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H&r Block Online Taxes

H&r block online taxes Publication 51 - Introductory Material Table of Contents Future Developments What's New Reminders Calendar Introduction Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 51 (Circular A), such as legislation enacted after it was published, go to www. H&r block online taxes irs. H&r block online taxes gov/pub51. H&r block online taxes What's New Social security and Medicare tax for 2014. H&r block online taxes  The social security tax rate is 6. H&r block online taxes 2% each for the employee and employer, unchanged from 2013. H&r block online taxes The social security wage base limit is $117,000. H&r block online taxes The Medicare tax rate is 1. H&r block online taxes 45% each for the employee and employer, unchanged from 2013. H&r block online taxes There is no wage base limit for Medicare tax. H&r block online taxes Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. H&r block online taxes Withholding allowance. H&r block online taxes  The 2014 amount for one withholding allowance on an annual basis is $3,950. H&r block online taxes Change of responsible party. H&r block online taxes  Beginning January 1, 2014, any entity with an employer identification number (EIN) must file Form 8822-B, Change of Address or Responsible Party—Business, to report the latest change to its responsible party. H&r block online taxes Form 8822-B must be filed within 60 days of the change. H&r block online taxes If the change in the identity of your responsible party occurred before 2014, and you have not previously notified the IRS of the change, file Form 8822-B before March 1, 2014, reporting only the most recent change. H&r block online taxes For a definition of "responsible party", see the Form 8822-B instructions. H&r block online taxes Same-sex marriage. H&r block online taxes  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. H&r block online taxes For more information, see Revenue Ruling 2013-17, 2013-38 I. H&r block online taxes R. H&r block online taxes B. H&r block online taxes 201, available at www. H&r block online taxes irs. H&r block online taxes gov/irb/2013-38_IRB/ar07. H&r block online taxes html. H&r block online taxes Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. H&r block online taxes Notice 2013-61, 2013-44 I. H&r block online taxes R. H&r block online taxes B. H&r block online taxes 432, is available at www. H&r block online taxes irs. H&r block online taxes gov/irb/2013-44_IRB/ar10. H&r block online taxes html. H&r block online taxes Reminders Additional Medicare Tax withholding. H&r block online taxes  In addition to withholding Medicare tax at 1. H&r block online taxes 45%, you must withhold a 0. H&r block online taxes 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. H&r block online taxes You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. H&r block online taxes Additional Medicare Tax is only imposed on the employee. H&r block online taxes There is no employer share of Additional Medicare Tax. H&r block online taxes All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. H&r block online taxes For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. H&r block online taxes For more information on Additional Medicare Tax, visit IRS. H&r block online taxes gov and enter “Additional Medicare Tax” in the search box. H&r block online taxes Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. H&r block online taxes  The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. H&r block online taxes Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. H&r block online taxes For more information, visit IRS. H&r block online taxes gov and enter “work opportunity tax credit” in the search box. H&r block online taxes Outsourcing payroll duties. H&r block online taxes  Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. H&r block online taxes The employer remains responsible if the third party fails to perform any required action. H&r block online taxes If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. H&r block online taxes gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. H&r block online taxes COBRA premium assistance credit. H&r block online taxes  The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months. H&r block online taxes For more information, see COBRA premium assistance credit under Introduction. H&r block online taxes Compensation paid to H-2A foreign agricultural workers. H&r block online taxes  Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2, Wage and Tax Statement. H&r block online taxes Compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes, and therefore should not be reported as wages subject to social security tax (line 2), Medicare tax (line 4), or Additional Medicare Tax withholding (line 6) on Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, and should not be reported as social security wages (box 3) or Medicare wages (box 5) on Form W-2. H&r block online taxes On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. H&r block online taxes An employer is not required to withhold federal income tax from compensation it pays an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. H&r block online taxes In that case, the worker must give the employer a completed Form W-4, Employee's Withholding Allowance Certificate. H&r block online taxes Federal income tax withheld should be reported on Form 943, line 8, and in box 2 of Form W-2. H&r block online taxes These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. H&r block online taxes For the rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. H&r block online taxes Additional employment tax information. H&r block online taxes  Visit the IRS website at www. H&r block online taxes irs. H&r block online taxes gov/businesses and click on Employment Taxes under Businesses Topics. H&r block online taxes For employment tax information by telephone, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) Monday–Friday from 7:00 a. H&r block online taxes m. H&r block online taxes –7:00 p. H&r block online taxes m. H&r block online taxes local time (Alaska and Hawaii follow Pacific time). H&r block online taxes Additionally, you can call IRS TeleTax at 1-800-829-4477 for recorded information by topic. H&r block online taxes Disregarded entities and qualified subchapter S subsidiaries (QSubs). H&r block online taxes  Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. H&r block online taxes Eligible single-member entities that have not elected to be taxed as corporations must report and pay employment taxes on wages paid to their employees using the entities' own names and EINs. H&r block online taxes See Regulations sections 1. H&r block online taxes 1361-4(a)(7) and 301. H&r block online taxes 7701-2(c)(2)(iv). H&r block online taxes Differential wage payments. H&r block online taxes  Qualified differential wage payments made by employers to individuals serving in the Armed Forces after 2008 are subject to income tax withholding but not social security, Medicare, or FUTA taxes. H&r block online taxes For more information, see Publication 15 (Circular E). H&r block online taxes Federal tax deposits must be made by electronic funds transfer. H&r block online taxes  You must use electronic funds transfer to make all federal tax deposits. H&r block online taxes Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). H&r block online taxes If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. H&r block online taxes Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. H&r block online taxes EFTPS is a free service provided by the Department of Treasury. H&r block online taxes Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. H&r block online taxes For more information on making federal tax deposits, see How To Deposit in section 7. H&r block online taxes To get more information about EFTPS or to enroll in EFTPS, visit www. H&r block online taxes eftps. H&r block online taxes gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). H&r block online taxes Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. H&r block online taxes Electronic filing and payment. H&r block online taxes  Now, more than ever before, businesses can enjoy the benefits of filing tax returns and paying their taxes electronically. H&r block online taxes Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make it easier. H&r block online taxes Spend less time and worry on taxes and more time running your business. H&r block online taxes Use e-file and the Electronic Federal Tax Payment System (EFTPS) to your benefit. H&r block online taxes For e-file, visit the IRS website at www. H&r block online taxes irs. H&r block online taxes gov/efile for additional information. H&r block online taxes For EFTPS, visit www. H&r block online taxes eftps. H&r block online taxes gov or call EFTPS Customer Service at 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD) for additional information. H&r block online taxes For electronic filing of Form W-2, visit www. H&r block online taxes socialsecurity. H&r block online taxes gov/employer. H&r block online taxes If you are filing your tax return or paying your federal taxes electronically, a valid EIN is required. H&r block online taxes If a valid EIN is not provided, the return or payment will not be processed. H&r block online taxes This may result in penalties and delays in processing your return or payment. H&r block online taxes Electronic funds withdrawal (EFW). H&r block online taxes  If you file Form 943 electronically, you can e-file and e-pay (electronic funds withdrawal) the balance due in a single step using tax preparation software or through a tax professional. H&r block online taxes However, do not use EFW to make federal tax deposits. H&r block online taxes For more information on paying your taxes using EFW, visit the IRS website at www. H&r block online taxes irs. H&r block online taxes gov/e-pay. H&r block online taxes A fee may be charged to file electronically. H&r block online taxes Credit or debit card payments. H&r block online taxes   Employers can pay the balance due shown on Form 943 by credit or debit card. H&r block online taxes Do not use a credit or debit card to make federal tax deposits. H&r block online taxes For more information on paying your taxes with a credit or debit card, visit the IRS website at www. H&r block online taxes irs. H&r block online taxes gov/e-pay. H&r block