File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Online Ez Form

H&r Block Tax CutWww H And R Block Com2012 Irs Form 1040Where To Report State Income Tax On 1040Amended 10402009 Tax1040ez Tax Form1040nr Tax ReturnsFile 2007 Taxes For Free2012 Income TaxFreetaxusa 2007Hr Block FreeIncome Tax 1040ezIrs Tax Filing1040a 2010 Tax FormFree Tax ReturnsWhere To File 2011 Federal Tax Return2011 Tax Form2010 Taxes Cheap 1099g Form W 2Free File State Tax ReturnCan I Still File 2012 Tax ReturnHow To Do A Tax AmendmentIrs 2012 1040 Tax FormTax Forms 1040ezTaxes 20121040 Ez Tax FormWww Taxcut Com1040ez Forms Download FreeE File Your State Taxes For FreeFree Tax Return1040x H&r BlockIrs 1040 Ez 20122011 Tax Amendment Form2011 1040a Tax FormFile State Tax For Free OnlineHow To File An Amended Tax Return 2013Federal 1040ezEfile For Free State And FederalForm 1040vTax 2010

Online Ez Form

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

Reference and General Government Podcasts from the U.S. Government

Government podcasts on topics such as government accountability, courts, and statistics.

The Online Ez Form

Online ez form 4. Online ez form   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. Online ez form Line of business. Online ez form Examples. Online ez form Improvement of business conditions. Online ez form Exception for local legislation. Online ez form De minimis exception. Online ez form Grass roots lobbying. Online ez form 501(c)(7) - Social and Recreation ClubsLimited membership. Online ez form Support. Online ez form Facilities open to public. Online ez form Gross receipts from nonmembership sources. Online ez form Gross receipts. Online ez form Nontraditional activities. Online ez form 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. Online ez form Losses and expenses. Online ez form Distributions of proceeds. Online ez form The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. Online ez form Perpetual care organization. Online ez form Care of individual plots. Online ez form 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. Online ez form 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. Online ez form Waiver of payment of income. Online ez form 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Online ez form Section 501(c)(3) organizations are covered in chapter 3 of this publication. Online ez form The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. Online ez form 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). Online ez form The discussion that follows describes the information you must provide when applying. Online ez form For application procedures, see chapter 1. Online ez form To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. Online ez form In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. Online ez form If the organization provides an excess benefit to certain persons, an excise tax may be imposed. Online ez form See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. Online ez form Examples. Online ez form   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. Online ez form Nonprofit operation. Online ez form   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. Online ez form However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. Online ez form Social welfare. Online ez form   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Online ez form   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. Online ez form It therefore does not qualify as a section 501(c)(4) organization. Online ez form Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. Online ez form However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. Online ez form Political activity. Online ez form   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. Online ez form However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Online ez form See the discussion in chapter 2 under Political Organization Income Tax Return . Online ez form Social or recreational activity. Online ez form   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). Online ez form Retirement benefit program. Online ez form   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. Online ez form It may qualify under another paragraph of section 501(c) depending on all the facts. Online ez form   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). Online ez form Tax treatment of donations. Online ez form   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. Online ez form Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. Online ez form They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. Online ez form However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Online ez form for more information. Online ez form For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. Online ez form gov. Online ez form Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. Online ez form Volunteer fire companies. Online ez form   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. Online ez form   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). Online ez form In this event, your organization should file Form 1023. Online ez form Homeowners' associations. Online ez form   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. Online ez form The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. Online ez form Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. Online ez form Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. Online ez form   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. Online ez form It also must show that it does not engage in exterior maintenance of private homes. Online ez form   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. Online ez form Other organizations. Online ez form   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. Online ez form 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. Online ez form You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. Online ez form In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Online ez form Submit any additional information that may be required, as described in this section. Online ez form Tax treatment of donations. Online ez form   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. Online ez form However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. Online ez form For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Online ez form Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. Online ez form To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Online ez form In addition, no net earnings of the organization can inure to the benefit of any member. Online ez form Composition of membership. Online ez form   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. Online ez form You must show in your application that your organization has the purposes described in the preceding paragraph. Online ez form These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. Online ez form Benefits to members. Online ez form   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. Online ez form However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. Online ez form   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. Online ez form gov. Online ez form Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. Online ez form For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. Online ez form The term harvesting, in this case, includes fishing and related pursuits. Online ez form Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. Online ez form When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. Online ez form The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. Online ez form The following list contains some examples of activities that show an agricultural or horticultural purpose. Online ez form Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. Online ez form Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. Online ez form Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. Online ez form Guarding the purity of a specific breed of livestock. Online ez form Encouraging improvements in the production of fish on privately owned fish farms. Online ez form Negotiating with processors for the price to be paid to members for their crops. Online ez form For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. Online ez form gov. Online ez form 501(c)(6) - Business Leagues, etc. Online ez form If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. Online ez form For a discussion of the procedure to follow, see chapter 1. Online ez form Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). Online ez form In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. Online ez form It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. Online ez form A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Online ez form Trade associations and professional associations are considered business leagues. Online ez form Chamber of commerce. Online ez form   A chamber of commerce usually is composed of the merchants and traders of a city. Online ez form Board of trade. Online ez form   A board of trade often consists of persons engaged in similar lines of business. Online ez form For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. Online ez form   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. Online ez form Real estate board. Online ez form   A real estate board consists of members interested in improving the business conditions in the real estate field. Online ez form It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. Online ez form Professional football leagues. Online ez form   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). Online ez form They are exempt whether or not they administer a pension fund for football players. Online ez form General purpose. Online ez form   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Online ez form It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Online ez form Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. Online ez form Line of business. Online ez form   This term generally refers either to an entire industry or to all components of an