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Income Tax Return

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Income Tax Return

Income tax return 5. Income tax return   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. Income tax return Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. Income tax return Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. Income tax return Deduction for employees. Income tax return If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. Income tax return Business-use requirement. Income tax return If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. Income tax return In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. Income tax return You may also have to recapture (include in income) any excess depreciation claimed in previous years. Income tax return A similar inclusion amount applies to certain leased property. Income tax return Passenger automobile limits and rules. Income tax return Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. Income tax return You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. Income tax return This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. Income tax return It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. Income tax return Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Income tax return What Is Listed Property? Listed property is any of the following. Income tax return Passenger automobiles (as defined later). Income tax return Any other property used for transportation, unless it is an excepted vehicle. Income tax return Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). Income tax return Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. Income tax return A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. Income tax return Improvements to listed property. Income tax return   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. Income tax return The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. Income tax return For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. Income tax return Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). Income tax return It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. Income tax return The following vehicles are not considered passenger automobiles for these purposes. Income tax return An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. Income tax return A vehicle used directly in the trade or business of transporting persons or property for pay or hire. Income tax return A truck or van that is a qualified nonpersonal use vehicle. Income tax return Qualified nonpersonal use vehicles. Income tax return   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Income tax return They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. Income tax return They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Income tax return For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. Income tax return Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. Income tax return Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. Income tax return Excepted vehicles. Income tax return   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). Income tax return Clearly marked police and fire vehicles. Income tax return Unmarked vehicles used by law enforcement officers if the use is officially authorized. Income tax return Ambulances used as such and hearses used as such. Income tax return Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. Income tax return Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. Income tax return Combines, cranes and derricks, and forklifts. Income tax return Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. Income tax return Qualified moving vans. Income tax return Qualified specialized utility repair trucks. Income tax return School buses used in transporting students and employees of schools. Income tax return Other buses with a capacity of at least 20 passengers that are used as passenger buses. Income tax return Tractors and other special purpose farm vehicles. Income tax return Clearly marked police and fire vehicle. Income tax return   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. Income tax return It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. Income tax return It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. Income tax return It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. Income tax return It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. Income tax return A marking on a license plate is not a clear marking for these purposes. Income tax return Qualified moving van. Income tax return   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. Income tax return No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. Income tax return Personal use for travel to and from a move site happens no more than five times a month on average. Income tax return Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. Income tax return Qualified specialized utility repair truck. Income tax return   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. Income tax return The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. Income tax return Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. Income tax return The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. Income tax return Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. Income tax return It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Income tax return Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Income tax return The following are neither computers nor related peripheral equipment. Income tax return Any equipment that is an integral part of other property that is not a computer. Income tax return Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. Income tax return Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. Income tax return Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. Income tax return The use of your property in performing services as an employee is a business use only if both the following requirements are met. Income tax return The use is for your employer's convenience. Income tax return The use is required as a condition of your employment. Income tax return If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. Income tax return Employer's convenience. Income tax return   Whether the use of listed property is for your employer's convenience must be determined from all the facts. Income tax return The use is for your employer's convenience if it is for a substantial business reason of the employer. Income tax return The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. Income tax return Condition of employment. Income tax return   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. Income tax return The use of property must be required for you to perform your duties properly. Income tax return Your employer does not have to require explicitly that you use the property. Income tax return However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. Income tax return Example 1. Income tax return Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. Income tax return She owns and uses a motorcycle to deliver packages to downtown offices. Income tax return We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Income tax return Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Income tax return Example 2. Income tax return Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Income tax return He must travel to these sites on a regular basis. Income tax return Uplift does not furnish an automobile or explicitly require him to use his own automobile. Income tax return However, it pays him for any costs he incurs in traveling to the various sites. Income tax return The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Income tax return Example 3. Income tax return Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. Income tax return