online taxes When you hire a new employee. H&r block online taxes  Ask each new employee to complete the 2014 Form W-4 or its Spanish version, Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado. H&r block online taxes Also, ask the employee to show you his or her social security card so that you can record the employee's name and social security number accurately. H&r block online taxes If the employee has lost the card or recently changed names, have the employee apply for a duplicate or corrected card. H&r block online taxes If the employee does not have a card, have the employee apply for one on Form SS-5, Application for a Social Security Card. H&r block online taxes See section 1 for more information. H&r block online taxes Eligibility for employment. H&r block online taxes  You must verify that each new employee is legally eligible to work in the United States. H&r block online taxes This includes completing the U. H&r block online taxes S. H&r block online taxes Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. H&r block online taxes You can get the form from USCIS offices or by calling 1-800-870-3676. H&r block online taxes Contact the USCIS at 1-800-375-5283, or visit the USCIS website at www. H&r block online taxes uscis. H&r block online taxes gov for more information. H&r block online taxes New hire reporting. H&r block online taxes   You are required to report any new employee to a designated state new-hire registry. H&r block online taxes A new employee is an employee who has not previously been employed by you or was previously employed by you but has been separated from such prior employment for at least 60 consecutive days. H&r block online taxes Many states accept a copy of Form W-4 with employer information added. H&r block online taxes Visit the Office of Child Support Enforcement's website at www. H&r block online taxes acf. H&r block online taxes hhs. H&r block online taxes gov/programs/cse/newhire for more information. H&r block online taxes Dishonored payments. H&r block online taxes  Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. H&r block online taxes The penalty is $25 or 2% of the payment, whichever is more. H&r block online taxes However, the penalty on dishonored payments of $24. H&r block online taxes 99 or less is an amount equal to the payment. H&r block online taxes For example, a dishonored payment of $18 is charged a penalty of $18. H&r block online taxes Forms in Spanish. H&r block online taxes  You can provide Formulario W-4(SP) in place of Form W-4 to your Spanish-speaking employees. H&r block online taxes For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). H&r block online taxes For nonemployees, Formulario W-9(SP), Solicitud y Certificación del Número de Identificación del Contribuyente, may be used in place of Form W-9, Request for Taxpayer Identification Number and Certification. H&r block online taxes References in this publication to Form W-4 or Form W-9 also apply to their equivalent Spanish translations—Formulario W-4(SP) or Formulario W-9(SP). H&r block online taxes Information returns. H&r block online taxes  You may be required to file information returns to report certain types of payments made during the year. H&r block online taxes For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (for example, independent contractors) for services performed for your trade or business. H&r block online taxes For details about filing Forms 1099 and for information about required electronic filing, see the General Instructions for Certain Information Returns for general information and the separate, specific instructions for each information return that you file (for example, Instructions for Form 1099-MISC). H&r block online taxes Generally, do not use Forms 1099 to report wages or other compensation that you paid to employees; report these amounts on Form W-2. H&r block online taxes See the General Instructions for Forms W-2 and W-3 for details about filing Forms W-2 and for information about required electronic filing. H&r block online taxes If you file 250 or more Forms W-2, you must file them electronically. H&r block online taxes SSA will not accept Forms W-2 and W-3 filed on any magnetic media. H&r block online taxes Information reporting customer service site. H&r block online taxes  The IRS operates the Enterprise Computing Center—Martinsburg, a centralized customer service site, to answer questions about reporting on Forms W-2, W-3, 1099, and other information returns. H&r block online taxes If you have questions related to reporting on information returns, you may call 1-866-455-7438 (toll free), 304-263-8700 (toll call), or 304-267-3367 (TDD/TTY for persons who are deaf, heard of hearing, or have a speech disability). H&r block online taxes The call site can also be reached by email at mccirp@irs. H&r block online taxes gov. H&r block online taxes Do not include tax identification numbers (TINs) or attachments in email correspondence because electronic mail is not secure. H&r block online taxes Web-based application for an employer identification number (EIN). H&r block online taxes  You can apply for an employer identification number (EIN) online by visiting IRS. H&r block online taxes gov and clicking on the Apply for an EIN Online link under Tools. H&r block online taxes When a crew leader furnishes workers to you. H&r block online taxes  Record the crew leader's name, address, and EIN. H&r block online taxes See sections 2 and 10. H&r block online taxes Change of address. H&r block online taxes  Use Form 8822-B to notify the IRS of an address change. H&r block online taxes Do not mail form 8822-B with your employment tax return. H&r block online taxes Ordering forms and publications. H&r block online taxes  You can order your 2013 and 2014 employment tax and information return forms, instructions, and publications online at www. H&r block online taxes irs. H&r block online taxes gov/businesses. H&r block online taxes Click on the Online Ordering for Information Returns and Employer Returns. H&r block online taxes You can also visit www. H&r block online taxes irs. H&r block online taxes gov/formspubs to download other forms and publications. H&r block online taxes Instead of ordering paper Forms W-2 and W-3, consider filing them electronically using the Social Security Administration's (SSA) free e-file service. H&r block online taxes Visit the SSA's Employer W-2 Filing Instructions & Information website at  www. H&r block online taxes socialsecurity. H&r block online taxes gov/employer, to register for Business Services Online. H&r block online taxes You will be able to create and file “fill-in” versions of Forms W-2 with SSA and can print out completed copies of Forms W-2 for filing with state and local governments, distribution to your employees, and for your records. H&r block online taxes Form W-3 will be created for you based on your Forms W-2. H&r block online taxes Tax Questions. H&r block online taxes   If you have a tax question, check the information available on IRS. H&r block online taxes gov or call 1-800-829-4933 (businesses), 1-800-829-1040 (individuals), or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) Monday–Friday from 7:00 a. H&r block online taxes m. H&r block online taxes –7:00 p. H&r block online taxes m. H&r block online taxes local time (Alaska and Hawaii follow Pacific time). H&r block online taxes We cannot answer tax questions sent to the address provided later for comments and suggestions. H&r block online taxes Recordkeeping. H&r block online taxes  Keep all records of employment taxes for at least 4 years. H&r block online taxes These should be available for IRS review. H&r block online taxes Your records should include the following information. H&r block online taxes Your employer identification number (EIN). H&r block online taxes Amounts and dates of all wage, annuity, and pension payments. H&r block online taxes Names, addresses, social security numbers, and occupations of employees and recipients. H&r block online taxes Any employee copies of Forms W-2 and W-2c returned to you as undeliverable. H&r block online taxes Dates of employment for each employee. H&r block online taxes Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them. H&r block online taxes Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4(SP), W-4P, and W-4S). H&r block online taxes Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS. H&r block online taxes Copies of returns filed and confirmation numbers. H&r block online taxes Records of fringe benefits and expense reimbursements provided to your employees, including substantiation. H&r block online taxes If a crew leader furnished you with farmworkers, you must keep a record of the name, permanent mailing address, and EIN of the crew leader. H&r block online taxes If the crew leader has no permanent mailing address, record his or her present address. H&r block online taxes Private delivery services. H&r block online taxes  You can use certain private delivery services designated by the IRS to send tax returns and payments. H&r block online taxes The list includes only the following. H&r block online taxes DHL Express (DHL): DHL Same Day Service. H&r block online taxes Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. H&r block online taxes United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. H&r block online taxes M. H&r block online taxes , UPS Worldwide Express Plus, and UPS Worldwide Express. H&r block online taxes For the IRS mailing address to use if you are using a private delivery service, go to IRS. H&r block online taxes gov and enter "private delivery service" in the search box. H&r block online taxes Your private delivery service can tell you how to get written proof of the mailing date. H&r block online taxes Private delivery services cannot deliver items to P. H&r block online taxes O. H&r block online taxes boxes. H&r block online taxes You must use the U. H&r block online taxes S. H&r block online taxes Postal Service to mail any item to an IRS P. H&r block online taxes O. H&r block online taxes box address. H&r block online taxes Photographs of missing children. H&r block online taxes  The IRS is a proud partner with the National Center for Missing and Exploited Children. H&r block online taxes Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H&r block online taxes You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H&r block online taxes Calendar The following are