industry within a geographic area. Online ez form It does not include a group composed of businesses that market a particular brand within an industry. Online ez form Common business interest. Online ez form   A common business interest of all members of the organization must be established by the application documents. Online ez form Examples. Online ez form   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). Online ez form Improvement of business conditions. Online ez form   Generally, this must be shown to be the purpose of the organization. Online ez form This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Online ez form Stock or commodity exchange. Online ez form   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Online ez form Legislative activity. Online ez form   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. Online ez form Deduction not allowed for dues used for political or legislative activities. Online ez form   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. Online ez form Influencing legislation. Online ez form Participating or intervening in a political campaign for, or against, any candidate for public office. Online ez form Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). Online ez form Communicating directly with certain executive branch officials to try to influence their official actions or positions. Online ez form See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. Online ez form Exception for local legislation. Online ez form   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. Online ez form Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. Online ez form De minimis exception. Online ez form   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. Online ez form Grass roots lobbying. Online ez form   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Online ez form Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. Online ez form Tax treatment of donations. Online ez form   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. Online ez form They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Online ez form   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. Online ez form gov. Online ez form 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. Online ez form In applying for recognition of exemption, you should submit the information described in this section. Online ez form Also see chapter 1 for the procedures to follow. Online ez form Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. Online ez form Discrimination prohibited. Online ez form   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. Online ez form   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. Online ez form Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. Online ez form Private benefit prohibited. Online ez form   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. Online ez form For purposes of this requirement, it is not necessary that net earnings be actually distributed. Online ez form Even undistributed earnings can benefit members. Online ez form Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. Online ez form However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. Online ez form Purposes. Online ez form   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. Online ez form You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. Online ez form   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. Online ez form A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. Online ez form   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. Online ez form For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. Online ez form Limited membership. Online ez form   The membership in a social club must be limited. Online ez form To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. Online ez form   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Online ez form Corporate members of a club are not the kind of members contemplated by the law. Online ez form Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. Online ez form See Gross receipts from nonmembership sources , later. Online ez form Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. Online ez form   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. Online ez form However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. Online ez form Support. Online ez form   In general, your club should be supported solely by membership fees, dues, and assessments. Online ez form However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. Online ez form Business activities. Online ez form   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. Online ez form However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. Online ez form Facilities open to public. Online ez form   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. Online ez form This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. Online ez form Gross receipts from nonmembership sources. Online ez form   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Online ez form Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Online ez form Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. Online ez form If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. Online ez form Gross receipts. Online ez form   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. Online ez form These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Online ez form Receipts do not include initiation fees and capital contributions. Online ez form Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. Online ez form Nontraditional activities. Online ez form   Activities conducted by a social club need to further its exempt purposes. Online ez form Traditional business activities are those that further a social club's exempt purposes. Online ez form Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. Online ez form Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. Online ez form Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. Online ez form Fraternity foundations. Online ez form   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. Online ez form Tax treatment of donations. Online ez form   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. Online ez form 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. Online ez form The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. Online ez form , purposes. Online ez form The procedures to follow in applying for recognition of exemption are described in chapter 1. Online ez form If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. Online ez form If so, your organization need not apply for individual recognition of exemption. Online ez form For more information, see Group Exemption Letter in chapter 1 of this publication. Online ez form Tax treatment of donations. Online ez form   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Online ez form Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Online ez form The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. Online ez form Lodge system. Online ez form   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. Online ez form Payment of benefits. Online ez form   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. Online ez form An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. Online ez form   The benefits must be limited to members and their dependents. Online ez form If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. Online ez form Whole-life insurance. Online ez form   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. Online ez form Reinsurance pool. Online ez form   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. Online ez form Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Online ez form The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. Online ez form S. Online ez form , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. Online ez form The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. Online ez form 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. Online ez form Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Online ez form Chapter 1 describes the procedures to follow in applying for exemption. Online ez form Tax treatment of donations. Online ez form   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. Online ez form Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. Online ez form A local employees' association must apply for recognition of exemption by filing Form 1024. Online ez form The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. Online ez form A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Online ez form Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. Online ez form Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. Online ez form The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. Online ez form To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Online ez form Note. Online ez form Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. Online ez form Notice requirement. Online ez form   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Online ez form The organization gives notice by filing Form 1024. Online ez form If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. Online ez form An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Online ez form Membership. Online ez form   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. Online ez form This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. Online ez form   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. Online ez form For example, the owner of a business whose employees are members of the association can be a member. Online ez form An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. Online ez form Employees. Online ez form   Employees include individuals who became entitled to membership because they are or were employees. Online ez form For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. Online ez form   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. Online ez form Conversely, membership is involuntary if the designation as a member is due to employee