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Tax Preparation

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Tax Preparation

Tax preparation Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Tax preparation Employee-owners. Tax preparation Other rules. Tax preparation Other rules. Tax preparation Property Exchanged for StockNonqualified preferred stock. Tax preparation Liabilities. Tax preparation Election to reduce basis. Tax preparation Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Tax preparation S. Tax preparation Real Property Interest Accounting MethodsSection 481(a) adjustment. Tax preparation Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. Tax preparation Business formed before 1997. Tax preparation   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. Tax preparation Business formed after 1996. Tax preparation   The following businesses formed after 1996 are taxed as corporations. Tax preparation A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. Tax preparation A business formed under a state law that refers to it as a joint-stock company or joint-stock association. Tax preparation An insurance company. Tax preparation Certain banks. Tax preparation A business wholly owned by a state or local government. Tax preparation A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Tax preparation Certain foreign businesses. Tax preparation Any other business that elects to be taxed as a corporation. Tax preparation For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. Tax preparation For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. Tax preparation S corporations. Tax preparation   Some corporations may meet the qualifications for electing to be S corporations. Tax preparation For information on S corporations, see the instructions for Form 1120S, U. Tax preparation S. Tax preparation Income Tax Return for an S Corporation. Tax preparation Personal service corporations. Tax preparation   A corporation is a personal service corporation if it meets all of the following requirements. Tax preparation Its principal activity during the “testing period” is performing personal services (defined later). Tax preparation Generally, the testing period for any tax year is the prior tax year. Tax preparation If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. Tax preparation Its employee-owners substantially perform the services in (1), above. Tax preparation This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. Tax preparation Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. Tax preparation Personal services. Tax preparation   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. Tax preparation Employee-owners. Tax preparation   A person is an employee-owner of a personal service corporation if both of the following apply. Tax preparation He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. Tax preparation He or she owns any stock in the corporation at any time during the testing period. Tax preparation Other rules. Tax preparation   For other rules that apply to personal service corporations see Accounting Periods, later. Tax preparation Closely held corporations. Tax preparation   A corporation is closely held if all of the following apply. Tax preparation It is not a personal service corporation. Tax preparation At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. Tax preparation “Individual” includes certain trusts and private foundations. Tax preparation Other rules. Tax preparation   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. Tax preparation Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. Tax preparation This rule applies both to individuals and to groups who transfer property to a corporation. Tax preparation It also applies whether the corporation is being formed or is already operating. Tax preparation It does not apply in the following situations. Tax preparation The corporation is an investment company. Tax preparation You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. Tax preparation The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. Tax preparation Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. Tax preparation For more information, see section 1. Tax preparation 351-3 of the Regulations. Tax preparation Control of a corporation. Tax preparation   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. Tax preparation Example 1. Tax preparation You and Bill Jones buy property for $100,000. Tax preparation You both organize a corporation when the property has a fair market value of $300,000. Tax preparation You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Tax preparation No gain is recognized by you, Bill, or the corporation. Tax preparation Example 2. Tax preparation You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. Tax preparation This represents only 75% of each class of stock of the corporation. Tax preparation The other 25% was already issued to someone else. Tax preparation You and Bill recognize a taxable gain of $200,000 on the transaction. Tax preparation Services rendered. Tax preparation   The term property does not include services rendered or to be rendered to the issuing corporation. Tax preparation The value of stock received for services is income to the recipient. Tax preparation Example. Tax preparation You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Tax preparation Right after the exchange, you own 85% of the outstanding stock. Tax preparation No gain is recognized on the exchange of property. Tax preparation However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. Tax preparation Property of relatively small value. Tax preparation   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. Tax preparation   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. Tax preparation Stock received in disproportion to property transferred. Tax preparation   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. Tax preparation If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. Tax preparation It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. Tax preparation Money or other property received. Tax preparation   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. Tax preparation You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. Tax preparation The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. Tax preparation If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Tax preparation See chapter 3 of Publication 544. Tax preparation No loss is recognized. Tax preparation Nonqualified preferred stock. Tax preparation   Nonqualified preferred stock is treated as property other than stock. Tax preparation Generally, it is preferred stock with any of the following features. Tax preparation The holder has the right to require the issuer or a related person to redeem or buy the stock. Tax preparation The issuer or a related person is required to redeem or buy the stock. Tax preparation The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. Tax preparation The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Tax preparation For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Tax preparation Liabilities. Tax preparation   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Tax preparation There are two exceptions to this treatment. Tax preparation