important dates and responsibilities. H&r block online taxes See section 7 for information about depositing taxes reported on Forms 941, 943, 944, and 945. H&r block online taxes Also see Publication 509, Tax Calendars. H&r block online taxes   If any date shown below for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. H&r block online taxes A statewide legal holiday delays a filing due date only if the IRS office where you are required to file is located in that state. H&r block online taxes However, a statewide legal holiday does not delay the due date of federal tax deposits. H&r block online taxes See Deposits on Business Days Only in section 7. H&r block online taxes For any filing due date, you will meet the “file” or “furnish” requirement if the envelope containing the return or form is properly addressed, contains sufficient postage, and is postmarked by the U. H&r block online taxes S. H&r block online taxes Postal Service on or before the due date, or sent by an IRS-designated delivery service on or before the due date. H&r block online taxes See Private delivery services under Reminders. H&r block online taxes By January 31 . H&r block online taxes   File Form 943. H&r block online taxes See section 8 for more information on Form 943. H&r block online taxes If you deposited all Form 943 taxes when due, you have 10 additional calendar days to file. H&r block online taxes Furnish each employee with a completed Form W-2. H&r block online taxes Furnish each recipient to whom you paid $600 or more in nonemployee compensation with a completed Form 1099 (for example, Form 1099-MISC). H&r block online taxes File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. H&r block online taxes See section 10 for more information on FUTA. H&r block online taxes If you deposited all the FUTA tax when due, you have 10 additional calendar days to file. H&r block online taxes File Form 945, Annual Return of Withheld Federal Income Tax, to report any nonpayroll federal income tax withheld in 2013. H&r block online taxes If you deposited all Form 945 taxes when due, you have 10 additional calendar days to file. H&r block online taxes By February 15. H&r block online taxes  Ask for a new Form W-4 or Formulario W-4(SP) from each employee who claimed exemption from federal income tax withholding last year. H&r block online taxes On February 16. H&r block online taxes  Any Form W-4 claiming exemption from withholding for the previous year has now expired. H&r block online taxes Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. H&r block online taxes If the employee does not give you a new Form W-4, withhold tax based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. H&r block online taxes See section 5 for more information. H&r block online taxes If the employee furnishes a new Form W-4 claiming exemption from withholding after February 15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. H&r block online taxes By February 28. H&r block online taxes   File paper Forms 1099 and 1096. H&r block online taxes File Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U. H&r block online taxes S. H&r block online taxes Information Returns, with the IRS. H&r block online taxes For electronically filed returns, see By March 31 below. H&r block online taxes File paper Forms W-2 and W-3. H&r block online taxes File Copy A of all paper Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, with the SSA. H&r block online taxes For electronically filed returns, see By March 31 next. H&r block online taxes By March 31. H&r block online taxes   File electronic Forms W-2 and 1099. H&r block online taxes File electronic Forms W-2 with the SSA and Forms 1099 with the IRS. H&r block online taxes For more information on reporting Form W-2 information to the SSA electronically, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. H&r block online taxes socialsecurity. H&r block online taxes gov/employer. H&r block online taxes For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G. H&r block online taxes By April 30, July 31, October 31, and January 31. H&r block online taxes   Deposit FUTA taxes. H&r block online taxes Deposit FUTA tax if the undeposited amount is over $500. H&r block online taxes Before December 1. H&r block online taxes  Remind employees to submit a new Form W-4 if their marital status or withholding allowances have changed or will change for the next year. H&r block online taxes Introduction This publication is for employers of agricultural workers (farmworkers). H&r block online taxes It contains information that you may need to comply with the laws for agricultural labor (farmwork) relating to social security and Medicare taxes, FUTA tax, and withheld federal income tax (employment taxes). H&r block online taxes Agricultural employers report social security and Medicare taxes and withheld federal income tax on Form 943 and report FUTA tax on Form 940. H&r block online taxes If you have nonfarm employees, see Publication 15 (Circular E). H&r block online taxes If you have employees in the U. H&r block online taxes S. H&r block online taxes Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, see Publication 80 (Circular SS). H&r block online taxes Publication 15-A, Employer's Supplemental Tax Guide, contains more employment-related information, including information about sick pay and pension income. H&r block online taxes Publication 15-B, Employer's Tax Guide to Fringe Benefits, contains information about the employment tax treatment and valuation of various types of noncash compensation. H&r block online taxes Comments and suggestions. H&r block online taxes   We welcome your comments about this publication and your suggestions for future editions. H&r block online taxes   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division  1111 Constitution Ave. H&r block online taxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H&r block online taxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H&r block online taxes   You can also send us comments from www. H&r block online taxes irs. H&r block online taxes gov/formspubs. H&r block online taxes Click on More Information and then click on Comment on Tax Forms and Publications. H&r block online taxes   Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. H&r block online taxes COBRA premium assistance credit. H&r block online taxes   The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. H&r block online taxes COBRA generally covers multiemployer health plans and health plans maintained by private-sector employers (other than churches) with 20 or more full and part-time employees. H&r block online taxes Parallel requirements apply to these plans under the Employee Retirement Income Security Act of 1974 (ERISA). H&r block online taxes Under the Public Health Service Act, COBRA requirements apply also to health plans covering state or local government employees. H&r block online taxes Similar requirements apply under the Federal Employees Health Benefits Program and under some state laws. H&r block online taxes For the premium assistance (or subsidy) discussed below, these requirements are all referred to as COBRA requirements. H&r block online taxes   Under the American Recovery and Reinvestment Act of 2009 (ARRA), employers are allowed a credit against “payroll taxes” (referred to in this publication as “employment taxes”) for providing COBRA premium assistance to assistance eligible individuals. H&r block online taxes For periods of COBRA continuation coverage beginning after February 16, 2009, a group health plan must treat an assistance eligible individual as having paid the required COBRA continuation coverage premium if the individual elects COBRA coverage and pays 35% of the amount of the premium. H&r block online taxes   An assistance eligible individual is a qualified beneficiary of an employer's group health plan who is eligible for COBRA continuation coverage during the period beginning September 1, 2008, and ending May 31, 2010, due to the involuntarily termination from employment of a covered employee during the period and elects continuation COBRA coverage. H&r block online taxes The assistance for the coverage can last up to 15 months. H&r block online taxes   Employees terminated during the period beginning September 1, 2008, and ending May 31, 2010, who received a severance package that delayed the start of the COBRA continuation coverage, may still be eligible for premium assistance for COBRA continuation coverage. H&r block online taxes For more information, see Notice 2009-27, 2009-16 I. H&r block online taxes R. H&r block online taxes B. H&r block online taxes 838, available at www. H&r block online taxes irs. H&r block online taxes gov/irb/2009-16_irb/ar09. H&r block online taxes html. H&r block online taxes   Administrators of the group health plans (or other entities) that provide or administer COBRA continuation coverage must provide notice to assistance eligible individuals of the COBRA premium assistance. H&r block online taxes   The 65% of the premium not paid by the assistance eligible individual is reimbursed to the employer maintaining the group health plan. H&r block online taxes The reimbursement is made through a credit against the employer's employment tax liabilities. H&r block online taxes For information on how to claim the credit, see the Instructions for Form 943. H&r block online taxes The credit is treated as a deposit made on the first day of the return period. H&r block online taxes In the case of a multiemployer plan, the credit is claimed by the plan, rather than the employer. H&r block online taxes In the case of an insured plan subject to state law continuation coverage requirements, the credit is claimed by the insurance company, rather than the employer. H&r block online taxes   Anyone claiming the credit for COBRA premium assistance payments must maintain the following information to support their claim, including the following. H&r block online taxes Information on the receipt of the assistance eligible individuals' 35% share of the premium including dates and amounts. H&r block online taxes In the case of an insurance plan, a copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA. H&r block online taxes In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals. H&r block online taxes Attestation of involuntary termination, including the date of the involuntary termination for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. H&r block online taxes Proof of each assistance eligible individual's eligibility for COBRA coverage and the election of COBRA coverage. H&r block online taxes A record of the social security numbers (SSNs) of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals. H&r block online taxes   For more information, visit IRS. H&r block online taxes gov and enter “COBRA” in the search box. H&r block online taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 225 Farmer's Tax Guide 535 Business Expenses 583 Starting a Business and Keeping Records 1635 Employer Identification Number: Understanding Your EIN Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - Partnership Statistics