status. Online ez form However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. Online ez form An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. Online ez form Payment of benefits. Online ez form   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. Online ez form The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). Online ez form Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. Online ez form Nondiscrimination requirements. Online ez form   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. Online ez form However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. Online ez form   A plan meets the nondiscrimination requirements only if both of the following statements are true. Online ez form Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. Online ez form The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. Online ez form A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. Online ez form   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. Online ez form This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. Online ez form   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. Online ez form The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. Online ez form For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). Online ez form Excluded employees. Online ez form   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. Online ez form These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. Online ez form Highly compensated individual. Online ez form   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. Online ez form Go to IRS. Online ez form gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. Online ez form However, the employer can choose not to have (3) apply. Online ez form Aggregation rules. Online ez form   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. Online ez form Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. Online ez form Leased employees are treated as employees of the recipient. Online ez form One employee. Online ez form   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). Online ez form Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. Online ez form The trust must be a valid, existing trust under local law and must be evidenced by an executed document. Online ez form A conformed copy of the plan of which the trust is a part should be attached to the application. Online ez form To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Online ez form Note. Online ez form Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. Online ez form Notice requirement. Online ez form   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Online ez form The organization gives notice by filing Form 1024. Online ez form If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. Online ez form An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Online ez form Types of payments. Online ez form   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. Online ez form In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. Online ez form Diversion of funds. Online ez form   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). Online ez form Discrimination in benefits. Online ez form   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. Online ez form However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. Online ez form Prohibited transactions and exemption. Online ez form   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. Online ez form It must file the claim on Form 1024. Online ez form The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. Online ez form An authorized principal officer of your organization must make this declaration under the penalties of perjury. Online ez form   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. Online ez form However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. Online ez form Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. Online ez form For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. Online ez form 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. Online ez form Benevolent life insurance associations of a purely local character and like organizations. Online ez form Mutual ditch or irrigation companies and like organizations. Online ez form Mutual or cooperative telephone companies and like organizations. Online ez form A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. Online ez form The information to be provided upon application by each of these organizations is described in this section. Online ez form For information as to the procedures to follow in applying for exemption, see chapter 1. Online ez form General requirements. Online ez form   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. Online ez form They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. Online ez form Mutual character. Online ez form   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. Online ez form They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. Online ez form To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. Online ez form   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. Online ez form Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. Online ez form The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. Online ez form Membership. Online ez form   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. Online ez form In a stock company, the stockholders are members. Online ez form However, a mutual life insurance organization cannot have policyholders other than its members. Online ez form Losses and expenses. Online ez form   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. Online ez form Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. Online ez form If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. Online ez form Distributions of proceeds. Online ez form   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. Online ez form Such distribution represents a refund in the costs of services rendered to the member. Online ez form The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Online ez form Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. Online ez form Mutual or cooperative telephone company. Online ez form   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. Online ez form Mutual or cooperative electric company. Online ez form   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. Online ez form   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. Online ez form Qualified pole rental. Online ez form   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. Online ez form   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). Online ez form The 85% requirement is applied on the basis of an annual accounting period. Online ez form Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. Online ez form Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. Online ez form Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. Online ez form Example. Online ez form   The books of an organization reflect the following for the calendar year. Online ez form Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. Online ez form   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. Online ez form   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. Online ez form   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. Online ez form Tax treatment of donations. Online ez form   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. Online ez form Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. Online ez form If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. Online ez form To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. Online ez form If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. Online ez form A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. Online ez form A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. Online ez form Organizations similar to local benevolent life insurance companies. Online ez form   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. Online ez form However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. Online ez form Burial and funeral benefit insurance organization. Online ez form   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. Online ez form An organization that provides its benefits in the form of supplies and service is not a life insurance company. Online ez form Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. Online ez form Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. Online ez form They can serve noncontiguous areas. Online ez form Like organization. Online ez form   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. Online ez form Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. Online ez form 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. Online ez form For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. Online ez form A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. Online ez form A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. Online ez form The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. Online ez form If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Online ez form Operating a mortuary is not permitted. Online ez form However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. Online ez form How income can be used. Online ez form   You should show that your organization's earnings are or will be used only in one or more of the following ways. Online ez form To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. Online ez form To buy cemetery property. Online ez form To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. Online ez form No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. Online ez form Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. Online ez form Buying cemetery property. Online ez form   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. Online ez form You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. Online ez form   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. Online ez form Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not