If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Tax preparation However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Tax preparation If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. Tax preparation For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Tax preparation Example. Tax preparation You transfer property to a corporation for stock. Tax preparation Immediately after the transfer, you control the corporation. Tax preparation You also receive $10,000 in the exchange. Tax preparation Your adjusted basis in the transferred property is $20,000. Tax preparation The stock you receive has a fair market value (FMV) of $16,000. Tax preparation The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. Tax preparation Gain is realized as follows. Tax preparation FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. Tax preparation The recognized gain is limited to $10,000, the cash received. Tax preparation Loss on exchange. Tax preparation   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. Tax preparation For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Tax preparation Basis of stock or other property received. Tax preparation   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Tax preparation Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Tax preparation Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. Tax preparation Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. Tax preparation    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. Tax preparation This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. Tax preparation The basis of any other property you receive is its fair market value on the date of the trade. Tax preparation Basis of property transferred. Tax preparation   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. Tax preparation However, the increase for the gain recognized may be limited. Tax preparation For more information, see section 362 of the Internal Revenue Code. Tax preparation Election to reduce basis. Tax preparation   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. Tax preparation The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. Tax preparation However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Tax preparation R. Tax preparation B. Tax preparation 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Tax preparation    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Tax preparation Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Tax preparation Paid-in capital. Tax preparation   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Tax preparation These contributions are not taxable to the corporation. Tax preparation Basis. Tax preparation   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. Tax preparation However, the increase for the gain recognized may be limited. Tax preparation For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Tax preparation   The basis of property contributed to capital by a person other than a shareholder is zero. Tax preparation   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. Tax preparation If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. Tax preparation Depreciable property. Tax preparation Amortizable property. Tax preparation Property subject to cost depletion but not to percentage depletion. Tax preparation All other remaining properties. Tax preparation   Reduce the basis of property in each category to zero before going on to the next category. Tax preparation   There may be more than one piece of property in each category. Tax preparation Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. Tax preparation The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Tax preparation Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Tax preparation A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Tax preparation After the end of the year, the corporation must file an income tax return. Tax preparation This section will help you determine when and how to pay and file corporate income taxes. Tax preparation For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. Tax preparation The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Tax preparation For more information, visit www. Tax preparation irs. Tax preparation gov/newsroom/article/0,,id=108362. Tax preparation 00. Tax preparation Income Tax Return This section will help you determine when and how to report a corporation's income tax. Tax preparation Who must file. Tax preparation   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Tax preparation Which form to file. Tax preparation   A corporation generally must file Form 1120, U. Tax preparation S. Tax preparation Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Tax preparation Certain organizations and entities must file special returns. Tax preparation For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Tax preparation Electronic filing. Tax preparation   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. Tax preparation Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. Tax preparation However, in certain instances, these corporations can request a waiver. Tax preparation For more information regarding electronic filing, visit www. Tax preparation irs. Tax preparation gov/efile. Tax preparation When to file. Tax preparation   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. Tax preparation A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. Tax preparation A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Tax preparation Example 1. Tax preparation A corporation's tax year ends December 31. Tax preparation It must file its income tax return by March 15th. Tax preparation Example 2. Tax preparation A corporation's tax year ends June 30. Tax preparation It must file its income tax return by September 15th. Tax preparation   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. Tax preparation Extension of time to file. Tax preparation   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. Tax preparation The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. Tax preparation   Form 7004 does not extend the time for paying the tax due on the return. Tax preparation Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. Tax preparation The interest is figured from the original due date of the return to the date of payment. Tax preparation   For more information, see the instructions for Form 7004. Tax preparation How to pay your taxes. Tax preparation   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. Tax preparation Electronic Federal Tax Payment System (EFTPS). Tax preparation   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). Tax preparation For more information on EFTPS and enrollment, visit www. Tax preparation eftps. Tax preparation gov or call 1-800-555-4477. Tax preparation Also see Publication 966, The Secure Way to Pay Your Federal Taxes. Tax preparation Note. Tax preparation Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Tax preparation Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Tax preparation Do not attach an explanation when the corporation's return is filed. Tax preparation See the instructions for your income tax return. Tax preparation Late filing of return. Tax preparation    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. Tax preparation