The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. Income tax return Example 4. Income tax return Marilyn Lee is a pilot for Y Company, a small charter airline. Income tax return Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Income tax return Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Income tax return Marilyn owns her own airplane. Income tax return The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. Income tax return Example 5. Income tax return David Rule is employed as an engineer with Zip, an engineering contracting firm. Income tax return He occasionally takes work home at night rather than work late in the office. Income tax return He owns and uses a home computer which is virtually identical to the office model. Income tax return His use of the computer is neither for the convenience of his employer nor required as a condition of employment. Income tax return What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. Income tax return To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. Income tax return If this requirement is not met, the following rules apply. Income tax return Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. Income tax return Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. Income tax return Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. Income tax return This rule applies each year of the recovery period. Income tax return Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. Income tax return A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. Income tax return Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. Income tax return It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Income tax return Exception for leased property. Income tax return   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Income tax return   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. Income tax return This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Income tax return Occasional or incidental leasing activity is insufficient. Income tax return For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. Income tax return An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Income tax return How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. Income tax return For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Income tax return You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. Income tax return For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). Income tax return For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. Income tax return Entertainment use. Income tax return   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. Income tax return Commuting use. Income tax return   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. Income tax return For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. Income tax return This is also true for a business meeting held in a car while commuting to work. Income tax return Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. Income tax return The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. Income tax return Use of your automobile by another person. Income tax return   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. Income tax return That use is directly connected with your business. Income tax return You properly report the value of the use as income to the other person and withhold tax on the income where required. Income tax return You are paid a fair market rent. Income tax return Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). Income tax return Employee deductions. Income tax return   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. Income tax return See Can Employees Claim a Deduction , earlier. Income tax return Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. Income tax return However, it does not include the following uses. Income tax return The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). Income tax return The use of property as pay for the services of a 5% owner or related person. Income tax return The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. Income tax return Property does not stop being used predominantly for qualified business use because of a transfer at death. Income tax return Exception for leasing or compensatory use of aircraft. Income tax return   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. Income tax return 5% owner. Income tax return   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. Income tax return   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. Income tax return More than 5% of the outstanding stock of the corporation. Income tax return Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Income tax return Related persons. Income tax return   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . Income tax return For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Income tax return Examples. Income tax return   The following examples illustrate whether the use of business property is qualified business use. Income tax return Example 1. Income tax return John Maple is the sole proprietor of a plumbing contracting business. Income tax return John employs his brother, Richard, in the business. Income tax return As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. Income tax return The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. Income tax return The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. Income tax return Example 2. Income tax return John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. Income tax return He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. Income tax return This use of company automobiles by employees is not a qualified business use. Income tax return Example 3. Income tax return James Company Inc. Income tax return owns several automobiles that its employees use for business purposes. Income tax return The employees also are allowed to take the automobiles home at night. Income tax return The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. Income tax return This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. Income tax return Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. Income tax return However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. Income tax return Example 1. Income tax return Sarah Bradley uses a home computer 50% of the time to manage her investments. Income tax return She also uses the computer 40% of the time in her part-time consumer research business. Income tax return Sarah's home computer is listed property because it is not used at a regular business establishment. Income tax return She does not use the computer predominantly for qualified business use. Income tax return Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. Income tax return She must depreciate it using the straight line method over the ADS recovery period. Income tax return Her combined business/investment use for determining her depreciation deduction is 90%. Income tax return Example 2. Income tax return If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. Income tax return She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. Income tax return Her combined business/investment use for determining her depreciation deduction is 90%. Income tax return Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. Income tax return You also increase the adjusted basis of your property by the same amount. Income tax return Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. Income tax return To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. Income tax return Example. Income tax return In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. Income tax return She used it only for qualified business use for 2009 through 2012. Income tax return Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. Income tax return She began depreciating it using the 200% DB method over a 5-year GDS recovery period. Income