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It 1040ez Publication 908 - Introductory Material Table of Contents Future Developments What's New Reminders Introduction Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 908, such as legislation enacted after it was published, go to www. It 1040ez irs. It 1040ez gov/pub908. It 1040ez What's New Expiration of provision for catch-up contributions for IRC section 401(k) participants whose employer filed bankruptcy. It 1040ez The Pension Protection Act of 2006, P. It 1040ez L. It 1040ez 109-280, previously allowed additional contributions of up to $7,000 in a traditional or Roth IRA for employees who participated in an IRC section 401(k) plan of an employer that filed bankruptcy in an earlier year. It 1040ez This provision was not extended for tax years beginning on or after January 1, 2010. It 1040ez Automatic 6-month extension of time to file a bankruptcy estate return now available for individuals in Chapter 7 or 11 bankruptcy. It 1040ez Beginning June 24, 2011, the IRS clarified in T. It 1040ez D. It 1040ez 9531 that there is available an automatic 6-month extension of time to file a bankruptcy estate income tax return for individuals in Chapter 7 or Chapter 11 bankruptcy proceedings upon filing a required application. It 1040ez The previous extension of time to file a bankruptcy estate return was 5 months. It 1040ez Reminders The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. It 1040ez The changes to the U. It 1040ez S. It 1040ez Bankruptcy Code enacted by BAPCA are incorporated throughout this publication. It 1040ez Debtors filing under chapters 7, 11, 12, and 13 of the Bankruptcy Code must file all applicable federal, state, and local tax returns that become due after a case commences. It 1040ez Failure to file tax returns timely or obtain an extension can cause a bankruptcy case to be converted to another chapter or dismissed. It 1040ez In chapter 13 cases, the debtor must file all required tax returns for tax periods ending within 4 years of the filing of the bankruptcy petition. It 1040ez Photographs of missing children. It 1040ez The IRS is a proud partner with the National Center for Missing and Exploited Children. It 1040ez Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. It 1040ez 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. It 1040ez Introduction This publication is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. It 1040ez Additionally, this publication is not updated on an annual basis and may not reflect recent developments in bankruptcy or tax law. It 1040ez If you need more guidance on the bankruptcy or tax laws applicable to your case, you should seek professional advice. It 1040ez This publication explains the basic federal income tax aspects of bankruptcy. It 1040ez A fundamental goal of the bankruptcy laws enacted by Congress is to give an honest debtor a financial “fresh start”. It 1040ez This is accomplished through the bankruptcy discharge, which is a permanent injunction (court ordered prohibition) against the collection of certain debts as a personal liability of the debtor. It 1040ez Bankruptcy proceedings begin with the filing of either a voluntary petition in the United States Bankruptcy Court, or in certain cases an involuntary petition filed by creditors. It 1040ez This filing creates the bankruptcy estate. It 1040ez The bankruptcy estate generally consists of all of the assets the individual or entity owns on the date the bankruptcy petition was filed. It 1040ez The bankruptcy estate is treated as a separate taxable entity for individuals filing bankruptcy petitions under chapter 7 or 11 of the Bankruptcy Code, discussed later. It 1040ez The tax obligations of taxable bankruptcy estates are discussed later under Individuals in Chapter 7 or 11. It 1040ez Generally, when a debt owed to another person or entity is canceled, the amount canceled or forgiven is considered income that is taxed to the person owing the debt. It 1040ez If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. It 1040ez However, the canceled debt reduces other tax benefits to which the debtor would otherwise be entitled. It 1040ez See Debt Cancellation, later. It 1040ez Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets 551 Basis of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) SS-4 Application for Employer Identification Number, and separate instructions 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) 1040 U. It 1040ez S. It 1040ez Individual Income Tax Return, and separate instructions Schedule SE (Form 1040) Self-Employment Tax 1040X Amended U. It 1040ez S. It 1040ez Individual Income Tax Return, and separate instructions 1041 U. It 1040ez S. It 1040ez Income Tax Return for Estates and Trusts, and separate instructions 1041-ES Estimated Income Tax for Estates and Trusts 1041-V Payment Voucher 4506 Request for Copy of Tax Return 4506-T Request for Transcript of Tax Return 4852 Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. It 1040ez 4868 Application for Automatic Extension of Time To File U. It 1040ez S. It 1040ez Individual Income Tax Return 7004 Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns See How To Get Tax Help, later, for information about getting these publications and forms. It 1040ez Prev Up Next Home More Online Publications
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The It 1040ez
It 1040ez 1. It 1040ez Definitions You Need To Know Table of Contents Other options. It 1040ez Exception. It 1040ez Certain terms used in this publication are defined below. It 1040ez The same term used in another publication may have a slightly different meaning. It 1040ez Annual additions. It 1040ez Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. It 1040ez Annual benefits. It 1040ez Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. It 1040ez Business. It 1040ez A business is an activity in which a profit motive is present and economic activity is involved. It 1040ez Service as a newspaper carrier under age 18 or as a public official is not a business. It 1040ez Common-law employee. It 1040ez A common-law employee is any individual who, under common law, would have the status of an employee. It 1040ez A leased employee can also be a common-law employee. It 1040ez A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. It 1040ez For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. It 1040ez Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. It 1040ez For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. It 1040ez S. It 1040ez citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. It 1040ez However, an individual may be a common-law employee and a