If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. Tax preparation The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. Tax preparation The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. Tax preparation Late payment of tax. Tax preparation    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. Tax preparation The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. Tax preparation Trust fund recovery penalty. Tax preparation   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Tax preparation The penalty is the full amount of the unpaid trust fund tax. Tax preparation This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. Tax preparation   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. Tax preparation   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. Tax preparation A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. Tax preparation   Willfully means voluntarily, consciously, and intentionally. Tax preparation A responsible person acts willfully if the person knows the required actions are not taking place. Tax preparation   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. Tax preparation Other penalties. Tax preparation   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. Tax preparation See sections 6662, 6662A, and 6663 of the Internal Revenue Code. Tax preparation Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. Tax preparation If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. Tax preparation This section will explain how to avoid this penalty. Tax preparation When to pay estimated tax. Tax preparation   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Tax preparation Example 1. Tax preparation Your corporation's tax year ends December 31. Tax preparation Installment payments are due on April 15, June 15, September 15, and December 15. Tax preparation Example 2. Tax preparation Your corporation's tax year ends June 30. Tax preparation Installment payments are due on October 15, December 15, March 15, and June 15. Tax preparation   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. Tax preparation How to figure each required installment. Tax preparation   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Tax preparation You will generally use one of the following two methods to figure each required installment. Tax preparation You should use the method that yields the smallest installment payments. Tax preparation Note. Tax preparation In these discussions, “return” generally refers to the corporation's original return. Tax preparation However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Tax preparation Method 1. Tax preparation   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Tax preparation Method 2. Tax preparation   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Tax preparation   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). Tax preparation Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Tax preparation   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Tax preparation Other methods. Tax preparation   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. Tax preparation The annualized income installment method. Tax preparation The adjusted seasonal installment method. Tax preparation Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. Tax preparation Refiguring required installments. Tax preparation   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. Tax preparation An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Tax preparation Underpayment penalty. Tax preparation   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Tax preparation The penalty is figured separately for each installment due date. Tax preparation The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Tax preparation This is true even if the corporation is due a refund when its return is filed. Tax preparation Form 2220. Tax preparation   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. Tax preparation   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Tax preparation The amount of the underpayment. Tax preparation The period during which the underpayment was due and unpaid. Tax preparation The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Tax preparation   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. Tax preparation However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. Tax preparation The annualized income installment method was used to figure any required installment. Tax preparation The adjusted seasonal installment method was used to figure any required installment. Tax preparation The corporation is a large corporation figuring its first required installment based on the prior year's tax. Tax preparation How to pay estimated tax. Tax preparation   A corporation is generally required to use EFTPS to pay its taxes. Tax preparation See Electronic Federal Tax Payment System (EFTPS), earlier. Tax preparation Also see the Instructions for Form 1120-W. Tax preparation Quick refund of overpayments. Tax preparation   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Tax preparation Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. Tax preparation A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Tax preparation Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Tax preparation File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. Tax preparation Do not file Form 4466 before the end of the corporation's tax year. Tax preparation An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Tax preparation The IRS will act on the form within 45 days from the date you file it. Tax preparation U. Tax preparation S. Tax preparation Real Property Interest If a domestic corporation acquires a U. Tax preparation S. Tax preparation real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Tax preparation The amount paid includes cash, the fair market value of other property, and any assumed liability. Tax preparation If a domestic corporation distributes a U. Tax preparation S. Tax preparation real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Tax preparation A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Tax preparation For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. Tax preparation S. Tax preparation Withholding Tax Return for Dispositions by Foreign Persons of U. Tax preparation S. Tax preparation Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Tax preparation S. Tax preparation Real Property Interests. Tax preparation Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Tax preparation Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Tax preparation In all cases, the method used must clearly show taxable income. Tax preparation Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Tax preparation Accrual method. Tax preparation   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. Tax preparation A corporation engaged in farming operations also must use the accrual method. Tax preparation   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Tax preparation However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. Tax preparation   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. Tax preparation   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. Tax preparation   There are exceptions to the economic performance rule for certain items, including recurring expenses. Tax