tax return The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. Income tax return During 2013, she used the truck 50% for business and 50% for personal purposes. Income tax return She includes $4,018 excess depreciation in her gross income for 2013. Income tax return The excess depreciation is determined as follows. Income tax return Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. Income tax return (Depreciation is from Table A-1. Income tax return ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. Income tax return The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. Income tax return Where to figure and report recapture. Income tax return   Use Form 4797, Part IV, to figure the recapture amount. Income tax return Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. Income tax return For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. Income tax return If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. Income tax return Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Income tax return Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). Income tax return For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. Income tax return The inclusion amount is the sum of Amount A and Amount B, described next. Income tax return However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. Income tax return Amount A. Income tax return   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . Income tax return   The fair market value of the property is the value on the first day of the lease term. Income tax return If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. Income tax return Amount B. Income tax return   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . Income tax return Maximum inclusion amount. Income tax return   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. Income tax return Inclusion amount worksheet. Income tax return   The following worksheet is provided to help you figure the inclusion amount for leased listed property. Income tax return Inclusion Amount Worksheet for Leased Listed Property 1. Income tax return Fair market value   2. Income tax return Business/investment use for first year business use is 50% or less   3. Income tax return Multiply line 1 by line 2. Income tax return   4. Income tax return Rate (%) from Table A-19   5. Income tax return Multiply line 3 by line 4. Income tax return This is Amount A. Income tax return   6. Income tax return Fair market value   7. Income tax return Average business/investment use for years property leased before the first year business use is 50% or less . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return . Income tax return   8. Income tax return Multiply line 6 by line 7   9. Income tax return Rate (%) from Table A-20   10. Income tax return Multiply line 8 by line 9. Income tax return This is Amount B. Income tax return   11. Income tax return Add line 5 and line 10. Income tax return This is your inclusion amount. Income tax return Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Income tax return )         Example. Income tax return On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. Income tax return The lease is for a period of 5 years. Income tax return Larry does not use the computer at a regular business establishment, so it is listed property. Income tax return His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. Income tax return He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. Income tax return The computer has a 5-year recovery period under both GDS and ADS. Income tax return 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. Income tax return 8%. Income tax return The applicable percentage from Table A-20 is 22. Income tax return 0%. Income tax return Larry's deductible rent for the computer for 2013 is $800. Income tax return Larry uses the Inclusion amount worksheet. Income tax return to figure the amount he must include in income for 2013. Income tax return His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). Income tax return Inclusion Amount Worksheet for Leased Listed Property 1. Income tax return Fair market value $3,000   2. Income tax return Business/investment use for first year business use is 50% or less 40 % 3. Income tax return Multiply line 1 by line 2. Income tax return 1,200   4. Income tax return Rate (%) from Table A-19 −19. Income tax return 8 % 5. Income tax return Multiply line 3 by line 4. Income tax return This is Amount A. Income tax return −238   6. Income tax return Fair market value 3,000   7. Income tax return Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. Income tax return Multiply line 6 by line 7 2,100   9. Income tax return Rate (%) from Table A-20 22. Income tax return 0 % 10. Income tax return Multiply line 8 by line 9. Income tax return This is Amount B. Income tax return 462   11. Income tax return Add line 5 and line 10. Income tax return This is your inclusion amount. Income tax return Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Income tax return ) $224           Lease beginning in the last 9 months of your tax year. Income tax return    The inclusion amount is subject to a special rule if all the following apply. Income tax return The lease term begins within 9 months before the close of your tax year. Income tax return You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. Income tax return The lease term continues into your next tax year. Income tax return Under this special rule, add the inclusion amount to income in the next tax year. Income tax return Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. Income tax return Skip lines 6 through 9 of the worksheet and enter zero on line 10. Income tax return Example 1. Income tax return On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. Income tax return The property is 5-year property with a fair market value of $10,000. Income tax return Her property has a recovery period of 5 years under ADS. Income tax return The lease is for 5 years. Income tax return Her business use of the property was 50% in 2012 and 90% in 2013. Income tax return She paid rent of $3,600 for 2012, of which $3,240 is deductible. Income tax return She must include $147 in income in 2013. Income tax return The $147 is the sum of Amount A and Amount B. Income tax return Amount A is $147 ($10,000 × 70% × 2. Income tax return 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . Income tax return Amount B is zero. Income tax return Lease for less than one year. Income tax return   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. Income tax return The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. Income tax return The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). Income tax return   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. Income tax return If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. Income tax return Example 2. Income tax return On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. Income tax return This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. Income tax return The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. Income tax return He must include $71 in income in 2013. Income tax return The $71 is the sum of Amount A and Amount B. Income tax return Amount A is $71 ($15,000 × 45% × 2. Income tax return 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. Income tax return Amount B is zero. Income tax return Where to report inclusion amount. Income tax return   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. Income tax return For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. Income tax return If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. Income tax return Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. Income tax return This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. Income tax return Exception for leased cars. Income tax return   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. Income