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Snapshot of Partnership Returns, 2010

A partnership is a relationship between two or more persons who join to carry on a trade or business, with each person contributing money, property labor or skill and each expecting to share in the profits and losses of the business whether or not a formal partnership agreement was made. Here you will find data tables and SOI Bulletin articles concerning 1065 partnerships.

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The H&r Block Online Taxes

H&r block online taxes 7. H&r block online taxes   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. H&r block online taxes  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. H&r block online taxes This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. H&r block online taxes See Dollar Limits under Section 179 Expense Deduction , later. H&r block online taxes Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. H&r block online taxes . H&r block online taxes  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. H&r block online taxes See Claiming the Special Depreciation Allowance , later. H&r block online taxes Expiration of the 3- year recovery period for certain race horses. H&r block online taxes  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. H&r block online taxes Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. H&r block online taxes Instead, you must spread the cost over the time you use the property and deduct part of it each year. H&r block online taxes For most types of property, this is called depreciation. H&r block online taxes This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. H&r block online taxes For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. H&r block online taxes Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. H&r block online taxes It is important to keep good records for property you depreciate. H&r block online taxes Do not file these records with your return. H&r block online taxes Instead, you should keep them as part of the permanent records of the depreciated property. H&r block online taxes They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. H&r block online taxes For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. H&r block online taxes For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. H&r block online taxes Overview of Depreciation This overview discusses basic information on the following. H&r block online taxes What property can be depreciated. H&r block online taxes What property cannot be depreciated. H&r block online taxes When depreciation begins and ends. H&r block online taxes Whether MACRS can be used to figure depreciation. H&r block online taxes What is the basis of your depreciable property. H&r block online taxes How to treat repairs and improvements. H&r block online taxes When you must file Form 4562. H&r block online taxes How you can correct depreciation claimed incorrectly. H&r block online taxes What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. H&r block online taxes You can also depreciate certain intangible property, such as copyrights, patents, and computer software. H&r block online taxes To be depreciable, the property must meet all the following requirements. H&r block online taxes It must be property you own. H&r block online taxes It must be used in your business or income-producing activity. H&r block online taxes It must have a determinable useful life. H&r block online taxes It must have a useful life that extends substantially beyond the year you place it in service. H&r block online taxes Property You Own To claim depreciation, you usually must be the owner of the property. H&r block online taxes You are considered as owning property even if it is subject to a debt. H&r block online taxes Leased property. H&r block online taxes   You can depreciate leased property only if you retain the incidents of ownership in the property. H&r block online taxes This means you bear the burden of exhaustion of the capital investment in the property. H&r block online taxes Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. H&r block online taxes You can, however, depreciate any capital improvements you make to the leased property. H&r block online taxes See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. H&r block online taxes   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. H&r block online taxes However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. H&r block online taxes Life tenant. H&r block online taxes   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. H&r block online taxes See Certain term interests in property , later, for an exception. H&r block online taxes Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. H&r block online taxes If you use property to produce income (investment use), the income must be taxable. H&r block online taxes You cannot depreciate property that you use solely for personal activities. H&r block online taxes However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. H&r block online taxes Example 1. H&r block online taxes   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. H&r block online taxes If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. H&r block online taxes Example 2. H&r block online taxes   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. H&r block online taxes For more information, see Business Use of Your Home in chapter 4. H&r block online taxes Inventory. H&r block online taxes   You can never depreciate inventory because it is not held for use in your business. H&r block online taxes Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. H&r block online taxes Livestock. H&r block online taxes   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. H&r block online taxes Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. H&r block online taxes However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. H&r block online taxes Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. H&r block online taxes This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. H&r block online taxes Irrigation systems and water wells. H&r block online taxes   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. H&r block online taxes You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. H&r block online taxes In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. H&r block online taxes However, land preparation costs for center pivot irrigation systems are not depreciable. H&r block online taxes Dams, ponds, and terraces. H&r block online taxes   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. H&r block online taxes What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. H&r block online taxes This includes the following. H&r block online taxes Land. H&r block online taxes You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. H&r block online taxes The cost of land generally includes the cost of clearing, grading, planting, and landscaping. H&r block online taxes Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. H&r block online taxes See chapter 1 of Publication 946. H&r block online taxes Property placed in service and disposed of in the same year. H&r block online taxes Determining when property is placed in service is explained later. H&r block online taxes Equipment used to build capital improvements. H&r block online taxes You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. H&r block online taxes Intangible property such as section 197 intangibles. H&r block online taxes This property does not have a determinable useful life and generally cannot be depreciated. H&r block online taxes However, see Amortization , later. H&r block online taxes Special rules apply to computer software (discussed below). H&r block online taxes Certain term interests (discussed below). H&r block online taxes Computer software. H&r block online taxes   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. H&r block online taxes It is readily available for purchase by the general public. H&r block online taxes It is subject to a nonexclusive license. H&r block online taxes It has not been substantially modified. H&r block online taxes   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. H&r block online taxes Certain term interests in property. H&r block online taxes   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. H&r block online taxes This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. H&r block online taxes For more information, see chapter 1 of Publication 946. H&r block online taxes When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. H&r block online taxes You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. H&r block online taxes Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. H&r block online taxes Even if you are not using the property, it is in service when it is ready and available for its specific use. H&r block online taxes Example. H&r block online taxes You bought a planter for use in your farm business. H&r block online taxes The planter was delivered in December 2012 after harvest was over. H&r block online taxes You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. H&r block online taxes If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. H&r block online taxes You begin to depreciate it in 2013. H&r block online taxes If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. H&r block online taxes You begin to depreciate it in 2013. H&r block online taxes Fruit or nut trees and vines. H&r block online taxes   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). H&r block online taxes See chapter 6 for information about the uniform capitalization rules. H&r block online taxes Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). H&r