 14. Free efile Pérdidas por hecho fortuito y robo de bienes de uso personal —línea 20. Free efile Pérdidas por hecho fortuito y robo de bienes que generan ingresos —línea 28. Free efile Pérdidas por apuestas y juegos de azar —línea 28. Free efile ¿Cómo se Calcula el Límite? Si las deducciones detalladas están sujetas al límite, el total de todas sus deducciones detalladas es reducido por la cantidad menor de uno de: el 80% de las deducciones detalladas afectadas por el límite. Free efile Vea ¿Qué Deducciones Detalladas Están Limitadas? , anteriormente o el 3% de la cantidad por la cual los ingresos brutos ajustados sobrepasen $300,000, si es casado que presenta la declaración conjunta o viudo calificado, $275,000, si es cabeza de familia, $250,000, si es soltero o $150,000, si es casado que presenta la declaración por separado. Free efile Antes de calcular el límite general sobre las deducciones detalladas, primero tiene que llenar las líneas 1 a 28 del Anexo A (Formulario 1040), incluyendo todo formulario afín (tal como el Formulario 2106, el Formulario 4684, etc. Free efile ) El límite general sobre las deducciones detalladas se calcula después de haberse aplicado cualquier otro límite sobre la asignación de alguna deducción detallada. Free efile Estos límites adicionales abarcan los límites sobre donaciones caritativas (capítulo 24), el límite sobre determinados gastos de comida y entretenimiento (capítulo 26) y el límite del 2% de los ingresos brutos ajustados sobre determinadas deducciones misceláneas (capítulo 28). Free efile Hoja de trabajo de deducciones detalladas. Free efile Después de completar hasta la línea 28, inclusive, del Anexo A (Formulario 1040), puede utilizar la Itemized Deductions Worksheet (Hoja de trabajo de las deducciones detalladas), en las Instrucciones del Anexo A (Formulario 1040) para calcular el límite. Free efile Anote el resultado en la línea 29 del Anexo A (Formulario 1040). Free efile Guarde la hoja de trabajo con su documentación. Free efile Debe comparar la cantidad de la deducción estándar con la cantidad de las deducciones detalladas después de aplicar el límite. Free efile Utilice la cantidad mayor cuando complete la línea 40 (Formulario 1040). Free efile Vea el capítulo 20 para información sobre cómo calcular la deducción estándar. Free efile Ejemplo Para el año tributario 2013, Guillermo y Teresa Valdez presentan la declaración conjunta en el Formulario 1040. Free efile Tienen ingresos brutos ajustados de $325,500 en la línea 38. Free efile Las deducciones detalladas de su Anexo A son las siguientes: Impuestos pagados —línea 9 $ 17,900 Intereses pagados —líneas 10,11,12 y 13 45,000 Gasto de intereses de inversión —línea 14 41,000 Donaciones a organizaciones caritativas —línea 19 21,000 Gastos laborales —línea 27 17,240 Total $142,140 La deducción por gastos de intereses de inversión de los Valdez ($41,000 de la línea 14 del Anexo A (Formulario 1040) no está sujeta al límite general de las deducciones detalladas. Free efile Los Valdez utilizan la Itemized Deductions Worksheet (Hoja de trabajo de las deducciones detalladas), en las Instrucciones del Anexo A (Formulario 1040) para calcular el límite general. Free efile Del total de las deducciones detalladas de $142,140, los Valdez pueden deducir sólo $141,375 ($142,140 - $765). Free efile Anotan $141,375 en la línea 29 del Anexo A (Formulario 1040). Free efile Prev Up Next Home More Online Publications