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H&r Block 1040x

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H&r Block 1040x

H&r block 1040x 4. H&r block 1040x   Tax Withholding and Estimated Tax Table of Contents What's New for 2014 Reminders Introduction Useful Items - You may want to see: Tax Withholding for 2014Salaries and Wages Tips Taxable Fringe Benefits Sick Pay Pensions and Annuities Gambling Winnings Unemployment Compensation Federal Payments Backup Withholding Estimated Tax for 2014Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated Tax How To Figure Estimated Tax When To Pay Estimated Tax How To Figure Each Payment How To Pay Estimated Tax Credit for Withholding and Estimated Tax for 2013Withholding Estimated Tax Underpayment Penalty for 2013 What's New for 2014 Tax law changes for 2014. H&r block 1040x  When you figure how much income tax you want withheld from your pay and when you figure your estimated tax, consider tax law changes effective in 2014. H&r block 1040x For more information, see Publication 505. H&r block 1040x Reminders Estimated tax safe harbor for higher income taxpayers. H&r block 1040x  If your 2013 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2014 or 110% of the tax shown on your 2013 return to avoid an estimated tax penalty. H&r block 1040x Introduction This chapter discusses how to pay your tax as you earn or receive income during the year. H&r block 1040x In general, the federal income tax is a pay-as-you-go tax. H&r block 1040x There are two ways to pay as you go. H&r block 1040x Withholding. H&r block 1040x If you are an employee, your employer probably withholds income tax from your pay. H&r block 1040x Tax also may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. H&r block 1040x The amount withheld is paid to the IRS in your name. H&r block 1040x Estimated tax. H&r block 1040x If you do not pay your tax through withholding, or do not pay enough tax that way, you may have to pay estimated tax. H&r block 1040x People who are in business for themselves generally will have to pay their tax this way. H&r block 1040x Also, you may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rent, and royalties. H&r block 1040x Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. H&r block 1040x This chapter explains these methods. H&r block 1040x In addition, it also explains the following. H&r block 1040x Credit for withholding and estimated tax. H&r block 1040x When you file your 2013 income tax return, take credit for all the income tax withheld from your salary, wages, pensions, etc. H&r block 1040x , and for the estimated tax you paid for 2013. H&r block 1040x Also take credit for any excess social security or railroad retirement tax withheld (discussed in chapter 37). H&r block 1040x Underpayment penalty. H&r block 1040x If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. H&r block 1040x In most cases, the IRS can figure this penalty for you. H&r block 1040x See Underpayment Penalty for 2013 at the end of this chapter. H&r block 1040x Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request 1040-ES Estimated Tax for Individuals 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen Tax Withholding for 2014 This section discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. H&r block 1040x This section explains the rules for withholding tax from each of these types of income. H&r block 1040x This section also covers backup withholding on interest, dividends, and other payments. H&r block 1040x Salaries and Wages Income tax is withheld from the pay of most employees. H&r block 1040x Your pay includes your regular pay, bonuses, commissions, and vacation allowances. H&r block 1040x It also includes reimbursements and other expense allowances paid under a nonaccountable plan. H&r block 1040x See Supplemental Wages , later, for more information about reimbursements and allowances paid under a nonaccountable plan. H&r block 1040x If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. H&r block 1040x This is explained under Exemption From Withholding , later. H&r block 1040x You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. H&r block 1040x If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . H&r block 1040x Military retirees. H&r block 1040x   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. H&r block 1040x Household workers. H&r block 1040x   If you are a household worker, you can ask your employer to withhold income tax from your pay. H&r block 1040x A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. H&r block 1040x   Tax is withheld only if you want it withheld and your employer agrees to withhold it. H&r block 1040x If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . H&r block 1040x Farmworkers. H&r block 1040x   Generally, income tax is withheld from your cash wages for work on a farm unless your employer does both of these: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. H&r block 1040x Differential wage payments. H&r block 1040x    When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. H&r block 1040x Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. H&r block 1040x The wages and withholding will be reported on Form W-2, Wage and Tax Statement. H&r block 1040x   The credit employers can claim for differential wages paid to activated military reservists is scheduled to expire for wages paid after December 31, 2013. H&r block 1040x Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. H&r block 1040x The amount you earn in each payroll period. H&r block 1040x The information you give your employer on Form W-4. H&r block 1040x Form W-4 includes four types of information that your employer will use to figure your withholding. H&r block 1040x Whether to withhold at the single rate or at the lower married rate. H&r block 1040x How many withholding allowances you claim (each allowance reduces the amount withheld). H&r block 1040x Whether you want an additional amount withheld. H&r block 1040x Whether you are claiming an exemption from withholding in 2014. H&r block 1040x See Exemption From Withholding , later. H&r block 1040x Note. H&r block 1040x You must specify a filing status and a number of withholding allowances on Form W-4. H&r block 1040x You cannot specify only a dollar amount of withholding. H&r block 1040x New Job When you start a new job, you must fill out Form W-4 and give it to your employer. H&r block 1040x Your employer should have copies of the form. H&r block 1040x If you need to change the information later, you must fill out a new form. H&r block 1040x If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. H&r block 1040x You may be able to avoid overwithholding if your employer agrees to use the part-year method. H&r block 1040x See Part-Year Method in chapter 1 of Publication 505 for more information. H&r block 1040x Employee also receiving pension income. H&r block 1040x   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. H&r block 1040x However, you can choose to split your withholding allowances between your pension and job in any manner. H&r block 1040x Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. H&r block 1040x When this happens, you may need to give your employer a new Form W-4 to change your withholding status or your number of allowances. H&r block 1040x If the changes reduce the number of allowances you are claiming or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. H&r block 1040x Generally, you can submit a new Form W-4 whenever you wish to change the number of your withholding allowances for any other reason. H&r block 1040x Changing your withholding for 2015. H&r block 1040x   If events in 2014 will decrease the number of your withholding allowances for 2015, you must give your employer a new Form W-4 by December 1, 2014. H&r block 1040x If the event occurs in December 2014, submit a new Form W-4 within 10 days. H&r block 1040x Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. H&r block 1040x If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. H&r block 1040x You should try to have your withholding match your actual tax liability. H&r block 1040x If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. H&r block 1040x If too much tax is withheld, you will lose the use of that money until you get your refund. H&r block 1040x Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. H&r block 1040x Note. H&r block 1040x You cannot give your employer a payment to cover withholding on salaries and wages for past pay periods or a payment for estimated tax. H&r block 1040x Completing Form W-4 and Worksheets Form W-4 has worksheets to help you figure how many withholding allowances you can claim. H&r block 1040x The worksheets are for your own records. H&r block 1040x Do not give them to your employer. H&r block 1040x Multiple jobs. H&r block 1040x   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. H&r block 1040x Then split your allowances between the Forms W-4 for each job. H&r block 1040x You cannot claim the same allowances with more than one employer at the same time. H&r block 1040x You can claim all your allowances with one employer and none with the other(s), or divide them any other way. H&r block 1040x Married individuals. H&r block 1040x   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. H&r block 1040x Use only one set of worksheets. H&r block 1040x You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. H&r block 1040x   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. H&r block 1040x Alternative method of figuring withholding allowances. H&r block 1040x   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. H&r block 1040x For more information, see Alternative method of figuring withholding allowances under Completing Form W-4 and Worksheets in Publication 505, chapter 1. H&r block 1040x Personal Allowances Worksheet. H&r block 1040x   Use the Personal Allowances Worksheet on Form W-4 to figure your withholding allowances based on exemptions and any special allowances that apply. H&r block 1040x Deduction and Adjustments Worksheet. H&r block 1040x   Use the Deduction and Adjustments Worksheet on Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. H&r block 1040x Also, complete this worksheet when you have changes to these items to see if you need to change your withholding. H&r block 1040x Two-Earners/Multiple Jobs Worksheet. H&r block 1040x   You may need to complete the Two-Earners/Multiple Jobs Worksheet on Form