block online taxes Immature livestock. H&r block online taxes   Depreciation for livestock begins when the livestock reaches the age of maturity. H&r block online taxes If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. H&r block online taxes If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. H&r block online taxes If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. H&r block online taxes Your basis for depreciation is your initial cost for the immature livestock. H&r block online taxes Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. H&r block online taxes For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. H&r block online taxes Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. H&r block online taxes This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. H&r block online taxes Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. H&r block online taxes You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. H&r block online taxes You sell or exchange the property. H&r block online taxes You convert the property to personal use. H&r block online taxes You abandon the property. H&r block online taxes You transfer the property to a supplies or scrap account. H&r block online taxes The property is destroyed. H&r block online taxes For information on abandonment of property, see chapter 8. H&r block online taxes For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. H&r block online taxes Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. H&r block online taxes MACRS is explained later under Figuring Depreciation Under MACRS . H&r block online taxes You cannot use MACRS to depreciate the following property. H&r block online taxes Property you placed in service before 1987. H&r block online taxes Use the methods discussed in Publication 534. H&r block online taxes Certain property owned or used in 1986. H&r block online taxes See chapter 1 of Publication 946. H&r block online taxes Intangible property. H&r block online taxes Films, video tapes, and recordings. H&r block online taxes Certain corporate or partnership property acquired in a nontaxable transfer. H&r block online taxes Property you elected to exclude from MACRS. H&r block online taxes For more information, see chapter 1 of Publication 946. H&r block online taxes What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. H&r block online taxes To determine basis, you need to know the cost or other basis of your property. H&r block online taxes Cost or other basis. H&r block online taxes   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. H&r block online taxes The cost includes the amount you pay in cash, debt obligations, other property, or services. H&r block online taxes   There are times when you cannot use cost as basis. H&r block online taxes In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. H&r block online taxes Adjusted basis. H&r block online taxes   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. H&r block online taxes Basis adjustment for depreciation allowed or allowable. H&r block online taxes   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. H&r block online taxes Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). H&r block online taxes Depreciation allowable is depreciation you are entitled to deduct. H&r block online taxes   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. H&r block online taxes   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). H&r block online taxes   For more information, see chapter 6. H&r block online taxes How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. H&r block online taxes However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. H&r block online taxes Treat improvements as separate depreciable property. H&r block online taxes See chapter 1 of Publication 946 for more information. H&r block online taxes Example. H&r block online taxes You repair a small section on a corner of the roof of a barn that you rent to others. H&r block online taxes You deduct the cost of the repair as a business expense. H&r block online taxes However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. H&r block online taxes You depreciate the cost of the new roof. H&r block online taxes Improvements to rented property. H&r block online taxes   You can depreciate permanent improvements you make to business property you rent from someone else. H&r block online taxes Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. H&r block online taxes You must complete and attach Form 4562 to your tax return if you are claiming any of the following. H&r block online taxes A section 179 expense deduction for the current year or a section 179 carryover from a prior year. H&r block online taxes Depreciation for property placed in service during the current year. H&r block online taxes Depreciation on any vehicle or other listed property, regardless of when it was placed in service. H&r block online taxes Amortization of costs that began in the current year. H&r block online taxes For more information, see the Instructions for Form 4562. H&r block online taxes How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. H&r block online taxes You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. H&r block online taxes You claimed the incorrect amount because of a mathematical error made in any year. H&r block online taxes You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. H&r block online taxes You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. H&r block online taxes You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. H&r block online taxes Note. H&r block online taxes You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. H&r block online taxes If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. H&r block online taxes See the Instructions for Form 3115. H&r block online taxes Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. H&r block online taxes This is the section 179 expense deduction. H&r block online taxes You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. H&r block online taxes This part of the chapter explains the rules for the section 179 expense deduction. H&r block online taxes It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. H&r block online taxes For more information, see chapter 2 of Publication 946. H&r block online taxes What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. H&r block online taxes It must be eligible property. H&r block online taxes It must be acquired for business use. H&r block online taxes It must have been acquired by purchase. H&r block online taxes Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. H&r block online taxes Tangible personal property. H&r block online taxes Qualified real property. H&r block online taxes (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. H&r block online taxes For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. H&r block online taxes ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. H&r block online taxes Single purpose agricultural (livestock) or horticultural structures. H&r block online taxes Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. H&r block online taxes Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. H&r block online taxes Tangible personal property. H&r block online taxes   Tangible personal property is any tangible property that is not real property. H&r block online taxes It includes the following property. H&r block online taxes Machinery and equipment. H&r block online taxes Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. H&r block online taxes Gasoline storage tanks and pumps at retail service stations. H&r block online taxes Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. H&r block online taxes Facility used for the bulk storage of fungible commodities. H&r block online taxes   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). H&r block online taxes Bulk storage means the storage of a commodity in a large mass before it is used. H&r block online taxes Grain bins. H&r block online taxes   A grain bin is an example of a storage facility that is qualifying section 179 property. H&r block online taxes It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. H&r block online taxes Single purpose agricultural or horticultural structures. H&r block online taxes   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. H&r block online taxes Agricultural structure. H&r block online taxes   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. H&r block online taxes To house, raise, and feed a particular type of livestock and its produce. H&r block online taxes To house the equipment, including any replacements, needed to house, raise, or feed the livestock. H&r block online taxes For this purpose, livestock includes poultry. H&r block online taxes   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. H&r block online taxes The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. H&r block online taxes Horticultural structure. H&r block online taxes   A single purpose horticultural structure is either of the following. H&r block online taxes A greenhouse specifically designed, constructed, and used for the commercial production of plants. H&r block online taxes A structure specifically designed, constructed, and used for the commercial production of mushrooms. H&r block online taxes Use of structure. H&r block online taxes   A structure must be used only for the purpose that qualified it. H&r block online taxes For example, a hog barn will not be qualifying property if you use it to house poultry. H&r block online taxes Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. H&r block online taxes   If a structure includes work space, the work space can be used only for the following activities. H&r block online taxes Stocking, caring for, or collecting livestock or plants or their produce. H&r block online taxes Maintaining the enclosure or structure. H&r block online taxes Maintaining or replacing the equipment or stock enclosed or housed in the structure. H&r block online taxes Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. H&r block online taxes For example, property acquired by gift or inheritance does not qualify. H&r block online taxes Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. H&r block online taxes Example. H&r block online taxes Ken is a farmer. H&r block online taxes He purchased two tractors, one from his brother and one from his father. H&r block online taxes He placed both tractors