tax return For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . Income tax return Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. Income tax return They are based on the date you placed the automobile in service. Income tax return Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. Income tax return Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Income tax return 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. Income tax return 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. Income tax return 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. Income tax return 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. Income tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Income tax return 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Income tax return If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. Income tax return If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. Income tax return The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. Income tax return Example. Income tax return On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. Income tax return She used the car only in her business. Income tax return She files her tax return based on the calendar year. Income tax return She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Income tax return Under MACRS, a car is 5-year property. Income tax return Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Income tax return Virginia multiplies the $14,500 unadjusted basis of her car by 0. Income tax return 20 to get her MACRS depreciation of $2,900 for 2013. Income tax return This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. Income tax return She can deduct the full $2,900. Income tax return Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. Income tax return The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Income tax return Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. Income tax return Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. Income tax return 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. Income tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Income tax return 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Income tax return Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. Income tax return The maximum deduction amounts for trucks and vans are shown in the following table. Income tax return Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. Income tax return 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. Income tax return 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Income tax return 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. Income tax return 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. Income tax return 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. Income tax return 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. Income tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Income tax return 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Income tax return Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. Income tax return Then use the information from this worksheet to prepare Form 4562. Income tax return Depreciation Worksheet for Passenger Automobiles   Part I   1. Income tax return MACRS system (GDS or ADS)     2. Income tax return Property class     3. Income tax return Date placed in service     4. Income tax return Recovery period     5. Income tax return Method and convention     6. Income tax return Depreciation rate (from tables)     7. Income tax return Maximum depreciation deduction for this year from the appropriate table       8. Income tax return Business/investment-use percentage       9. Income tax return Multiply line 7 by line 8. Income tax return This is your adjusted maximum depreciation deduction       10. Income tax return Section 179 deduction claimed this year (not more than line 9). Income tax return Enter -0- if this is not the year you placed the car in service. Income tax return         Note. Income tax return  1) If line 10 is equal to line 9, stop here. Income tax return Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. Income tax return  2) If line 10 is less than line 9, complete Part II. Income tax return   Part II   11. Income tax return Subtract line 10 from line 9. Income tax return This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. Income tax return Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. Income tax return Multiply line 12 by line 8. Income tax return This is your business/investment cost       14. Income tax return Section 179 deduction claimed in the year you placed the car in service       15. Income tax return Subtract line 14 from line 13. Income tax return This is your tentative basis for depreciation       16. Income tax return Multiply line 15 by . Income tax return 50 if the 50% special depreciation allowance applies. Income tax return This is your special depreciation allowance. Income tax return Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. Income tax return Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. Income tax return  2) If line 16 is less than line 11, complete Part III. Income tax return   Part III   17. Income tax return Subtract line 16 from 11. Income tax return This is the limit on the amount you can deduct for MACRS depreciation       18. Income tax return Subtract line 16 from line 15. Income tax return This is your basis for depreciation. Income tax return       19. Income tax return Multiply line 18 by line 6. Income tax return This is your tentative MACRS depreciation deduction. Income tax return       20. Income tax return Enter the lesser of line 17 or line 19. Income tax return This is your MACRS depreciation deduction. Income tax return     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. Income tax return 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. Income tax return             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. Income tax return If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. Income tax return You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. Income tax return The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. Income tax return See Maximum Depreciation Deduction , earlier. Income tax return Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. Income tax return You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. Income tax return There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. Income tax return Example. Income tax return In May 2007, you bought and placed in service a car costing $31,500. Income tax return The car was 5-year property under GDS (MACRS). Income tax return You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Income tax return You used the car exclusively for business during the recovery period (2007 through 2012). Income tax return You figured your depreciation as shown below. Income tax return Year Percentage Amount Limit   Allowed 2007 20. Income tax return 0% $6,300 $2,960   $2,960 2008 32. Income tax return 0 10,080 4,800   4,800 2009 19. Income tax return 2 6,048 2,850   2,850 2010 11. Income tax return 52 3,629 1,675   1,675 2011 11. Income tax return 52 3,629 1,675   1,675 2012 5. Income tax return 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). Income tax return If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. Income tax return If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. Income tax return However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. Income tax return For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. Income tax return Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. Income tax return Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. Income tax return This excess basis is the additional cash paid for the new automobile in the trade-in. Income tax return The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Income