W-4 if you have more than one job, a working spouse, or are also receiving a pension. H&r block 1040x Also, on this worksheet you can add any additional withholding necessary to cover any amount you expect to owe other than income tax, such as self-employment tax. H&r block 1040x Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. H&r block 1040x You accurately complete all the Form W-4 worksheets that apply to you. H&r block 1040x You give your employer a new Form W-4 when changes occur. H&r block 1040x But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. H&r block 1040x This is most likely to happen in the following situations. H&r block 1040x You are married and both you and your spouse work. H&r block 1040x You have more than one job at a time. H&r block 1040x You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. H&r block 1040x You will owe additional amounts with your return, such as self-employment tax. H&r block 1040x Your withholding is based on obsolete Form W-4 information for a substantial part of the year. H&r block 1040x Your earnings are more than the amount shown under Check your withholding in the instructions at the top of page 1 of Form W-4. H&r block 1040x You work only part of the year. H&r block 1040x You change the number of your withholding allowances during the year. H&r block 1040x Cumulative wage method. H&r block 1040x   If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. H&r block 1040x You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. H&r block 1040x You must ask your employer in writing to use this method. H&r block 1040x   To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. H&r block 1040x ) since the beginning of the year. H&r block 1040x Publication 505 To make sure you are getting the right amount of tax withheld, get Publication 505. H&r block 1040x It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. H&r block 1040x It also will help you determine how much, if any, additional withholding is needed each payday to avoid owing tax when you file your return. H&r block 1040x If you do not have enough tax withheld, you may have to pay estimated tax, as explained under Estimated Tax for 2014 , later. H&r block 1040x You can use the IRS Withholding Calculator at www. H&r block 1040x irs. H&r block 1040x gov/Individuals, instead of Publication 505 or the worksheets included with Form W-4, to determine whether you need to have your withholding increased or decreased. H&r block 1040x Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. H&r block 1040x These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. H&r block 1040x New Form W-4. H&r block 1040x   When you start a new job, your employer should have you complete a Form W-4. H&r block 1040x Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. H&r block 1040x   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. H&r block 1040x The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. H&r block 1040x No Form W-4. H&r block 1040x   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. H&r block 1040x Repaying withheld tax. H&r block 1040x   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. H&r block 1040x Your employer cannot repay any of the tax previously withheld. H&r block 1040x Instead, claim the full amount withheld when you file your tax return. H&r block 1040x   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. H&r block 1040x Your employer can repay the amount that was withheld incorrectly. H&r block 1040x If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. H&r block 1040x Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. H&r block 1040x The exemption applies only to income tax, not to social security or Medicare tax. H&r block 1040x You can claim exemption from withholding for 2014 only if both of the following situations apply. H&r block 1040x For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. H&r block 1040x For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. H&r block 1040x Students. H&r block 1040x   If you are a student, you are not automatically exempt. H&r block 1040x See chapter 1 to find out if you must file a return. H&r block 1040x If you work only part time or only during the summer, you may qualify for exemption from withholding. H&r block 1040x Age 65 or older or blind. H&r block 1040x   If you are 65 or older or blind, use Worksheet 1-3 or 1-4 in chapter 1 of Publication 505, to help you decide if you qualify for exemption from withholding. H&r block 1040x Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. H&r block 1040x Instead, see Itemizing deductions or claiming exemptions or credits in chapter 1 of Publication 505. H&r block 1040x Claiming exemption from withholding. H&r block 1040x   To claim exemption, you must give your employer a Form W-4. H&r block 1040x Do not complete lines 5 and 6. H&r block 1040x Enter “Exempt” on line 7. H&r block 1040x   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. H&r block 1040x If you claim exemption in 2014, but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. H&r block 1040x   Your claim of exempt status may be reviewed by the IRS. H&r block 1040x An exemption is good for only 1 year. H&r block 1040x   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. H&r block 1040x Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. H&r block 1040x The payer can figure withholding on supplemental wages using the same method used for your regular wages. H&r block 1040x However, if these payments are identified separately from your regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. H&r block 1040x Expense allowances. H&r block 1040x   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. H&r block 1040x   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. H&r block 1040x   For more information about accountable and nonaccountable expense allowance plans, see Reimbursements in chapter 26. H&r block 1040x Penalties You may have to pay a penalty of $500 if both of the following apply. H&r block 1040x You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. H&r block 1040x You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. H&r block 1040x There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. H&r block 1040x The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. H&r block 1040x These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. H&r block 1040x A simple error or an honest mistake will not result in one of these penalties. H&r block 1040x For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a W-4 penalty. H&r block 1040x Tips The tips you receive while working on your job are considered part of your pay. H&r block 1040x You must include your tips on your tax return on the same line as your regular pay. H&r block 1040x However, tax is not withheld directly from tip income, as it is from your regular pay. H&r block 1040x Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. H&r block 1040x See chapter 6 for information on reporting your tips to your employer. H&r block 1040x For more information on the withholding rules for tip income, see Publication 531, Reporting Tip Income. H&r block 1040x How employer figures amount to withhold. H&r block 1040x   The tips you report to your employer are counted as part of your income for the month you report them. H&r block 1040x Your employer can figure your withholding in either of two ways. H&r block 1040x By withholding at the regular rate on the sum of your pay plus your reported tips. H&r block 1040x By withholding at the regular rate on your pay plus a percentage of your reported tips. H&r block 1040x Not enough pay to cover taxes. H&r block 1040x   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. H&r block 1040x See Giving your employer money for taxes in chapter 6. H&r block 1040x Allocated tips. H&r block 1040x   Your employer should not withhold income tax, Medicare tax, social security tax, or railroad retirement tax on any allocated tips. H&r block 1040x Withholding is based only on your pay plus your reported tips. H&r block 1040x Your employer should refund to you any incorrectly withheld tax. H&r block 1040x See Allocated Tips in chapter 6 for more information. H&r block 1040x Taxable Fringe Benefits The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. H&r block 1040x Your employer generally must withhold income tax on these benefits from your regular pay. H&r block 1040x For information on fringe benefits, see Fringe Benefits under Employee Compensation in chapter 5. H&r block 1040x Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. H&r block 1040x Your employer must notify you if this choice is made. H&r block 1040x For more information on withholding on taxable fringe benefits, see chapter 1 of Publication 505. H&r block 1040x Sick Pay Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. H&r block 1040x To qualify as sick pay, it must be paid under a plan to which your employer is a party. H&r block 1040x If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. H&r block 1040x An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate. H&r block 1040x However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. H&r block 1040x See Form W-4S , later. H&r block 1040x If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable. H&r block 1040x Union agreements. H&r block 1040x   If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. H&r block 1040x See your union representative or your employer for more information. H&r block 1040x Form W-4S. H&r block 1040x   If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. H&r block 1040x Its instructions contain a worksheet you can use to figure the amount you want withheld. H&r block 1040x They also explain restrictions that may apply. H&r block 1040x   Give the completed form to the payer of your sick pay. H&r block 1040x The payer must withhold according to your directions on the form. H&r block 1040x Estimated tax. H&r block 1040x   If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to make estimated tax payments. H&r block 1040x If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. H&r block 1040x See Underpayment Penalty for 2013 at the end of this chapter. H&r block 1040x Pensions and Annuities Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. H&r block 1040x This rule applies to distributions from: A traditional individual retirement arrangement (IRA); A life insurance company under an endowment, annuity, or life insurance contract; A