in service in the same year he bought them. H&r block online taxes The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). H&r block online taxes The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). H&r block online taxes What Property Does Not Qualify? Land and improvements. H&r block online taxes   Land and land improvements, do not qualify as section 179 property. H&r block online taxes Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. H&r block online taxes However, agricultural fences do qualify as section 179 property. H&r block online taxes Similarly, field drainage tile also qualifies as section 179 property. H&r block online taxes Excepted property. H&r block online taxes   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. H&r block online taxes Certain property you lease to others (if you are a noncorporate lessor). H&r block online taxes Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. H&r block online taxes Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. H&r block online taxes Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). H&r block online taxes How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. H&r block online taxes However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. H&r block online taxes These limits apply to each taxpayer, not to each business. H&r block online taxes However, see Married individuals under Dollar Limits , later. H&r block online taxes See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. H&r block online taxes If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. H&r block online taxes Use Part I of Form 4562 to figure your section 179 expense deduction. H&r block online taxes Partial business use. H&r block online taxes   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. H&r block online taxes If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. H&r block online taxes Use the resulting business cost to figure your section 179 expense deduction. H&r block online taxes Trade-in of other property. H&r block online taxes   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. H&r block online taxes For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. H&r block online taxes It does not include the adjusted basis of the old tractor you trade for the new tractor. H&r block online taxes Example. H&r block online taxes J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. H&r block online taxes They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. H&r block online taxes J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. H&r block online taxes They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. H&r block online taxes Only the cash paid by J-Bar qualifies for the section 179 expense deduction. H&r block online taxes J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). H&r block online taxes Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. H&r block online taxes If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. H&r block online taxes Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. H&r block online taxes You do not have to claim the full $500,000. H&r block online taxes For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. H&r block online taxes Reduced dollar limit for cost exceeding $2 million. H&r block online taxes   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. H&r block online taxes If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. H&r block online taxes Example. H&r block online taxes This year, James Smith placed in service machinery costing $2,050,000. H&r block online taxes Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). H&r block online taxes Limits for sport utility vehicles. H&r block online taxes   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. H&r block online taxes This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. H&r block online taxes   For more information, see chapter 2 of Publication 946. H&r block online taxes Limits for passenger automobiles. H&r block online taxes   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. H&r block online taxes See Do the Passenger Automobile Limits Apply , later. H&r block online taxes Married individuals. H&r block online taxes   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. H&r block online taxes If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. H&r block online taxes If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. H&r block online taxes You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. H&r block online taxes If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. H&r block online taxes Joint return after separate returns. H&r block online taxes   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. H&r block online taxes The dollar limit (after reduction for any cost of section 179 property over $2 million). H&r block online taxes The total cost of section 179 property you and your spouse elected to expense on your separate returns. H&r block online taxes Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. H&r block online taxes Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. H&r block online taxes Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. H&r block online taxes See Carryover of disallowed deduction , later. H&r block online taxes Taxable income. H&r block online taxes   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. H&r block online taxes In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. H&r block online taxes Section 1231 gains (or losses) as discussed in chapter 9. H&r block online taxes Interest from working capital of your trade or business. H&r block online taxes Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. H&r block online taxes   In addition, figure taxable income without regard to any of the following. H&r block online taxes The section 179 expense deduction. H&r block online taxes The self-employment tax deduction. H&r block online taxes Any net operating loss carryback or carryforward. H&r block online taxes Any unreimbursed employee business expenses. H&r block online taxes Two different taxable income limits. H&r block online taxes   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). H&r block online taxes You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. H&r block online taxes If so, complete the following steps. H&r block online taxes Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. H&r block online taxes 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. H&r block online taxes 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. H&r block online taxes 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. H&r block online taxes 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. H&r block online taxes 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. H&r block online taxes 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. H&r block online taxes 8 Figure your actual other deduction using the taxable income figured in Step 7. H&r block online taxes Example. H&r block online taxes On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. H&r block online taxes It elects to expense the entire $500,000 cost under section 179. H&r block online taxes In June, the corporation gave a charitable contribution of $10,000. H&r block online taxes A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. H&r block online taxes The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. H&r block online taxes XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. H&r block online taxes XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. H&r block online taxes Step 1. H&r block online taxes Taxable income figured without either deduction is $520,000. H&r block online taxes Step 2. H&r block online taxes Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. H&r block online taxes Step 3. H&r block online taxes $20,000 ($520,000 − $500,000). H&r block online taxes Step 4. H&r block online taxes Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. H&r block online taxes Step 5. H&r block online taxes $518,000 ($520,000 − $2,000). H&r block online taxes Step 6. H&r block online taxes Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. H&r block online taxes Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. H&r block online taxes Step 7. H&r block online taxes $20,000 ($520,000 − $500,000). H&r block online taxes Step 8. H&r block online taxes Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. H&r block online taxes Carryover of disallowed deduction. H&r block online taxes   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. H&r block online taxes   The amount you carry over is used in determining your section 179 expense deduction in the next year. H&r block online taxes However, it is subject to the limits in that year. H&r block online taxes If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. H&r block online taxes Your selections must be shown in your books and records. H&r block online taxes Example. H&r block online taxes Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. H&r block online taxes The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. H&r block online taxes Her section 179 expense deduction was limited to $6,000. H&r block online taxes The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. H&r block online taxes This year, Joyce placed another machine in service that cost $9,000. H&r block online taxes Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. H&r block online taxes Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. H&r block online taxes She can carry over the balance of $1,000 to next year. H&r block online taxes Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. H&r block online taxes The partnership or S corporation determines its section 179 expense deduction subject to the limits. H&r block online taxes It then allocates the deduction among its partners or shareholders. H&r block online taxes If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. H&r block online taxes To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. H&r block online taxes After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. H&r block online taxes For more information, see chapter 2 of Publication 946. H&r block online taxes Example. H&r block online taxes In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. H&r block online taxes P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). H&r block online taxes Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. H&r