tax return Special rules apply in determining the passenger automobile limits. Income tax return These rules and examples are discussed in section 1. Income tax return 168(i)-6(d)(3) of the regulations. Income tax return Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. Income tax return For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. Income tax return 168(i)-6(i) and 1. Income tax return 168(i)-6(j) of the regulations. Income tax return What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. Income tax return For listed property, you must keep records for as long as any recapture can still occur. Income tax return Recapture can occur in any tax year of the recovery period. Income tax return Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Income tax return You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. Income tax return However, your records should back up your receipts in an orderly manner. Income tax return Elements of expenditure or use. Income tax return   Your records or other documentary evidence must support all the following. Income tax return The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. Income tax return The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. Income tax return The date of the expenditure or use. Income tax return The business or investment purpose for the expenditure or use. Income tax return   Written documents of your expenditure or use are generally better evidence than oral statements alone. Income tax return You do not have to keep a daily log. Income tax return However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. Income tax return Timeliness. Income tax return   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. Income tax return An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. Income tax return   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. Income tax return Business purpose supported. Income tax return   Generally, an adequate record of business purpose must be in the form of a written statement. Income tax return However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. Income tax return A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Income tax return For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Income tax return Business use supported. Income tax return   An adequate record contains enough information on each element of every business or investment use. Income tax return The amount of detail required to support the use depends on the facts and circumstances. Income tax return For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Income tax return   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. Income tax return Separate or combined expenditures or uses. Income tax return   Each use by you normally is considered a separate use. Income tax return However, you can combine repeated uses as a single item. Income tax return   Record each expenditure as a separate item. Income tax return Do not combine it with other expenditures. Income tax return If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. Income tax return If you combine these expenses, you do not need to support the business purpose of each expense. Income tax return Instead, you can divide the expenses based on the total business use of the listed property. Income tax return   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. Income tax return For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. Income tax return You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Income tax return Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Income tax return Confidential information. Income tax return   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. Income tax return You must keep it elsewhere and make it available as support to the IRS director for your area on request. Income tax return Substantial compliance. Income tax return   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. Income tax return   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. Income tax return By your own oral or written statement containing detailed information as to the element. Income tax return By other evidence sufficient to establish the element. Income tax return   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Income tax return If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Income tax return Sampling. Income tax return   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. Income tax return Example 1. Income tax return Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. Income tax return She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. Income tax return There is no other business use of the automobile, but she and family members also use it for personal purposes. Income tax return She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Income tax return Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. Income tax return If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Income tax return Example 2. Income tax return Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. Income tax return Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. Income tax return The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Income tax return Example 3. Income tax return Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. Income tax return For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. Income tax return During these weeks, his business use of the automobile does not follow a consistent pattern. Income tax return During the fourth week of each month, he delivers all business orders taken during the previous month. Income tax return The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. Income tax return The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. Income tax return Loss of records. Income tax return   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Income tax return How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. Income tax return Any deduction for a vehicle. Income tax return A depreciation deduction for any other listed property. Income tax return If you claim any deduction for a vehicle, you also must provide the information requested in Section B. Income tax return If you provide the vehicle for your employee's use, the employee must give you this information. Income tax return If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. Income tax return Vehicles used by your employees. Income tax return   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. Income tax return You maintain a written policy statement that prohibits one of the following uses of the vehicles. Income tax return All personal use including commuting. Income tax return Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. Income tax return You treat all use of the vehicles by your employees as personal use. Income tax return You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. Income tax return For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. Income tax return Exceptions. Income tax return   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. Income tax return Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. Income tax return Prev  Up  Next   Home   More Online Publications
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Interest Rates Remain the Same for the Second Quarter of 2014

Interest Rates Remain the Same for the Second Quarter of 2014

IR-2014-29, March 14, 2014  

 

WASHINGTON — The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning April 1, 2014.  The rates will be: 

  • three (3) percent for overpayments [two (2) percent in the case of a corporation];
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during January 2014 to take effect February 1, 2014, based on daily compounding.

Revenue Ruling 2014-11 providing the rates of interest will appear in Internal Revenue Bulletin 2014-14, dated March 31, 2014.