pension, annuity, or profit-sharing plan; A stock bonus plan; and Any other plan that defers the time you receive compensation. H&r block 1040x The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). H&r block 1040x Income tax withholding from an ERD is mandatory. H&r block 1040x More information. H&r block 1040x   For more information on taxation of annuities and distributions (including ERDs) from qualified retirement plans, see chapter 10. H&r block 1040x For information on IRAs, see chapter 17. H&r block 1040x For more information on withholding on pensions and annuities, including a discussion of Form W-4P, see Pensions and Annuities in chapter 1 of Publication 505. H&r block 1040x Gambling Winnings Income tax is withheld at a flat 25% rate from certain kinds of gambling winnings. H&r block 1040x Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding. H&r block 1040x Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery. H&r block 1040x Any other wager, if the proceeds are at least 300 times the amount of the bet. H&r block 1040x It does not matter whether your winnings are paid in cash, in property, or as an annuity. H&r block 1040x Winnings not paid in cash are taken into account at their fair market value. H&r block 1040x Exception. H&r block 1040x   Gambling winnings from bingo, keno, and slot machines generally are not subject to income tax withholding. H&r block 1040x However, you may need to provide the payer with a social security number to avoid withholding. H&r block 1040x See Backup withholding on gambling winnings in chapter 1 of Publication 505. H&r block 1040x If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. H&r block 1040x See Estimated Tax for 2014 , later. H&r block 1040x If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. H&r block 1040x See Underpayment Penalty for 2013 at the end of this chapter. H&r block 1040x Form W-2G. H&r block 1040x   If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld. H&r block 1040x Report the tax withheld on line 62 of Form 1040. H&r block 1040x Unemployment Compensation You can choose to have income tax withheld from unemployment compensation. H&r block 1040x To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. H&r block 1040x All unemployment compensation is taxable. H&r block 1040x So, if you do not have income tax withheld, you may have to pay estimated tax. H&r block 1040x See Estimated Tax for 2014 , later. H&r block 1040x If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. H&r block 1040x For information, see Underpayment Penalty for 2013 at the end of this chapter. H&r block 1040x Federal Payments You can choose to have income tax withheld from certain federal payments you receive. H&r block 1040x These payments are: Social security benefits, Tier 1 railroad retirement benefits, Commodity credit corporation loans you choose to include in your gross income, Payments under the Agricultural Act of 1949 (7 U. H&r block 1040x S. H&r block 1040x C. H&r block 1040x 1421 et. H&r block 1040x seq. H&r block 1040x ), as amended, or title II of the Disaster Assistance Act of 1988, that are treated as insurance proceeds and that you receive because: Your crops were destroyed or damaged by drought, flood, or any other natural disaster, or You were unable to plant crops because of a natural disaster described in (a), and Any other payment under Federal law as determined by the Secretary. H&r block 1040x To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. H&r block 1040x If you do not choose to have income tax withheld, you may have to pay estimated tax. H&r block 1040x See Estimated Tax for 2014 , later. H&r block 1040x If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. H&r block 1040x For information, see Underpayment Penalty for 2013 at the end of this chapter. H&r block 1040x More information. H&r block 1040x   For more information about the tax treatment of social security and railroad retirement benefits, see chapter 11. H&r block 1040x Get Publication 225, Farmer's Tax Guide, for information about the tax treatment of commodity credit corporation loans or crop disaster payments. H&r block 1040x Backup Withholding Banks or other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. H&r block 1040x The information return shows how much you were paid during the year. H&r block 1040x It also includes your name and taxpayer identification number (TIN). H&r block 1040x TINs are explained in chapter 1 under Social Security Number (SSN) . H&r block 1040x These payments generally are not subject to withholding. H&r block 1040x However, “backup” withholding is required in certain situations. H&r block 1040x Backup withholding can apply to most kinds of payments that are reported on Form 1099. H&r block 1040x The payer must withhold at a flat 28% rate in the following situations. H&r block 1040x You do not give the payer your TIN in the required manner. H&r block 1040x The IRS notifies the payer that the TIN you gave is incorrect. H&r block 1040x You are required, but fail, to certify that you are not subject to backup withholding. H&r block 1040x The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. H&r block 1040x The IRS will do this only after it has mailed you four notices over at least a 210-day period. H&r block 1040x See Backup Withholding in chapter 1 of Publication 505 for more information. H&r block 1040x Penalties. H&r block 1040x   There are civil and criminal penalties for giving false information to avoid backup withholding. H&r block 1040x The civil penalty is $500. H&r block 1040x The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to 1 year, or both. H&r block 1040x Estimated Tax for 2014 Estimated tax is the method used to pay tax on income that is not subject to withholding. H&r block 1040x This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. H&r block 1040x You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. H&r block 1040x Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. H&r block 1040x If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. H&r block 1040x If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax , later), you may be charged a penalty even if you are due a refund when you file your tax return. H&r block 1040x For information on when the penalty applies, see Underpayment Penalty for 2013 at the end of this chapter. H&r block 1040x Who Does Not Have To Pay Estimated Tax If you receive salaries or wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. H&r block 1040x To do this, give a new Form W-4 to your employer. H&r block 1040x See chapter 1 of Publication 505. H&r block 1040x Estimated tax not required. H&r block 1040x   You do not have to pay estimated tax for 2014 if you meet all three of the following conditions. H&r block 1040x You had no tax liability for 2013. H&r block 1040x You were a U. H&r block 1040x S. H&r block 1040x citizen or resident alien for the whole year. H&r block 1040x Your 2013 tax year covered a 12-month period. H&r block 1040x   You had no tax liability for 2013 if your total tax was zero or you did not have to file an income tax return. H&r block 1040x For the definition of “total tax” for 2013, see Publication 505, chapter 2. H&r block 1040x Who Must Pay Estimated Tax If you owe additional tax for 2013, you may have to pay estimated tax for 2014. H&r block 1040x You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. H&r block 1040x General rule. H&r block 1040x   In most cases, you must pay estimated tax for 2014 if both of the following apply. H&r block 1040x You expect to owe at least $1,000 in tax for 2014, after subtracting your withholding and refundable credits. H&r block 1040x You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers, later). H&r block 1040x Your 2013 tax return must cover all 12 months. H&r block 1040x    If the result from using the general rule above suggests that you will not have enough withholding, complete the 2014 Estimated Tax Worksheet in Publication 505 for a more accurate calculation. H&r block 1040x Special rules for farmers, fishermen, and higher income taxpayers. H&r block 1040x   If at least two-thirds of your gross income for tax year 2013 or 2014 is from farming or fishing, substitute 662/3% for 90% in (2a) under the General rule, earlier. H&r block 1040x If your AGI for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing a separate return), substitute 110% for 100% in (2b) under General rule , earlier. H&r block 1040x See Figure 4-A and Publication 505, chapter 2 for more information. H&r block 1040x Figure 4-A. H&r block 1040x Do You Have To Pay Estimated Tax? Please click here for the text description of the image. H&r block 1040x Figure 4-A Do You Have To Pay Estimated Tax? Aliens. H&r block 1040x   Resident and nonresident aliens also may have to pay estimated tax. H&r block 1040x Resident aliens should follow the rules in this chapter unless noted otherwise. H&r block 1040x Nonresident aliens should get Form 1040-ES (NR), U. H&r block 1040x S. H&r block 1040x Estimated Tax for Nonresident Alien Individuals. H&r block 1040x   You are an alien if you are not a citizen or national of the United States. H&r block 1040x You are a resident alien if you either have a green card or meet the substantial presence test. H&r block 1040x For more information about the substantial presence test, see Publication 519, U. H&r block 1040x S. H&r block 1040x Tax Guide for Aliens. H&r block 1040x Married taxpayers. H&r block 1040x   If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income. H&r block 1040x   You and your spouse can make joint estimated tax payments even if you are not living together. H&r block 1040x   However, you and your spouse cannot make joint estimated tax payments if:  You are legally separated under a decree of divorce or separate maintenance, You and your spouse have different tax years, or Either spouse is a nonresident alien (unless that spouse elected to be treated as a resident alien for tax purposes (see chapter 1 of Publication 519)). H&r block 1040x   If you do not qualify to make joint estimated tax payments, apply these rules to your separate estimated income. H&r block 1040x Making joint or separate estimated tax payments will not affect your choice of filing a joint tax return or separate returns for 2014. H&r block 1040x 2013 separate returns and 2014 joint return. H&r block 1040x   If you plan to file a joint return with your spouse for 2014, but you filed separate returns