preparation See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Tax preparation Nonaccrual experience method. Tax preparation   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. Tax preparation   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. Tax preparation Percentage of completion method. Tax preparation   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. Tax preparation Mark-to-market accounting method. Tax preparation   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Tax preparation Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Tax preparation Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. Tax preparation Any gain or loss must be taken into account in determining gross income. Tax preparation The gain or loss taken into account is treated as ordinary gain or loss. Tax preparation   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Tax preparation Change in accounting method. Tax preparation   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). Tax preparation The corporation must file Form 3115, Application for Change in Accounting Method. Tax preparation For more information, see Form 3115 and Publication 538. Tax preparation Section 481(a) adjustment. Tax preparation   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. Tax preparation The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Tax preparation However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. Tax preparation The corporation must complete the appropriate lines of Form 3115 to make the election. Tax preparation See the Instructions for Form 3115. Tax preparation Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Tax preparation A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Tax preparation Generally, corporations can use either a calendar year or a fiscal year as its tax year. Tax preparation Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Tax preparation For more information, see Publication 538. Tax preparation Personal service corporation. Tax preparation   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. Tax preparation See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. Tax preparation Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Tax preparation   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Tax preparation See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Tax preparation Change of tax year. Tax preparation   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Tax preparation However, under certain conditions, a corporation can change its tax year without getting the consent. Tax preparation For more information, see Form 1128 and Publication 538. Tax preparation Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Tax preparation Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Tax preparation Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. Tax preparation The corporation should keep copies of all filed returns. Tax preparation They help in preparing future and amended returns and in the calculation of earnings and profits. Tax preparation Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Tax preparation However, the following special provisions apply only to corporations. Tax preparation Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Tax preparation However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Tax preparation Any costs not deducted can be amortized. Tax preparation Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Tax preparation Organizational costs are the direct costs of creating the corporation. Tax preparation For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Tax preparation Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Tax preparation Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Tax preparation Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Tax preparation If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. Tax preparation These rules also deny the deduction of losses on the sale or exchange of property between related persons. Tax preparation Related persons. Tax preparation   For purposes of this rule, the following persons are related to a corporation. Tax preparation Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Tax preparation An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Tax preparation A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Tax preparation An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Tax preparation A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Tax preparation Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. Tax preparation Ownership of stock. Tax preparation   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Tax preparation Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. Tax preparation An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Tax preparation Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Tax preparation Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. Tax preparation To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Tax preparation But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. Tax preparation Reallocation of income and deductions. Tax preparation   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. Tax preparation Complete liquidations. Tax preparation   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Tax preparation More information. Tax preparation   For more information about the related person rules, see Publication 544. Tax preparation Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. Tax preparation If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Tax preparation Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Tax preparation A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Tax preparation A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Tax preparation For more information regarding the election, see Form 8902. Tax preparation Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. Tax preparation The deduction is allowed for the year in which the property is placed in service. Tax preparation A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. Tax preparation For more information, see section 179C of the Internal Revenue Code and the related Regulations. Tax preparation Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). Tax preparation A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. Tax preparation For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Tax preparation Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. Tax preparation In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Tax preparation 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. Tax preparation The deduction is limited to $1. Tax preparation 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Tax preparation Other rules and limitations apply. Tax preparation The corporation must reduce the basis of any property by any deduction taken. Tax preparation The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Tax preparation For more information, see section 179D of the Internal Revenue Code. Tax preparation Also see Notice 2006-52, 2006-26 I. Tax preparation R. Tax preparation B. Tax preparation 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Tax preparation R. Tax preparation B. Tax preparation 725, and any successor. Tax