 

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Page Last Reviewed or Updated: 14-Mar-2014

The Income Tax Return

Income tax return Publication 80 - Introductory Material Table of Contents Future Developments What's New Reminders Calendar Future Developments For the latest information about developments related to Publication 80 (Circular SS), such as legislation enacted after it was published, go to www. Income tax return irs. Income tax return gov/pub80. Income tax return What's New Social security and Medicare tax for 2014. Income tax return  The social security tax rate is 6. Income tax return 2% each for the employee and employer, unchanged from 2013. Income tax return The social security wage base limit is $117,000. Income tax return The Medicare tax rate is 1. Income tax return 45% each for the employee and employer, unchanged from 2013. Income tax return There is no wage base limit for Medicare tax. Income tax return 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. Income tax return Social security and Medicare taxes apply to election workers who are paid $1,600 or more in cash or an equivalent form of compensation. Income tax return Change of responsible party. Income tax return . Income tax return  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. Income tax return Form 8822-B must be filed within 60 days of the change. Income tax return 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. Income tax return For a definition of “responsible party”, see the Form 8822-B instructions. Income tax return Same-sex marriage. Income tax return  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. Income tax return For more information, see Revenue Ruling 2013-17, 2013-38 I. Income tax return R. Income tax return B. Income tax return 201, available at www. Income tax return irs. Income tax return gov/irb/2013-38_IRB/ar07. Income tax return html. Income tax return 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. Income tax return Notice 2013-61, 2013-44 I. Income tax return R. Income tax return B. Income tax return 432, is available at www. Income tax return irs. Income tax return gov/irb/2013-44_IRB/ar10. Income tax return html. Income tax return Reminders Additional Medicare Tax withholding. Income tax return  In addition to withholding Medicare tax at 1. Income tax return 45%, you must withhold a 0. Income tax return 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Income tax return 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. Income tax return Additional Medicare Tax is only imposed on the employee. Income tax return There is no employer share of Additional Medicare Tax. Income tax return 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. Income tax return For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Employment and Payments , in section 12. Income tax return For more information on Additional Medicare Tax, visit IRS. Income tax return gov and enter “Additional Medicare Tax” in the search box. Income tax return Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. Income tax return  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. Income tax return 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. Income tax return For more information, visit IRS. Income tax return gov and enter “work opportunity tax credit” in the search box. Income tax return Outsourcing payroll duties. Income tax return  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. Income tax return The employer remains responsible if the third party fails to perform any required action. Income tax return 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. Income tax return gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. Income tax return Residents of the Philippines working in the Commonwealth of the Northern Mariana Islands (CNMI). Income tax return  The IRS will not assert that an employer has understated liability for social security and Medicare taxes because they failed to treat services performed before January 1, 2015, in the CNMI by a resident of the Philippines as employment as defined under Internal Revenue Code section 3121(b). Income tax return For more information, see Announcement 2012-43, 2012-51 I. Income tax return R. Income tax return B. Income tax return 723, available at www. Income tax return irs. Income tax return gov/irb/2012-51_IRB/ar15. Income tax return html. Income tax return CNMI government employees now subject to social security and Medicare taxes. Income tax return  Beginning in the fourth calendar quarter of 2012, CNMI government employees are subject to social security and Medicare taxes. Income tax return COBRA premium assistance credit. Income tax return  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. Income tax return See COBRA premium assistance credit in Publication 15 (Circular E), Employer's Tax Guide. Income tax return You can get Publication 15 (Circular E) at IRS. Income tax return gov. Income tax return You must receive written notice from the IRS to file Form 944. Income tax return  If you have been filing Forms 941-SS and believe your employment taxes for the calendar year will be $1,000 or less, and you would like to file Form 944, Employer's ANNUAL Federal Tax Return, instead of Forms 941-SS, you must contact the IRS to request to file Form 944. Income tax return You must receive written notice from the IRS to file Form 944 instead of Forms 941-SS before you may file this form. Income tax return For more information on requesting to file Form 944 visit IRS. Income tax return gov and enter “file employment taxes annually” in the search box. Income tax return Federal employers in the CNMI. Income tax return  The U. Income tax return S. Income tax return Treasury Department and