for 2013, your 2013 tax is the total of the tax shown on your separate returns. H&r block 1040x You filed a separate return if you filed as single, head of household, or married filing separately. H&r block 1040x 2013 joint return and 2014 separate returns. H&r block 1040x   If you plan to file a separate return for 2014 but you filed a joint return for 2013, your 2013 tax is your share of the tax on the joint return. H&r block 1040x You file a separate return if you file as single, head of household, or married filing separately. H&r block 1040x   To figure your share of the tax on the joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2013 using the same filing status as for 2014. H&r block 1040x Then multiply the tax on the joint return by the following fraction. H&r block 1040x     The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. H&r block 1040x Joe and Heather filed a joint return for 2013 showing taxable income of $48,500 and a tax of $6,386. H&r block 1040x Of the $48,500 taxable income, $40,100 was Joe's and the rest was Heather's. H&r block 1040x For 2014, they plan to file married filing separately. H&r block 1040x Joe figures his share of the tax on the 2013 joint return as follows. H&r block 1040x   Tax on $40,100 based on a separate return $5,960     Tax on $8,400 based on a separate return 843     Total $6,803     Joe's percentage of total ($5,960 ÷ $6,803) 87. H&r block 1040x 6%     Joe's share of tax on joint return  ($6,386 × 87. H&r block 1040x 6%) $5,594   How To Figure Estimated Tax To figure your estimated tax, you must figure your expected adjusted gross income (AGI), taxable income, taxes, deductions, and credits for the year. H&r block 1040x When figuring your 2014 estimated tax, it may be helpful to use your income, deductions, and credits for 2013 as a starting point. H&r block 1040x Use your 2013 federal tax return as a guide. H&r block 1040x You can use Form 1040-ES and Publication 505 to figure your estimated tax. H&r block 1040x Nonresident aliens use Form 1040-ES (NR) and Publication 505 to figure estimated tax (see chapter 8 of Publication 519 for more information). H&r block 1040x You must make adjustments both for changes in your own situation and for recent changes in the tax law. H&r block 1040x For a discussion of these changes, visit IRS. H&r block 1040x gov. H&r block 1040x For more complete information on how to figure your estimated tax for 2014, see chapter 2 of Publication 505. H&r block 1040x When To Pay Estimated Tax For estimated tax purposes, the tax year is divided into four payment periods. H&r block 1040x Each period has a specific payment due date. H&r block 1040x If you do not pay enough tax by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your income tax return. H&r block 1040x The payment periods and due dates for estimated tax payments are shown next. H&r block 1040x   For the period: Due date:*     Jan. H&r block 1040x 1 – March 31 April 15     April 1 – May 31 June 16     June 1 – August 31 Sept. H&r block 1040x 15     Sept. H&r block 1040x 1– Dec. H&r block 1040x 31 Jan. H&r block 1040x 15, next year     *See Saturday, Sunday, holiday rule and January payment . H&r block 1040x Saturday, Sunday, holiday rule. H&r block 1040x   If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday. H&r block 1040x January payment. H&r block 1040x   If you file your 2014 Form 1040 or Form 1040A by January 31, 2015, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2015. H&r block 1040x Fiscal year taxpayers. H&r block 1040x   If your tax year does not start on January 1, see the Form 1040-ES instructions for your payment due dates. H&r block 1040x When To Start You do not have to make estimated tax payments until you have income on which you will owe income tax. H&r block 1040x If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. H&r block 1040x You can pay all your estimated tax at that time, or you can pay it in installments. H&r block 1040x If you choose to pay in installments, make your first payment by the due date for the first payment period. H&r block 1040x Make your remaining installment payments by the due dates for the later periods. H&r block 1040x No income subject to estimated tax during first period. H&r block 1040x    If you do not have income subject to estimated tax until a later payment period, you must make your first payment by the due date for that period. H&r block 1040x You can pay your entire estimated tax by the due date for that period or you can pay it in installments by the due date for that period and the due dates for the remaining periods. H&r block 1040x The following chart shows when to make installment payments. H&r block 1040x If you first have income on which you must pay estimated tax: Make a payment  by:* Make later installments by:* Before April 1 April 15 June 16 Sept. H&r block 1040x 15 Jan. H&r block 1040x 15 next year April 1–May 31 June 16 Sept. H&r block 1040x 15 Jan. H&r block 1040x 15 next year June 1–Aug. H&r block 1040x 31 Sept. H&r block 1040x 15 Jan. H&r block 1040x 15 next year After Aug. H&r block 1040x 31 Jan. H&r block 1040x 15 next year (None) *See Saturday, Sunday, holiday rule and January payment . H&r block 1040x How much to pay to avoid a penalty. H&r block 1040x   To determine how much you should pay by each payment due date, see How To Figure Each Payment, next. H&r block 1040x How To Figure Each Payment You should pay enough estimated tax by the due date of each payment period to avoid a penalty for that period. H&r block 1040x You can figure your required payment for each period by using either the regular installment method or the annualized income installment method. H&r block 1040x These methods are described in chapter 2 of Publication 505. H&r block 1040x If you do not pay enough during each payment period, you may be charged a penalty even if you are due a refund when you file your tax return. H&r block 1040x If the earlier discussion of No income subject to estimated tax during first period or the later discussion of Change in estimated tax applies to you, you may benefit from reading Annualized Income Installment Method in chapter 2 of Publication 505 for information on how to avoid a penalty. H&r block 1040x Underpayment penalty. H&r block 1040x   Under the regular installment method, if your estimated tax payment for any period is less than one-fourth of your estimated tax, you may be charged a penalty for underpayment of estimated tax for that period when you file your tax return. H&r block 1040x Under the annualized income installment method, your estimated tax payments vary with your income, but the amount required must be paid each period. H&r block 1040x See chapter 4 of Publication 505 for more information. H&r block 1040x Change in estimated tax. H&r block 1040x   After you make an estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. H&r block 1040x Pay the unpaid balance of your amended estimated tax by the next payment due date after the change or in installments by that date and the due dates for the remaining payment periods. H&r block 1040x Estimated Tax Payments Not Required You do not have to pay estimated tax if your withholding in each payment period is at least as much as: One-fourth of your required annual payment, or Your required annualized income installment for that period. H&r block 1040x You also do not have to pay estimated tax if you will pay enough through withholding to keep the amount you owe with your return under $1,000. H&r block 1040x How To Pay Estimated Tax There are several ways to pay estimated tax. H&r block 1040x Credit an overpayment on your 2013 return to your 2014 estimated tax. H&r block 1040x Pay by direct transfer from your bank account, or pay by credit or debit card using a pay-by-phone system or the Internet. H&r block 1040x Send in your payment (check or money order) with a payment voucher from Form 1040-ES. H&r block 1040x Credit an Overpayment If you show an overpayment of tax after completing your Form 1040 or Form 1040A for 2013, you can apply part or all of it to your estimated tax for 2014. H&r block 1040x On line 75 of Form 1040, or line 44 of Form 1040A, enter the amount you want credited to your estimated tax rather than refunded. H&r block 1040x Take the amount you have credited into account when figuring your estimated tax payments. H&r block 1040x You cannot have any of the amount you credited to your estimated tax refunded to you until you file your tax return for the following year. H&r block 1040x You also cannot use that overpayment in any other way. H&r block 1040x Pay Online Paying online is convenient and secure and helps make sure we get your payments on time. H&r block 1040x You can pay using either of the following electronic payment methods. H&r block 1040x Direct transfer from your bank account. H&r block 1040x Credit or debit card. H&r block 1040x To pay your taxes online or for more information, go to www. H&r block 1040x irs. H&r block 1040x gov/e-pay. H&r block 1040x Pay by Phone Paying by phone is another safe and secure method of paying electronically. H&r block 1040x Use one of the following methods. H&r block 1040x Direct transfer from your bank account. H&r block 1040x Credit or debit card. H&r block 1040x To pay by direct transfer from your bank account, call 1-800-555-4477 (English), 1-800-244-4829 (Espanol). H&r block 1040x People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD can call 1-800-733-4829. H&r block 1040x To pay using a credit or debit card, you can call one of the following service providers. H&r block 1040x There is a convenience fee charged by these providers that varies by provider, card type, and payment amount. H&r block 1040x WorldPay 1-888-9-PAY-TAXTM(1-888-972-9829) www. H&r block 1040x payUSAtax. H&r block 1040x com Official Payments Corporation 1-888-UPAY-TAXTM (1-888-872-9829) www. H&r block 1040x officialpayments. H&r block 1040x com Link2Gov Corporation 1-888-PAY-1040TM (1-888-729-1040) www. H&r block 1040x PAY1040. H&r block 1040x com For the latest details on how to pay by phone, go to www. H&r block 1040x irs. H&r block 1040x gov/e-pay. H&r block 1040x Pay by Check or Money Order Using the Estimated Tax Payment Voucher Each payment of estimated tax by check or money order must be accompanied by a payment voucher from Form 1040-ES. H&r block 1040x During 2013, if you: made at least one estimated tax payment but not by electronic means, did not use software