preparation Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Tax preparation These items are known as corporate preference items and they include the following. Tax preparation Gain on the disposition of section 1250 property. Tax preparation For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Tax preparation Percentage depletion for iron ore and coal (including lignite). Tax preparation For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Tax preparation Amortization of pollution control facilities. Tax preparation For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Tax preparation Mineral exploration and development costs. Tax preparation For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Tax preparation For more information on corporate preference items, see section 291 of the Internal Revenue Code. Tax preparation Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Tax preparation This section discusses the general rules that apply. Tax preparation The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Tax preparation For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Tax preparation Dividends from domestic corporations. Tax preparation   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. Tax preparation If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Tax preparation Ownership. Tax preparation   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. Tax preparation Small business investment companies. Tax preparation   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Tax preparation Dividends from regulated investment companies. Tax preparation   Regulated investment company dividends received are subject to certain limits. Tax preparation Capital gain dividends received from a regulated investment company do not qualify for the deduction. Tax preparation For more information, see section 854 of the Internal Revenue Code. Tax preparation No deduction allowed for certain dividends. Tax preparation   Corporations cannot take a deduction for dividends received from the following entities. Tax preparation A real estate investment trust (REIT). Tax preparation A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. Tax preparation A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Tax preparation Ex-dividend means the holder has no rights to the dividend. Tax preparation A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. Tax preparation Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Tax preparation Dividends on deposits. Tax preparation   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Tax preparation They do not qualify for this deduction. Tax preparation Limit on deduction for dividends. Tax preparation   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). Tax preparation Figuring the limit. Tax preparation   In figuring the limit, determine taxable income without the following items. Tax preparation The net operating loss deduction. Tax preparation The domestic production activities deduction. Tax preparation The deduction for dividends received. Tax preparation Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Tax preparation Any capital loss carryback to the tax year. Tax preparation Effect of net operating loss. Tax preparation   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. Tax preparation To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Tax preparation Example 1. Tax preparation A corporation loses $25,000 from operations. Tax preparation It receives $100,000 in dividends from a 20%-owned corporation. Tax preparation Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Tax preparation If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Tax preparation Therefore, the 80% of taxable income limit does not apply. Tax preparation The corporation can deduct the full $80,000. Tax preparation Example 2. Tax preparation Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Tax preparation Its taxable income is $85,000 before the deduction for dividends received. Tax preparation After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Tax preparation Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). Tax preparation Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. Tax preparation The nontaxed part is any dividends-received deduction allowable for the dividends. Tax preparation Extraordinary dividend. Tax preparation   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Tax preparation The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Tax preparation Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Tax preparation Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. Tax preparation Disqualified preferred stock. Tax preparation   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Tax preparation   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Tax preparation The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Tax preparation The issue price of the stock exceeds its liquidation rights or stated redemption price. Tax preparation The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. Tax preparation   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. Tax preparation More information. Tax preparation   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Tax preparation Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. Tax preparation A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Tax preparation A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. Tax preparation Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Tax preparation Foregone interest. Tax preparation   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Tax preparation See Below-market loans, in chapter 4 of Publication 535 for more information. Tax preparation Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Tax preparation The contribution is deductible if made to, or for the use of, a qualified organization. Tax preparation For more information on qualified organizations, see Publication 526, Charitable Contributions. Tax preparation Also see, Exempt Organizations Select Check (EO Select Check) at www. Tax preparation irs. Tax preparation gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Tax preparation Note. Tax preparation You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Tax preparation Cash method corporation. Tax preparation   A corporation using the cash method of accounting deducts contributions in the tax year paid. Tax preparation Accrual method corporation. Tax preparation   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. Tax preparation Make the choice by reporting the contribution on the corporation's return for the tax year. Tax preparation A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Tax preparation The declaration must include the date the resolution was adopted. Tax preparation Limitations on deduction. Tax preparation   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Tax preparation Figure taxable income for this purpose without the following. Tax preparation The deduction for charitable contributions. Tax preparation The dividends-received deduction. Tax preparation The deduction allowed under section 249 of the Internal Revenue Code. Tax preparation The domestic production activities deduction. Tax preparation Any net operating loss carryback to the tax year. Tax preparation Any capital loss carryback