the CNMI Division of Revenue and Taxation entered into an agreement under 5 USC 5517 in December 2006. Income tax return Under this agreement, all federal employers (including the Department of Defense) are required to withhold CNMI income taxes (rather than federal income taxes) and deposit the CNMI taxes with the CNMI Treasury for employees who are subject to CNMI taxes and whose regular place of federal employment is in the CNMI. Income tax return Federal employers are also required to file quarterly and annual reports with the CNMI Division of Revenue and Taxation. Income tax return For questions, contact the CNMI Division of Revenue and Taxation. Income tax return Change of address. Income tax return  Use Form 8822-B to notify the IRS of an address change. Income tax return Do not mail Form 8822-B with your employment tax return. Income tax return Federal tax deposits must be made by electronic funds transfer. Income tax return  You must use electronic funds transfer to make all federal tax deposits. Income tax return Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Income tax return 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. Income tax return Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Income tax return EFTPS is a free service provided by the Department of Treasury. Income tax return Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Income tax return For more information on making federal tax deposits, see How To Deposit in section 8. Income tax return For more information about EFTPS or to enroll in EFTPS, visit the EFTPS website at www. Income tax return eftps. Income tax return gov or call 1-800-555-4477 (U. Income tax return S. Income tax return Virgin Islands only) or 303-967-5916 (toll call) or 1-800-733-4829 (TDD). Income tax return Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. Income tax return Electronic filing and payment. Income tax return  Using electronic options can make filing a return and paying your federal tax easier. Income tax return Use the Electronic Federal Tax Payment System (EFTPS) to make deposits or pay in full, whether you rely on a tax professional or prepare your own taxes. Income tax return You can use IRS e-file to file certain returns. Income tax return If there is a balance due on the return, you can e-file and e-pay in a single step by authorizing an electronic funds withdrawal (EFW) from your bank account while e-filing. Income tax return Do not use EFW to pay taxes that are required to be deposited. Income tax return Visit the IRS website at www. Income tax return irs. Income tax return gov/efile for more information on filing electronically. Income tax return For more information on paying your taxes using EFW, visit the IRS website at www. Income tax return irs. Income tax return gov/e-pay. Income tax return A fee may be charged to file electronically. Income tax return For EFTPS, visit www. Income tax return eftps. Income tax return gov or call EFTPS Customer Service at 1-800-555-4477 (U. Income tax return S. Income tax return Virgin Islands only) or 303-967-5916 (toll call). Income tax return For electronic filing of Forms W-2AS, W-2CM, W-2GU, W-2VI, Wage and Tax Statements; W-3SS, Transmittal of Wage and Tax Statements; and W-2c, Corrected Wage and Tax Statement, visit www. Income tax return socialsecurity. Income tax return gov/employer. Income tax return If you are filing your tax return or paying your federal taxes electronically, a valid EIN is required. Income tax return If a valid EIN is not provided, the return or payment will not be processed. Income tax return This may result in penalties and delays in processing your return or payment. Income tax return Electronic option for filing Forms W-2AS, W-2CM, W-2GU, or W-2VI. Income tax return  Employers in American Samoa, the CNMI, Guam, and the U. Income tax return S. Income tax return Virgin Islands can now use the Social Security Administration's W-2 Online service to create, save, print, and submit up to 50 Forms W-2AS, W-2CM, W-2GU, or W-2VI at a time over the Internet. Income tax return Form W-3SS will be generated automatically based on your Forms W-2AS, W-2CM, W-2GU, or W-2VI. Income tax return For more information, visit Social Security Administration's SSA website at www. Income tax return ssa. Income tax return gov/bso/bsowelcome. Income tax return htm. Income tax return Credit or debit card payments. Income tax return  For information on paying your taxes with a credit or debit card, visit the IRS website at www. Income tax return irs. Income tax return gov/e-pay. Income tax return However, do not use credit or debit cards to make federal tax deposits. Income tax return Hiring new employees. Income tax return  Record the number and name from each new employee's social security card. Income tax return An employee who does not have a social security card should apply for one on Form SS-5, Application for a Social Security Card. Income tax return See section 3. Income tax return Reporting discrepancies between Forms 941-SS (or Form 944) and Forms W-2. Income tax return  File Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations, to explain certain wage, tax, and payment discrepancies between Forms 941-SS (or Form 944), and Forms W-2 that were caused by acquisitions, statutory mergers, or consolidations. Income tax return For more information, see the Instructions for Schedule D (Form 941). Income tax return Apply for an employer identification number (EIN) online. Income tax return  You can apply for an EIN online by visiting IRS. Income tax return gov and clicking on the Apply for an EIN Online link under Tools. Income tax return Dishonored payments. Income tax return  Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. Income