or a paid preparer to prepare or file your return,  then you should receive a copy of the 2014 Form 1040-ES/V. H&r block 1040x The enclosed payment vouchers will be preprinted with your name, address, and social security number. H&r block 1040x Using the preprinted vouchers will speed processing, reduce the chance of error, and help save processing costs. H&r block 1040x Use the window envelopes that came with your Form 1040-ES package. H&r block 1040x If you use your own envelopes, make sure you mail your payment vouchers to the address shown in the Form 1040-ES instructions for the place where you live. H&r block 1040x Note. H&r block 1040x These criteria can change without notice. H&r block 1040x If you do not receive a Form 1040-ES/V package and you are required to make an estimated tax payment, you should go to www. H&r block 1040x irs. H&r block 1040x gov and print a copy of Form 1040-ES which includes four blank payment vouchers. H&r block 1040x Complete one of these and make your payment timely to avoid penalties for paying late. H&r block 1040x Do not use the address shown in the Form 1040 or Form 1040A instructions for your estimated tax payments. H&r block 1040x If you did not pay estimated tax last year, you can order Form 1040-ES from the IRS (see inside back cover of this publication) or download it from IRS. H&r block 1040x gov. H&r block 1040x Follow the instructions to make sure you use the vouchers correctly. H&r block 1040x Joint estimated tax payments. H&r block 1040x   If you file a joint return and are making joint estimated tax payments, enter the names and social security numbers on the payment voucher in the same order as they will appear on the joint return. H&r block 1040x Change of address. H&r block 1040x   You must notify the IRS if you are making estimated tax payments and you changed your address during the year. H&r block 1040x Complete Form 8822, Change of Address, and mail it to the address shown in the instructions for that form. H&r block 1040x Credit for Withholding and Estimated Tax for 2013 When you file your 2013 income tax return, take credit for all the income tax and excess social security or railroad retirement tax withheld from your salary, wages, pensions, etc. H&r block 1040x Also take credit for the estimated tax you paid for 2013. H&r block 1040x These credits are subtracted from your total tax. H&r block 1040x Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. H&r block 1040x Two or more employers. H&r block 1040x   If you had two or more employers in 2013 and were paid wages of more than $113,700, too much social security or tier 1 railroad retirement tax may have been withheld from your pay. H&r block 1040x You may be able to claim the excess as a credit against your income tax when you file your return. H&r block 1040x See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld in chapter 37. H&r block 1040x Withholding If you had income tax withheld during 2013, you should be sent a statement by January 31, 2014, showing your income and the tax withheld. H&r block 1040x Depending on the source of your income, you should receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. H&r block 1040x Forms W-2 and W-2G. H&r block 1040x   If you file a paper return, always file Form W-2 with your income tax return. H&r block 1040x File Form W-2G with your return only if it shows any federal income tax withheld from your winnings. H&r block 1040x   You should get at least two copies of each form. H&r block 1040x If you file a paper return, attach one copy to the front of your federal income tax return. H&r block 1040x Keep one copy for your records. H&r block 1040x You also should receive copies to file with your state and local returns. H&r block 1040x Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. H&r block 1040x You should receive a separate Form W-2 from each employer you worked for. H&r block 1040x If you stopped working before the end of 2013, your employer could have given you your Form W-2 at any time after you stopped working. H&r block 1040x However, your employer must provide or send it to you by January 31, 2014. H&r block 1040x If you ask for the form, your employer must send it to you within 30 days after receiving your written request or within 30 days after your final wage payment, whichever is later. H&r block 1040x If you have not received your Form W-2 by January 31, you should ask your employer for it. H&r block 1040x If you do not receive it by February 15, call the IRS. H&r block 1040x Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. H&r block 1040x Include the federal income tax withheld (as shown in box 2 of Form W-2) on: Line 62 if you file Form 1040, Line 36 if you file Form 1040A, or Line 7 if you file Form 1040EZ. H&r block 1040x In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. H&r block 1040x Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. H&r block 1040x If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. H&r block 1040x Report the amounts you won on line 21 of Form 1040. H&r block 1040x Take credit for the tax withheld on line 62 of Form 1040. H&r block 1040x If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. H&r block 1040x The 1099 Series Most forms in the 1099 series are not filed with your return. H&r block 1040x These forms should be furnished to you by January 31, 2014 (or, for Forms 1099-B, 1099-S, and certain Forms 1099-MISC, by February 15, 2014). H&r block 1040x Unless instructed to file any of these forms with your return, keep them for your records. H&r block 1040x There are several different forms in this series, including: Form 1099-B, Proceeds From Broker and Barter Exchange Transactions; Form 1099-DIV, Dividends and Distributions; Form 1099-G, Certain Government Payments; Form 1099-INT, Interest Income; Form 1099-K, Payment Card and Third Party Network Transactions; Form 1099-MISC, Miscellaneous Income; Form 1099-OID, Original Issue Discount; Form 1099-PATR, Taxable Distributions Received from Cooperatives; Form 1099-Q, Payments From Qualified Education Programs; Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. H&r block 1040x ; Form 1099-S, Proceeds From Real Estate Transactions; Form RRB-1099, Payments by the Railroad Retirement Board. H&r block 1040x If you received the types of income reported on some forms in the 1099 series, you may not be able to use Form 1040A or Form 1040EZ. H&r block 1040x See the instructions to these forms for details. H&r block 1040x Form 1099-R. H&r block 1040x   Attach Form 1099-R to your paper return if box 4 shows federal income tax withheld. H&r block 1040x Include the amount withheld in the total on line 62 of Form 1040 or line 36 of Form 1040A. H&r block 1040x You cannot use Form 1040EZ if you received payments reported on Form 1099-R. H&r block 1040x Backup withholding. H&r block 1040x   If you were subject to backup withholding on income you received during 2013, include the amount withheld, as shown on your Form 1099, in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. H&r block 1040x Form Not Correct If you receive a form with incorrect information on it, you should ask the payer for a corrected form. H&r block 1040x Call the telephone number or write to the address given for the payer on the form. H&r block 1040x The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. H&r block 1040x A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. H&r block 1040x In certain situations, you will receive two forms in place of the original incorrect form. H&r block 1040x This will happen when your taxpayer identification number is wrong or missing, your name and address are wrong, or you received the wrong type of form (for example, a Form 1099-DIV instead of a Form 1099-INT). H&r block 1040x One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. H&r block 1040x This form will have an “X” in the “CORRECTED” box at the top of the form. H&r block 1040x The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). H&r block 1040x Form Received After Filing If you file your return and you later receive a form for income that you did not include on your return, you should report the income and take credit for any income tax withheld by filing Form 1040X, Amended U. H&r block 1040x S. H&r block 1040x Individual Income Tax Return. H&r block 1040x Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. H&r block 1040x Do not include any amount withheld from your spouse's income. H&r block 1040x However, different rules may apply if you live in a community property state. H&r block 1040x Community property states are listed in chapter 2. H&r block 1040x For more information on these rules, and some exceptions, see Publication 555, Community Property. H&r block 1040x Fiscal Years If you file your tax return on the basis of a fiscal year (a 12-month period ending on the last day of any month except December), you must follow special rules to determine your credit for federal income tax withholding. H&r block 1040x For a discussion of how to take credit for withholding on a fiscal year return, see Fiscal Years (FY) in chapter 3 of Publication 505. H&r block 1040x Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. H&r block 1040x Include any overpayment from 2012 that you had credited to your 2013 estimated tax. H&r block 1040x You must use Form 1040 or Form 1040A if you paid estimated tax. H&r block 1040x You cannot use Form 1040EZ. H&r block 1040x Name changed. H&r block 1040x   If you changed your name, and you made estimated tax payments using your old name, attach a brief statement to the front of your paper tax return indicating: When you made the payments, The amount of each payment, Your name when you made the payments, and Your social security number. H&r block 1040x The statement should cover payments you made jointly with your spouse as well as any you made separately. H&r block 1040x   Be sure to report the change to the Social Security Administration. H&r block 1040x This prevents delays in processing your return and issuing any refunds. H&r block 1040x Separate Returns If you and your spouse made separate estimated tax payments for 2013 and you file separate returns, you can take credit only for your own payments. H&r block 1040x If you made joint estimated tax payments, you must decide how to divide the payments between your returns. H&r block 1040x One of you can claim all of the estimated tax paid and the other none, or you can divide it in any other