to the tax year. Tax preparation Farmers and ranchers. Tax preparation    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. Tax preparation Carryover of excess contributions. Tax preparation   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. Tax preparation You lose any excess not used within that period. Tax preparation For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. Tax preparation Any excess not used in 2015 is lost. Tax preparation Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). Tax preparation You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Tax preparation Cash contributions. Tax preparation   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Tax preparation The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Tax preparation Keep the record of the contribution with the other corporate records. Tax preparation Do not attach the records to the corporation's return. Tax preparation For more information on cash contributions, see Publication 526. Tax preparation Gifts of $250 or more. Tax preparation   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Tax preparation The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. Tax preparation The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Tax preparation Keep the acknowledgement with other corporate records. Tax preparation Do not attach the acknowledgement to the return. Tax preparation Contributions of property other than cash. Tax preparation   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. Tax preparation In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. Tax preparation   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. Tax preparation For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. Tax preparation   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Tax preparation A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. Tax preparation The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. Tax preparation   See Form 8283 for more information. Tax preparation Qualified conservation contributions. Tax preparation   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. Tax preparation For more information, see section 170(h) of the Internal Revenue Code. Tax preparation Contributions of used vehicles. Tax preparation   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Tax preparation The deduction is limited, and other special rules apply. Tax preparation For more information, see Publication 526. Tax preparation Reduction for contributions of certain property. Tax preparation   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. Tax preparation   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. Tax preparation Larger deduction. Tax preparation   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. Tax preparation This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Tax preparation Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. Tax preparation The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. Tax preparation Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. Tax preparation Contributions to organizations conducting lobbying activities. Tax preparation   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. Tax preparation More information. Tax preparation   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. Tax preparation Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Tax preparation In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Tax preparation Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Tax preparation A capital loss is carried to other years in the following order. Tax preparation 3 years prior to the loss year. Tax preparation 2 years prior to the loss year. Tax preparation 1 year prior to the loss year. Tax preparation Any loss remaining is carried forward for 5 years. Tax preparation When you carry a net capital loss to another tax year, treat it as a short-term loss. Tax preparation It does not retain its original identity as long term or short term. Tax preparation Example. Tax preparation A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Tax preparation The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Tax preparation The corporation treats this $6,000 as a short-term loss when carried back or forward. Tax preparation The corporation carries the $6,000 short-term loss back 3 years. Tax preparation In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. Tax preparation It subtracts the $6,000 short-term loss first from the net short-term gain. Tax preparation This results in a net capital gain for year 1 of $7,000. Tax preparation This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. Tax preparation S corporation status. Tax preparation   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Tax preparation Rules for carryover and carryback. Tax preparation   When carrying a capital loss from one year to another, the following rules apply. Tax preparation When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Tax preparation In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Tax preparation If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Tax preparation You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. Tax preparation Refunds. Tax preparation   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Tax preparation If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. Tax preparation S. Tax preparation Corporation Income Tax Return, to apply for a refund. Tax preparation Form 1139. Tax preparation    A corporation can get a refund faster by using Form 1139. Tax preparation It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. Tax preparation Form 1120X. Tax preparation   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Tax preparation The corporation must file the Form 1120X within 3 years of the due date, includin
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Announcer:

[Man puts suitcase on top of car] Travel advisories to

[Inflated blue gorilla holding "Open" sign] small business loans

[Overhead shot of man putting a golf ball]Retirement savings to

[Pharmacist pushing pill into box] Medicare coverage

[Man swiping credit card to pay] ID theft protection to

[Woman in skirt walks with letter to representative]contacting elected officials

[Shot of the library] Student loans to

[Opening a laptop] taxes online

[USA.gov homepage] Whether you have information to get or ideas to give

[Someone typing idea into text box] USA.gov is the official place to connect with your government.

[Women slides car seat back] From surplus car auctions to

[Women pushes back her desk chair] finding a new job

[Smart phone with USA.gov on screen] our new mobile apps wil keep you updated on the go.

[Scene from wedding reception] So from marriage records to

[View of Eiffel Tower] passport applications

[Veteran takes off his hat] veterans' benefits to

[Mom holds a baby] birth certificates

[Drawing on a napkin] patent applications to

[Energy effecient light bulb] energy-saving ideas

[Person returns package at post office] product recalls to

[Person takes box out of moving truck] home-buying tips

[Overhead shot of busy intersection] check out USA.gov.

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The Tax Preparation

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