tax return The penalty is $25 or 2% of the payment, whichever is more. Income tax return However, the penalty on dishonored payments of $24. Income tax return 99 or less is an amount equal to the payment. Income tax return For example, a dishonored payment of $18 is charged a penalty of $18. Income tax return Private delivery services. Income tax return  You can use certain private delivery services designated by the IRS to send tax returns or payments. Income tax return The list includes only the following: DHL Express (DHL): DHL Same Day Service. Income tax return Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Income tax return United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Income tax return M. Income tax return , UPS Worldwide Express Plus, and UPS Worldwide Express. Income tax return For the IRS mailing address to use if you are using a private delivery service, go to IRS. Income tax return gov and enter “private delivery service” in the search box. Income tax return Your private delivery service can tell you how to get written proof of the mailing date. Income tax return Private delivery services cannot deliver items to P. Income tax return O. Income tax return boxes. Income tax return You must use the U. Income tax return S. Income tax return Postal Service to mail any item to an IRS P. Income tax return O. Income tax return box address. Income tax return Recordkeeping. Income tax return  Keep all records of employment taxes for 4 years. Income tax return These should be available for IRS review. Income tax return There is no required format for such records, but they should include your EIN; the amounts and dates of all wage payments (including fringe benefits) and tips reported; the names, addresses, and occupations of employees receiving such payments and their social security numbers; copies of returns filed; dates of employment; and the dates and amounts of deposits made. Income tax return Farm employers must keep a record of the name, permanent address, and EIN of each crew leader. Income tax return See Farm Crew Leaders in section 2. Income tax return Disregarded entities and qualified subchapter S subsidiaries (QSubs). Income tax return  Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. Income tax return 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. Income tax return See Regulations sections 1. Income tax return 1361-4(a)(7) and 301. Income tax return 7701-2(c)(2)(iv). Income tax return Photographs of missing children. Income tax return  The IRS is a proud partner with the National Center for Missing and Exploited Children. Income tax return Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Income tax return 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. Income tax return Calendar   If any date 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. Income tax return 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. Income tax return However, a statewide legal holiday does not delay the due date of federal tax deposits. Income tax return See Deposits on Business Days Only in section 8. Income tax return 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. Income tax return S. Income tax return Postal Service on or before the due date, or sent by an IRS-designated delivery service on or before the due date. Income tax return See Private delivery services under Reminders. Income tax return The following are important dates and responsibilities. Income tax return Also see Publication 509, Tax Calendars. Income tax return By January 31. Income tax return   Furnish wage and tax statements to employees. Income tax return Give each employee a completed Form W-2AS, W-2CM, W-2GU, or W-2VI. Income tax return See section 10 for more information. Income tax return File Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, with the IRS. Income tax return If you deposited all Form 943 taxes when due, you have 10 additional calendar days to file. Income tax return U. Income tax return S. Income tax return Virgin Islands employers only must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, with the IRS. Income tax return Pay or deposit (if more than $500) any balance of the tax due. Income tax return If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. Income tax return File Form 944 with the IRS if you were notified by the IRS to file Form 944 instead of quarterly Forms 941-SS. Income tax return If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. Income tax return By February 28. Income tax return  File paper wage and tax statements with the Social Security Administration (SSA). Income tax return File Copy A of Forms W-2AS, W-2CM, W-2GU, or W-2VI, and Form W-3SS with the Social Security Administration (SSA). Income tax return For electronically filed returns, see By March 31 next. Income tax return By March 31. Income tax return  File electronic Forms W-2AS, W-2CM, W-2GU, or W-2VI with the SSA. Income tax return Visit the SSA's Reporting Instructions & Information webpage at www. Income tax return socialsecurity. Income tax return gov/employer for more information. Income tax return By April 30, July 31, October 31, and January 31. Income tax return  File Form 941-SS with the IRS. Income tax return If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. Income tax return Do not file Forms 941-SS for these quarters if you have been notified to file Form 944 and you did not request to file quarterly Forms 941-SS. Income tax return Deposit FUTA tax for the quarter (including any amount carried over from other quarters) if over $500. Income tax return If $500 or less, carry it over to the next quarter. Income tax return See section 11 for more information. Income tax return Prev  Up  Next   Home   More Online Publications