way you agree on. H&r block 1040x If you cannot agree, you must divide the payments in proportion to each spouse's individual tax as shown on your separate returns for 2013. H&r block 1040x Divorced Taxpayers If you made joint estimated tax payments for 2013, and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. H&r block 1040x If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse's individual tax as shown on your separate returns for 2013. H&r block 1040x If you claim any of the joint payments on your tax return, enter your former spouse's social security number (SSN) in the space provided on the front of Form 1040 or Form 1040A. H&r block 1040x If you divorced and remarried in 2013, enter your present spouse's SSN in that space and write your former spouse's SSN, followed by “DIV,” to the left of Form 1040, line 63, or Form 1040A, line 37. H&r block 1040x Underpayment Penalty for 2013 If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have an underpayment of estimated tax and you may have to pay a penalty. H&r block 1040x Generally, you will not have to pay a penalty for 2013 if any of the following apply. H&r block 1040x The total of your withholding and estimated tax payments was at least as much as your 2012 tax (or 110% of your 2012 tax if your AGI was more than $150,000, $75,000 if your 2013 filing status is married filing separately) and you paid all required estimated tax payments on time. H&r block 1040x The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. H&r block 1040x Your total 2013 tax minus your withholding and refundable credits is less than $1,000. H&r block 1040x You did not have a tax liability for 2012 and your 2012 tax year was 12 months, or You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000. H&r block 1040x See Publication 505, chapter 4, for a definition of “total tax” for 2012 and 2013. H&r block 1040x Farmers and fishermen. H&r block 1040x   Special rules apply if you are a farmer or fisherman. H&r block 1040x See Farmers and Fishermen in chapter 4 of Publication 505 for more information. H&r block 1040x IRS can figure the penalty for you. H&r block 1040x   If you think you owe the penalty but you do not want to figure it yourself when you file your tax return, you may not have to. H&r block 1040x Generally, the IRS will figure the penalty for you and send you a bill. H&r block 1040x However, if you think you are able to lower or eliminate your penalty, you must complete Form 2210 or Form 2210-F and attach it to your paper return. H&r block 1040x See chapter 4 of Publication 505. H&r block 1040x Prev  Up  Next   Home   More Online Publications
 
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The H&r Block 1040x

H&r block 1040x 6. H&r block 1040x   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. H&r block 1040x Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. H&r block 1040x Also use basis to figure depreciation, amortization, depletion, and casualty losses. H&r block 1040x If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. H&r block 1040x Only the basis allocated to the business or investment use of the property can be depreciated. H&r block 1040x Your original basis in property is adjusted (increased or decreased) by certain events. H&r block 1040x For example, if you make improvements to the property, increase your basis. H&r block 1040x If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. H&r block 1040x Keep accurate records of all items that affect the basis of your assets. H&r block 1040x For information on keeping records, see chapter 1. H&r block 1040x Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. H&r block 1040x Cost Basis The basis of property you buy is usually its cost. H&r block 1040x Cost is the amount you pay in cash, debt obligations, other property, or services. H&r block 1040x Your cost includes amounts you pay for sales tax, freight, installation, and testing. H&r block 1040x The basis of real estate and business assets will include other items, discussed later. H&r block 1040x Basis generally does not include interest payments. H&r block 1040x However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. H&r block 1040x You also may have to capitalize (add to basis) certain other costs related to buying or producing property. H&r block 1040x Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. H&r block 1040x Loans with low or no interest. H&r block 1040x   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. H&r block 1040x You generally have unstated interest if your interest rate is less than the applicable federal rate. H&r block 1040x See the discussion of unstated interest in Publication 537, Installment Sales. H&r block 1040x Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. H&r block 1040x If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. H&r block 1040x Some of these expenses are discussed next. H&r block 1040x Lump sum purchase. H&r block 1040x   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. H&r block 1040x Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. H&r block 1040x Figure the basis of each asset by multiplying the lump sum by a fraction. H&r block 1040x The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. H&r block 1040x Fair market value (FMV). H&r block 1040x   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. H&r block 1040x Sales of similar property on or about the same date may help in figuring the FMV of the property. H&r block 1040x If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. H&r block 1040x Real estate taxes. H&r block 1040x   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. H&r block 1040x   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. H&r block 1040x Whether or not you reimburse the seller, do not include that amount in the basis of your property. H&r block 1040x Settlement costs. H&r block 1040x   Your basis includes the settlement fees and closing costs for buying the property. H&r block 1040x See Publication 551 for a detailed list of items you can and cannot include in basis. H&r block 1040x   Do not include fees and costs for getting a loan on the property. H&r block 1040x Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. H&r block 1040x Points. H&r block 1040x   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. H&r block 1040x You may be able to deduct the points currently or over the term of the loan. H&r block 1040x For more information about deducting points, see Points in chapter 4 of Publication 535. H&r block 1040x Assumption of a mortgage. H&r block 1040x   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. H&r block 1040x Example. H&r block 1040x If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. H&r block 1040x Constructing assets. H&r block 1040x   If you build property or have assets built for you, your expenses for this construction are part of your basis. H&r block 1040x Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. H&r block 1040x   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. H&r block 1040x You must capitalize them (include them in the asset's basis). H&r block 1040x Employee wages paid for the construction work, reduced by any employment credits allowed. H&r block 1040x Depreciation on equipment you own while it is used in the construction. H&r block 1040x Operating and maintenance costs for equipment used in the construction. H&r block 1040x The cost of business supplies and materials used in the construction. H&r block 1040x    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. H&r block 1040x Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. H&r block 1040x To determine the basis of these assets or separate items, there must be an allocation of basis. H&r block 1040x Group of assets acquired. H&r block 1040x   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. H&r block 1040x Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. H&r block 1040x You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. H&r block 1040x If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. H&r block 1040x Farming business acquired. H&r block 1040x   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. H&r block 1040x Generally, reduce the purchase price by any cash received. H&r block 1040x Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. H&r block 1040x See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. H&r block 1040x Transplanted embryo. H&r block 1040x   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. H&r block 1040x Allocate the rest of the purchase price to the basis of the calf. H&r block 1040x Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. H&r block 1040x Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. H&r block 1040x You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. H&r block 1040x Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. H&r block 1040x However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. H&r block 1040x You produce property if you construct, build, install, manufacture, develop, improve, or create the property. H&r block 1040x You are not subject to the uniform capitalization rules if the property is produced for personal use. H&r block 1040x In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. H&r block 1040x Plants. H&r block 1040x   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. H&r block 1040x Animals. H&r block 1040x   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. H&r block 1040x The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. H&r block 1040x Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. H&r block 1040x For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. H&r block 1040x For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. H&r block 1040x Exceptions. H&r block 1040x   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. H&r block 1040x   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. H&r block 1040x See Accrual Method Required under Accounting Methods in chapter 2. H&r block 1040x   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. H&r block 1040x If you make this election, special rules apply. H&r block 1040x This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. H&r block 1040x This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. H&r block 1040x    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. H&r block 1040x See chapter 7, for additional information on depreciation. H&r block 1040x Example. H&r block 1040x