block online taxes Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. H&r block online taxes P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. H&r block online taxes John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. H&r block online taxes John's taxable income from that business was $10,000. H&r block online taxes In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. H&r block online taxes However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). H&r block online taxes He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. H&r block online taxes How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. H&r block online taxes If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. H&r block online taxes   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. H&r block online taxes An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. H&r block online taxes The amended return must also include any resulting adjustments to taxable income. H&r block online taxes Revoking an election. H&r block online taxes   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. H&r block online taxes The amended return must be filed within the time prescribed by law. H&r block online taxes The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. H&r block online taxes ) Once made, the revocation is irrevocable. H&r block online taxes When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. H&r block online taxes In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. H&r block online taxes You also increase the basis of the property by the recapture amount. H&r block online taxes Recovery periods for property are discussed later. H&r block online taxes If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. H&r block online taxes Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. H&r block online taxes   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. H&r block online taxes Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. H&r block online taxes Figuring the recapture amount. H&r block online taxes   To figure the amount to recapture, take the following steps. H&r block online taxes Figure the allowable depreciation for the section 179 expense deduction you claimed. H&r block online taxes Begin with the year you placed the property in service and include the year of recapture. H&r block online taxes Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. H&r block online taxes The result is the amount you must recapture. H&r block online taxes Example. H&r block online taxes In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. H&r block online taxes The property is not listed property. H&r block online taxes He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. H&r block online taxes He used the property only for business in 2011 and 2012. H&r block online taxes During 2013, he used the property 40% for business and 60% for personal use. H&r block online taxes He figures his recapture amount as follows. H&r block online taxes Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. H&r block online taxes Where to report recapture. H&r block online taxes   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). H&r block online taxes Recapture for qualified section 179 GO Zone property. H&r block online taxes   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. H&r block online taxes ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. H&r block online taxes The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. H&r block online taxes Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. H&r block online taxes What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. H&r block online taxes Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. H&r block online taxes   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. H&r block online taxes   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. H&r block online taxes Water utility property. H&r block online taxes Off-the-shelf computer software. H&r block online taxes Qualified leasehold improvement property. H&r block online taxes   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. H&r block online taxes If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. H&r block online taxes Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). H&r block online taxes The original use of the property must begin with you after December 31, 2007. H&r block online taxes For more information, see chapter 3 of Publication 946. H&r block online taxes How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. H&r block online taxes To make the election, attach a statement to your return indicating the class of property for which you are making the election. H&r block online taxes Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. H&r block online taxes However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). H&r block online taxes Attach the election statement to the amended return. H&r block online taxes On the amended return, write “Filed pursuant to section 301. H&r block online taxes 9100-2. H&r block online taxes ” Once made, the election may not be revoked without IRS consent. H&r block online taxes If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. H&r block online taxes When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. H&r block online taxes For more information, see chapter 3 of Publication 946. H&r block online taxes Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. H&r block online taxes MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). H&r block online taxes Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. H&r block online taxes To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. H&r block online taxes This part explains how to determine which MACRS depreciation system applies to your property. H&r block online taxes It also discusses the following information that you need to know before you can figure depreciation under MACRS. H&r block online taxes Property's recovery class. H&r block online taxes Placed-in-service date. H&r block online taxes Basis for depreciation. H&r block online taxes Recovery period. H&r block online taxes Convention. H&r block online taxes Depreciation method. H&r block online taxes Finally, this part explains how to use this information to figure your depreciation deduction. H&r block online taxes Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. H&r block online taxes You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. H&r block online taxes Required use of ADS. H&r block online taxes   You must use ADS for the following property. H&r block online taxes All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. H&r block online taxes Listed property used 50% or less in a qualified business use. H&r block online taxes See Additional Rules for Listed Property , later. H&r block online taxes Any tax-exempt use property. H&r block online taxes Any tax-exempt bond-financed property. H&r block online taxes Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. H&r block online taxes Any tangible property used predominantly outside the United States during the year. H&r block online taxes If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. H&r block online taxes Electing ADS. H&r block online taxes   Although your property may qualify for GDS, you can elect to use ADS. H&r block online taxes The election generally must cover all property in the same property class you placed in service during the year. H&r block online taxes However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. H&r block online taxes Once you make this election, you can never revoke it. H&r block online taxes   You make the election by completing line 20 in Part III of Form 4562. H&r block online taxes Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. H&r block online taxes 3-year property. H&r block online taxes 5-year property. H&r block online taxes 7-year property. H&r block online taxes 10-year property. H&r block online taxes 15-year property. H&r block online taxes 20-year property. H&r block online taxes 25-year property. H&r block online taxes Residential rental property. H&r block online taxes Nonresidential real property. H&r block online taxes See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. H&r block online taxes What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. H&r block online taxes The placed-in-service date for your property is the date the property is ready and available for a specific use. H&r block online taxes It is therefore not necessarily the date it is first used. H&r block online taxes If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. H&r block online taxes See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. H&r block online taxes What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. H&r block online taxes Reduce that amount by any credits and deductions allocable to the property. H&r block online taxes The following are examples of some of the credits and deductions that reduce basis. H&r block online taxes Any deduction for section 179 property. H&r block online taxes Any deduction for removal of barriers to the disabled and the elderly. H&r block online taxes Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. H&r block online taxes Any special depreciation allowance. H&r block online taxes Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. H&r block online taxes For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. H&r block online taxes Also, see chapter 6. H&r block online taxes For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. H&r block online taxes Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. H&r block online taxes It is determined based on the depreciation system (GDS or ADS) used. H&r block online taxes See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. H&r block online taxes For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. H&r block online taxes House trailers for farm laborers. H&r block online taxes   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). H&r block online taxes A 7-year recovery period under GDS. H&r block online taxes A 10-year recovery period under ADS. H&r block online taxes   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. H&r block online taxes A 20-year recovery period under GDS. H&r block online taxes A 25-year recovery period under ADS. H&r block online taxes Water wells. H&r block online taxes   Water wells used to provide