self-employed person as well. It 1040ez For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. It 1040ez In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. It 1040ez However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. It 1040ez Compensation. It 1040ez Compensation for plan allocations is the pay a participant received from you for personal services for a year. It 1040ez You can generally define compensation as including all the following payments. It 1040ez Wages and salaries. It 1040ez Fees for professional services. It 1040ez Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. It 1040ez Commissions and tips. It 1040ez Fringe benefits. It 1040ez Bonuses. It 1040ez For a self-employed individual, compensation means the earned income, discussed later, of that individual. It 1040ez Compensation generally includes amounts deferred in the following employee benefit plans. It 1040ez These amounts are elective deferrals. It 1040ez Qualified cash or deferred arrangement (section 401(k) plan). It 1040ez Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. It 1040ez Section 457 nonqualified deferred compensation plan. It 1040ez Section 125 cafeteria plan. It 1040ez However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. It 1040ez The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. It 1040ez Other options. It 1040ez In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. It 1040ez The employee's wages as defined for income tax withholding purposes. It 1040ez The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. It 1040ez The employee's social security wages (including elective deferrals). It 1040ez Compensation generally cannot include either of the following items. It 1040ez Nontaxable reimbursements or other expense allowances. It 1040ez Deferred compensation (other than elective deferrals). It 1040ez SIMPLE plans. It 1040ez A special definition of compensation applies for SIMPLE plans. It 1040ez See chapter 3. It 1040ez Contribution. It 1040ez A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. It 1040ez Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. It 1040ez Deduction. It 1040ez A deduction is the plan contributions you can subtract from gross income on your federal income tax return. It 1040ez Limits apply to the amount deductible. It 1040ez Earned income. It 1040ez Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. It 1040ez You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. It 1040ez Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. It 1040ez It includes income from licensing the use of property other than goodwill. It 1040ez Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. It 1040ez If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. It 1040ez Employer. It 1040ez An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. It 1040ez A sole proprietor is treated as his or her own employer for retirement plan purposes. It 1040ez However, a partner is not an employer for retirement plan purposes. It 1040ez Instead, the partnership is treated as the employer of each partner. It 1040ez Highly compensated employee. It 1040ez A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. It 1040ez Leased employee. It 1040ez A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. It 1040ez Provides services to you under an agreement between you and a leasing organization. It 1040ez Has performed services for you (or for you and related persons) substantially full time for at least 1 year. It 1040ez Performs services under your primary direction or control. It 1040ez Exception. It 1040ez A leased employee is not treated as your employee if all the following conditions are met. It 1040ez Leased employees are not more than 20% of your non-highly compensated work force. It 1040ez The employee is covered under the leasing organization's qualified pension plan. It 1040ez The leasing organization's plan is a money purchase pension plan that has all the following provisions. It 1040ez Immediate participation. It 1040ez (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. It 1040ez ) Full and immediate vesting. It 1040ez A nonintegrated employer contribution rate of at least 10% of compensation for each participant. It 1040ez However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. It 1040ez Net earnings from self-employment. It 1040ez For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. It 1040ez Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. It 1040ez Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. It 1040ez For the deduction limits, earned income is net earnings for personal services actually rendered to the business. It 1040ez You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. It 1040ez Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). It 1040ez It does not include income passed through to shareholders of S corporations. It 1040ez Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. It 1040ez Distributions of other income or loss to limited partners are not net earnings from self-employment. It 1040ez For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. It 1040ez Qualified plan. It 1040ez A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. It 1040ez You can deduct contributions made to the plan for your employees. It 1040ez Earnings on these contributions are generally tax free until distributed at retirement. It 1040ez Profit-sharing, money purchase, and defined benefit plans are qualified plans. It 1040ez A 401(k) plan is also a qualified plan. It 1040ez Participant. It 1040ez A participant is an eligible employee who is covered by your retirement plan. It 1040ez See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. It 1040ez Partner. It 1040ez A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. It 1040ez For retirement plans, a partner is treated as an employee of the partnership. It 1040ez Self-employed individual. It 1040ez An individual in business for himself or herself, and whose business is not incorporated, is self-employed. It 1040ez Sole proprietors and partners are self-employed. It 1040ez Self-employment can include part-time work. It 1040ez Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. It 1040ez See Common-law employee and Net earnings from self-employment , earlier. It 1040ez In addition, certain fishermen may be considered self-employed for setting up a qualified plan. It 1040ez See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. It 1040ez Sole proprietor. It 1040ez A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. It 1040ez For retirement plans, a sole proprietor is treated as both an employer and an employee. It 1040ez Prev Up Next Home More Online Publications