You grow trees that have a preproductive period of more than 2 years. H&r block 1040x The trees produce an annual crop. H&r block 1040x You are an individual and the uniform capitalization rules apply to your farming business. H&r block 1040x You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. H&r block 1040x You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. H&r block 1040x Preproductive period of more than 2 years. H&r block 1040x   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. H&r block 1040x Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. H&r block 1040x Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. H&r block 1040x More information. H&r block 1040x   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. H&r block 1040x 263A-4. H&r block 1040x Table 6-1. H&r block 1040x Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. H&r block 1040x Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. H&r block 1040x The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. H&r block 1040x Increases to Basis Increase the basis of any property by all items properly added to a capital account. H&r block 1040x These include the cost of any improvements having a useful life of more than 1 year. H&r block 1040x The following costs increase the basis of property. H&r block 1040x The cost of extending utility service lines to property. H&r block 1040x Legal fees, such as the cost of defending and perfecting title. H&r block 1040x Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. H&r block 1040x Assessments for items such as paving roads and building ditches that increase the value of the property assessed. H&r block 1040x Do not deduct these expenses as taxes. H&r block 1040x However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. H&r block 1040x If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. H&r block 1040x See chapter 7. H&r block 1040x Deducting vs. H&r block 1040x capitalizing costs. H&r block 1040x   Do not add to your basis costs you can deduct as current expenses. H&r block 1040x For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. H&r block 1040x However, you can elect either to deduct or to capitalize certain other costs. H&r block 1040x See chapter 7 in Publication 535. H&r block 1040x Decreases to Basis The following are some items that reduce the basis of property. H&r block 1040x Section 179 deduction. H&r block 1040x Deductions previously allowed or allowable for amortization, depreciation, and depletion. H&r block 1040x Alternative motor vehicle credit. H&r block 1040x See Form 8910. H&r block 1040x Alternative fuel vehicle refueling property credit. H&r block 1040x See Form 8911. H&r block 1040x Residential energy efficient property credits. H&r block 1040x See Form 5695. H&r block 1040x Investment credit (part or all) taken. H&r block 1040x Casualty and theft losses and insurance reimbursements. H&r block 1040x Payments you receive for granting an easement. H&r block 1040x Exclusion from income of subsidies for energy conservation measures. H&r block 1040x Certain canceled debt excluded from income. H&r block 1040x Rebates from a manufacturer or seller. H&r block 1040x Patronage dividends received from a cooperative association as a result of a purchase of property. H&r block 1040x See Patronage Dividends in chapter 3. H&r block 1040x Gas-guzzler tax. H&r block 1040x See Form 6197. H&r block 1040x Some of these items are discussed next. H&r block 1040x For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. H&r block 1040x Depreciation and section 179 deduction. H&r block 1040x   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. H&r block 1040x For more information on these deductions, see chapter 7. H&r block 1040x Section 179 deduction. H&r block 1040x   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. H&r block 1040x Depreciation. H&r block 1040x   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. H&r block 1040x If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. H&r block 1040x If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. H&r block 1040x   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. H&r block 1040x   See chapter 7 for information on figuring the depreciation you should have claimed. H&r block 1040x   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. H&r block 1040x Casualty and theft losses. H&r block 1040x   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. H&r block 1040x Also, decrease it by any deductible loss not covered by insurance. H&r block 1040x See chapter 11 for information about figuring your casualty or theft loss. H&r block 1040x   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. H&r block 1040x To make this determination, compare the repaired property to the property before the casualty. H&r block 1040x Easements. H&r block 1040x   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. H&r block 1040x It reduces the basis of the affected part of the property. H&r block 1040x If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. H&r block 1040x See Easements and rights-of-way in chapter 3. H&r block 1040x Exclusion from income of subsidies for energy conservation measures. H&r block 1040x   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. H&r block 1040x Reduce the basis of the property by the excluded amount. H&r block 1040x Canceled debt excluded from income. H&r block 1040x   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. H&r block 1040x A debt includes any indebtedness for which you are liable or which attaches to property you hold. H&r block 1040x   You can exclude your canceled debt from income if the debt is any of the following. H&r block 1040x Debt canceled in a bankruptcy case or when you are insolvent. H&r block 1040x Qualified farm debt. H&r block 1040x Qualified real property business debt (provided you are not a C corporation). H&r block 1040x Qualified principal residence indebtedness. H&r block 1040x Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. H&r block 1040x If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. H&r block 1040x If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. H&r block 1040x   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. H&r block 1040x For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. H&r block 1040x For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. H&r block 1040x For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. H&r block 1040x Basis Other Than Cost There are times when you cannot use cost as basis. H&r block 1040x In these situations, the fair market value or the adjusted basis of property may be used. H&r block 1040x Examples are discussed next. H&r block 1040x Property changed from personal to business or rental use. H&r block 1040x   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. H&r block 1040x An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. H&r block 1040x   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. H&r block 1040x   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. H&r block 1040x The basis for figuring a gain is your adjusted basis in the property when you sell the property. H&r block 1040x Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. H&r block 1040x Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . H&r block 1040x Property received for services. H&r block 1040x   If you receive property for services, include the property's FMV in income. H&r block 1040x The amount you include in income becomes your basis. H&r block 1040x If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. H&r block 1040x Example. H&r block 1040x George Smith is an accountant and also operates a farming business. H&r block 1040x George agreed to do some accounting work for his neighbor in exchange for a dairy cow. H&r block 1040x The accounting work and the cow are each worth $1,500. H&r block 1040x George must include $1,500 in income for his accounting services. H&r block 1040x George's basis in the cow is $1,500. H&r block 1040x Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. H&r block 1040x A taxable gain or deductible loss also is known as a recognized gain or loss. H&r block 1040x A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. H&r block 1040x If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. H&r block 1040x Example. H&r block 1040x You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. H&r block 1040x You must report a taxable gain of $4,000 for the land. H&r block 1040x The tractor has a basis of $6,000. H&r block 1040x Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. H&r block 1040x Similar or related property. H&r block 1040x   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. H&r block 1040x However, make the following adjustments. H&r block 1040x Decrease the basis by the following amounts. H&r block 1040x Any loss you recognize on the involuntary conversion. H&r block 1040x Any money you receive that you do not spend on similar property. H&r block 1040x Increase the basis by the following amounts. H&r block 1040x Any gain you recognize on the involuntary conversion. H&r block 1040x Any cost of acquiring the replacement property. H&r block 1040x Money or property not similar or related. H&r block 1040x   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. H&r block 1040x Allocating the basis. H&r block 1040x   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. H&r block 1040x Basis for depreciation. H&r block 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. H&r block 1040x For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. H&r block 1040x For more information about involuntary conversions, see chapter 11. H&r block 1040x Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. H&r block 1040x A nontaxable gain or loss also is known as an unrecognized gain or loss. H&r block 1040x If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. H&r block 1040x Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. H&r block 1040x For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. H&r block 1040x There must also be an exchange of like-kind property. H&r block 1040x For more information, see Like-Kind Exchanges in  chapter 8. H&r block 1040x The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. H&r block 1040x Example 1. H&r block 1040x You traded a truck you used in your farming business for a new smaller truck to use in farming. H&r block 1040x The adjusted basis of the old truck was $10,000. H&r block 1040x The FMV of the new truck is $30,000. H&r block 1040x Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. H&r block 1040x Example 2. H&r block 1040x You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). H&r block 1040x You use both the field cultivator and the planter in your farming business. H&r block 1040x The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. H&r block 1040x   Exchange expenses generally are the closing costs that you pay. H&r block 1040x They include such items as brokerage commissions, attorney fees, and deed preparation fees. H&r block 1040x Add them to the basis of the like-kind property you receive. H&r block 1040x Property plus cash. H&r block 1040x   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. H&r block 1040x Example. H&r block 1040x You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. H&r block 1040x Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). H&r block 1040x Special rules for related persons. H&r block 1040x   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. H&r block 1040x Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. H&r block 1040x Each person reports it on the tax return filed for the year in which the later disposition occurred. H&r block 1040x If this rule applies, the basis of the property received in the original exchange will be its FMV. H&r block 1040x For more information, see chapter 8. H&r block 1040x Exchange of business property. H&r block 1040x   Exchanging the property of one business for the property of another business generally is a multiple property exchange. H&r block 1040x For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. H&r block 1040x Basis for depreciation. H&r block 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. H&r block 1040x For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. H&r block 1040x Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. H&r block 1040x The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. H&r block 1040x Decrease the basis by the following amounts. H&r block 1040x Any money you receive. H&r block 1040x Any loss you recognize on the exchange. H&r block 1040x Increase the basis by the following amounts. H&r block 1040x Any additional costs you incur. H&r block 1040x Any gain you recognize on the exchange. H&r block 1040x If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. H&r block 1040x Example 1. H&r block 1040x You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. H&r block 1040x You realize a gain of $40,000. H&r block 1040x This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). H&r block 1040x Include your gain in income (recognize gain) only to the extent of the cash received. H&r block 1040x Your basis in the land you received is figured as follows. H&r block 1040x Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. H&r block 1040x You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. H&r block 1040x You realize a gain of $7,250. H&r block 1040x This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). H&r block 1040x You include all the gain in your income (recognize gain) because the gain is less than the cash you received. H&r block 1040x Your basis in the truck you received is figured as follows. H&r block 1040x Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. H&r block 1040x   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. H&r block 1040x The rest is the basis of the like-kind property. H&r block 1040x Example. H&r block 1040x You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. H&r block 1040x You also received $1,000 cash and a truck that had an FMV of $3,000. H&r block 1040x The truck is unlike property. H&r block 1040x You realized a gain of $1,500. H&r block 1040x This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). H&r block 1040x You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. H&r block 1040x Your basis in the properties you received is figured as follows. H&r block 1040x Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). H&r block 1040x This is the truck's FMV. H&r block 1040x The rest ($12,500) is the basis of the tractor. H&r block 1040x Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. H&r block 1040x Example. H&r block 1040x You used a tractor on your farm for 3 years. H&r block 1040x Its adjusted basis is $22,000 and its FMV is $40,000. H&r block 1040x You are interested in a new tractor, which sells for $60,000. H&r block 1040x Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. H&r block 1040x Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). H&r block 1040x However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. H&r block 1040x Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). H&r block 1040x Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. H&r block 1040x Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. H&r block 1040x You also must know its FMV at the time it was given to you and any gift tax paid on it. H&r block 1040x FMV equal to or greater than donor's adjusted basis. H&r block 1040x   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. H&r block 1040x Increase your basis by all or part of any gift tax paid, depending on the date of the gift. H&r block 1040x   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. H&r block 1040x See Adjusted Basis , earlier. H&r block 1040x   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. H&r block 1040x Figure the increase by multiplying the gift tax paid by the following fraction. H&r block 1040x Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. H&r block 1040x The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. H&r block 1040x Example. H&r block 1040x In 2013, you received a gift of property from your mother that had an FMV of $50,000. H&r block 1040x Her adjusted basis was $20,000. H&r block 1040x The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). H&r block 1040x She paid a gift tax of $7,320. H&r block 1040x Your basis, $26,076, is figured as follows. H&r block 1040x Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . H&r block 1040x 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. H&r block 1040x If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. H&r block 1040x However, your basis cannot exceed the FMV of the gift when it was given to you. H&r block 1040x FMV less than donor's adjusted basis. H&r block 1040x   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. H&r block 1040x Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. H&r block 1040x Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. H&r block 1040x (See Adjusted Basis , earlier. H&r block 1040x )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. H&r block 1040x Example. H&r block 1040x You received farmland as a gift from your parents when they retired from farming. H&r block 1040x At the time of the gift, the land had an FMV of $80,000. H&r block 1040x Your parents' adjusted basis was $100,000. H&r block 1040x After you received the land, no events occurred that would increase or decrease your basis. H&r block 1040x If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. H&r block 1040x If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. H&r block 1040x If the sales price is between $80,000 and $100,000, you have neither gain nor loss. H&r block 1040x For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. H&r block 1040x If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. H&r block 1040x Business property. H&r block 1040x   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. H&r block 1040x Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. H&r block 1040x The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. H&r block 1040x However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. H&r block 1040x The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. H&r block 1040x For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. H&r block 1040x Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. H&r block 1040x If a federal estate return is filed, you can use its appraised value. H&r block 1040x The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. H&r block 1040x For information on the alternate valuation, see the Instructions for Form 706. H&r block 1040x The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. H&r block 1040x If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. H&r block 1040x Special-use valuation method. H&r block 1040x   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. H&r block 1040x If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. H&r block 1040x If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. H&r block 1040x The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. H&r block 1040x   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. H&r block 1040x Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. H&r block 1040x Figure all FMVs without regard to the special-use valuation. H&r block 1040x   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. H&r block 1040x This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. H&r block 1040x The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. H&r block 1040x   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. H&r block 1040x To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. H&r block 1040x If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. H&r block 1040x The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. H&r block 1040x   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. H&r block 1040x   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. H&r block 1040x Property inherited from a decedent who died in 2010. H&r block 1040x   If you inherited property from a decedent who died in 2010, different rules may apply. H&r block 1040x See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. H&r block 1040x Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. H&r block 1040x Partner's basis. H&r block 1040x   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. H&r block 1040x However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. H&r block 1040x For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. H&r block 1040x Shareholder's basis. H&r block 1040x   The basis of property distributed by a corporation to a shareholder is its fair market value. H&r block 1040x For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. H&r block 1040x Prev  Up  Next   Home   More Online Publications