water for raising poultry and livestock are land improvements. H&r block online taxes If they are depreciable, use one of the following recovery periods. H&r block online taxes A 15-year recovery period under GDS. H&r block online taxes A 20-year recovery period under ADS. H&r block online taxes   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . H&r block online taxes Table 7-1. H&r block online taxes Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. H&r block online taxes 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. H&r block online taxes or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. H&r block online taxes 2 Not including single purpose agricultural or horticultural structures. H&r block online taxes 3 Used by logging and sawmill operators for cutting of timber. H&r block online taxes 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. H&r block online taxes 5 years. H&r block online taxes Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. H&r block online taxes The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. H&r block online taxes Use one of the following conventions. H&r block online taxes The half-year convention. H&r block online taxes The mid-month convention. H&r block online taxes The mid-quarter convention. H&r block online taxes For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. H&r block online taxes Also, see the Instructions for Form 4562. H&r block online taxes Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. H&r block online taxes The 200% declining balance method over a GDS recovery period. H&r block online taxes The 150% declining balance method over a GDS recovery period. H&r block online taxes The straight line method over a GDS recovery period. H&r block online taxes The straight line method over an ADS recovery period. H&r block online taxes Depreciation Table. H&r block online taxes   The following table lists the types of property you can depreciate under each method. H&r block online taxes The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. H&r block online taxes Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. H&r block online taxes   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. H&r block online taxes The straight line method over a GDS recovery period. H&r block online taxes The straight line method over an ADS recovery period. H&r block online taxes For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. H&r block online taxes If you made this election, continue to use the same method and recovery period for that property. H&r block online taxes Real property. H&r block online taxes   You can depreciate real property using the straight line method under either GDS or ADS. H&r block online taxes Switching to straight line. H&r block online taxes   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. H&r block online taxes If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. H&r block online taxes The tables have the switch to the straight line method built into their rates. H&r block online taxes Fruit or nut trees and vines. H&r block online taxes   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. H&r block online taxes ADS required for some farmers. H&r block online taxes   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. H&r block online taxes See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. H&r block online taxes Electing a different method. H&r block online taxes   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. H&r block online taxes You must make the election by the due date of the return (including extensions) for the year you placed the property in service. H&r block online taxes However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). H&r block online taxes Attach the election to the amended return and write “Filed pursuant to section 301. H&r block online taxes 9100-2” on the election statement. H&r block online taxes File the amended return at the same address you filed the original return. H&r block online taxes Once you make the election, you cannot change it. H&r block online taxes    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. H&r block online taxes However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. H&r block online taxes Straight line election. H&r block online taxes   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. H&r block online taxes Make the election by entering “S/L” under column (f) in Part III of Form 4562. H&r block online taxes ADS election. H&r block online taxes   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. H&r block online taxes ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. H&r block online taxes The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. H&r block online taxes Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. H&r block online taxes How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. H&r block online taxes Then you are ready to figure your depreciation deduction. H&r block online taxes You can figure it in one of two ways. H&r block online taxes You can use the percentage tables provided by the IRS. H&r block online taxes You can figure your own deduction without using the tables. H&r block online taxes Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. H&r block online taxes Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. H&r block online taxes These percentage tables are in Appendix A of Publication 946. H&r block online taxes Rules for using the tables. H&r block online taxes   The following rules cover the use of the percentage tables. H&r block online taxes You must apply the rates in the percentage tables to your property's unadjusted basis. H&r block online taxes Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. H&r block online taxes You cannot use the percentage tables for a short tax year. H&r block online taxes See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. H&r block online taxes You generally must continue to use them for the entire recovery period of the property. H&r block online taxes You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. H&r block online taxes Basis adjustment due to casualty loss. H&r block online taxes   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. H&r block online taxes For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. H&r block online taxes See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. H&r block online taxes Figuring depreciation using the 150% DB method and half-year convention. H&r block online taxes    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. H&r block online taxes The percentages are based on the 150% declining balance method with a change to the straight line method. H&r block online taxes This table covers only the half-year convention and the first 8 years for 20-year property. H&r block online taxes See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. H&r block online taxes   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . H&r block online taxes Example 1. H&r block online taxes During the year, you bought an item of 7-year property for $10,000 and placed it in service. H&r block online taxes You do not elect a section 179 expense deduction for this property. H&r block online taxes In addition, the property is not qualified property for purposes of the special depreciation allowance. H&r block online taxes The unadjusted basis of the property is $10,000. H&r block online taxes You use the percentages in Table 7-2 to figure your deduction. H&r block online taxes Since this is 7-year property, you multiply $10,000 by 10. H&r block online taxes 71% to get this year's depreciation of $1,071. H&r block online taxes For next year, your depreciation will be $1,913 ($10,000 × 19. H&r block online taxes 13%). H&r block online taxes Example 2. H&r block online taxes You had a barn constructed on your farm at a cost of $20,000. H&r block online taxes You placed the barn in service this year. H&r block online taxes You elect not to claim the special depreciation allowance. H&r block online taxes The barn is 20-year property and you use the table percentages to figure your deduction. H&r block online taxes You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. H&r block online taxes 75% to get $750. H&r block online taxes For next year, your depreciation will be $1,443. H&r block online taxes 80 ($20,000 × 7. H&r block online taxes 219%). H&r block online taxes Table 7-2. H&r block online taxes 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. H&r block online taxes 0 % 15. H&r block online taxes 00 % 10. H&r block online taxes 71 % 3. H&r block online taxes 750 % 2 37. H&r block online taxes 5   25. H&r block online taxes 50   19. H&r block online taxes 13   7. H&r block online taxes 219   3 25. H&r block online taxes 0   17. H&r block online taxes 85   15. H&r block online taxes 03   6. H&r block online taxes 677   4 12. H&r block online taxes 5   16. H&r block online taxes 66   12. H&r block online taxes 25   6. H&r block online taxes 177   5     16. H&r block online taxes 66   12. H&r block online taxes 25   5. H&r block online taxes 713   6     8. H&r block online taxes 33   12. H&r block online taxes 25   5. H&r block online taxes 285   7         12. H&r block online taxes 25   4. H&r block online taxes 888   8         6. H&r block online taxes 13   4. H&r block online taxes 522   Figuring depreciation using the straight line method and half-year convention. H&r block online taxes   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. H&r block online taxes The table covers only the first 8 years for 20-year property. H&r block online taxes See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. H&r block online taxes Table 7-3. H&r block online taxes Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. H&r block online taxes 67 % 10 % 7. H&r block online taxes 14 % 2. H&r block online taxes 5 % 2 33. H&r block online taxes 33   20   14. H&r block online taxes 29   5. H&r block online taxes 0   3 33. H&r block online taxes 33   20   14. H&r block online taxes 29   5. H&r block online taxes 0   4 16. H&r block online taxes 67   20   14. H&r block online taxes 28   5. H&r block online taxes 0   5     20   14. H&r block online taxes 29   5. H&r block online taxes 0   6     10   14. H&r block online taxes 28   5. H&r block online taxes 0   7         14. H&r block online taxes 29   5. H&r block online taxes 0   8         7. H&r block online taxes 14   5. H&r block online taxes 0