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Turbotax Deluxe Federal E File 2012

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Turbotax Deluxe Federal E File 2012

Turbotax deluxe federal e file 2012 2. Turbotax deluxe federal e file 2012   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Turbotax deluxe federal e file 2012 The pay may be in cash, property, or services. Turbotax deluxe federal e file 2012 It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Turbotax deluxe federal e file 2012 For information about deducting employment taxes, see chapter 5. Turbotax deluxe federal e file 2012 You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Turbotax deluxe federal e file 2012 Empowerment zone employment credit (Form 8844). Turbotax deluxe federal e file 2012 Indian employment credit (Form 8845). Turbotax deluxe federal e file 2012 Work opportunity credit (Form 5884). Turbotax deluxe federal e file 2012 Credit for employer differential wage payments (Form 8932). Turbotax deluxe federal e file 2012 Reduce your deduction for employee wages by the amount of employment credits you claim. Turbotax deluxe federal e file 2012 For more information about these credits, see the form on which the credit is claimed. Turbotax deluxe federal e file 2012 Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Turbotax deluxe federal e file 2012 Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Turbotax deluxe federal e file 2012 These and other requirements that apply to all business expenses are explained in chapter 1. Turbotax deluxe federal e file 2012 In addition, the pay must meet both of the following tests. Turbotax deluxe federal e file 2012 Test 1. Turbotax deluxe federal e file 2012 It must be reasonable. Turbotax deluxe federal e file 2012 Test 2. Turbotax deluxe federal e file 2012 It must be for services performed. Turbotax deluxe federal e file 2012 The form or method of figuring the pay does not affect its deductibility. Turbotax deluxe federal e file 2012 For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Turbotax deluxe federal e file 2012 Test 1—Reasonableness You must be able to prove that the pay is reasonable. Turbotax deluxe federal e file 2012 Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Turbotax deluxe federal e file 2012 If the pay is excessive, the excess pay is disallowed as a deduction. Turbotax deluxe federal e file 2012 Factors to consider. Turbotax deluxe federal e file 2012   Determine the reasonableness of pay by the facts and circumstances. Turbotax deluxe federal e file 2012 Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Turbotax deluxe federal e file 2012   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Turbotax deluxe federal e file 2012 The duties performed by the employee. Turbotax deluxe federal e file 2012 The volume of business handled. Turbotax deluxe federal e file 2012 The character and amount of responsibility. Turbotax deluxe federal e file 2012 The complexities of your business. Turbotax deluxe federal e file 2012 The amount of time required. Turbotax deluxe federal e file 2012 The cost of living in the locality. Turbotax deluxe federal e file 2012 The ability and achievements of the individual employee performing the service. Turbotax deluxe federal e file 2012 The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Turbotax deluxe federal e file 2012 Your policy regarding pay for all your employees. Turbotax deluxe federal e file 2012 The history of pay for each employee. Turbotax deluxe federal e file 2012 Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Turbotax deluxe federal e file 2012 Employee-shareholder salaries. Turbotax deluxe federal e file 2012   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Turbotax deluxe federal e file 2012 The excessive part of the salary would not be allowed as a salary deduction by the corporation. Turbotax deluxe federal e file 2012 For more information on corporate distributions to shareholders, see Publication 542, Corporations. Turbotax deluxe federal e file 2012 Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Turbotax deluxe federal e file 2012 For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Turbotax deluxe federal e file 2012 Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Turbotax deluxe federal e file 2012 If you give property to an employee as an employee achievement award, your deduction may be limited. Turbotax deluxe federal e file 2012 Achievement awards. Turbotax deluxe federal e file 2012   An achievement award is an item of tangible personal property that meets all the following requirements. Turbotax deluxe federal e file 2012 It is given to an employee for length of service or safety achievement. Turbotax deluxe federal e file 2012 It is awarded as part of a meaningful presentation. Turbotax deluxe federal e file 2012 It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Turbotax deluxe federal e file 2012 Length-of-service award. Turbotax deluxe federal e file 2012    An award will qualify as a length-of-service award only if either of the following applies. Turbotax deluxe federal e file 2012 The employee receives the award after his or her first 5 years of employment. Turbotax deluxe federal e file 2012 The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Turbotax deluxe federal e file 2012 Safety achievement award. Turbotax deluxe federal e file 2012    An award for safety achievement will qualify as an achievement award unless one of the following applies. Turbotax deluxe federal e file 2012 It is given to a manager, administrator, clerical employee, or other professional employee. Turbotax deluxe federal e file 2012 During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Turbotax deluxe federal e file 2012 Deduction limit. Turbotax deluxe federal e file 2012   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Turbotax deluxe federal e file 2012 $400 for awards that are not qualified plan awards. Turbotax deluxe federal e file 2012 $1,600 for all awards, whether or not qualified plan awards. Turbotax deluxe federal e file 2012   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Turbotax deluxe federal e file 2012   A highly compensated employee is an employee who meets either of the following tests. Turbotax deluxe federal e file 2012 The employee was a 5% owner at any time during the year or the preceding year. Turbotax deluxe federal e file 2012 The employee received more than $115,000 in pay for the preceding year. Turbotax deluxe federal e file 2012 You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Turbotax deluxe federal e file 2012   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Turbotax deluxe federal e file 2012 To figure this average cost, ignore awards of nominal value. Turbotax deluxe federal e file 2012 Deduct achievement awards as a nonwage business expense on your return or business schedule. Turbotax deluxe federal e file 2012 You may not owe employment taxes on the value of some achievement awards you provide to an employee. Turbotax deluxe federal e file 2012 See Publication 15-B. Turbotax deluxe federal e file 2012 Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Turbotax deluxe federal e file 2012 However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Turbotax deluxe federal e file 2012 If the bonus is paid in property, see Property , later. Turbotax deluxe federal e file 2012 Gifts of nominal value. Turbotax deluxe federal e file 2012    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Turbotax deluxe federal e file 2012 Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Turbotax deluxe federal e file 2012 For more information on this deduction limit, see Meals and lodging , later. Turbotax deluxe federal e file 2012 Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Turbotax deluxe federal e file 2012 Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Turbotax deluxe federal e file 2012 For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Turbotax deluxe federal e file 2012 Fringe Benefits A fringe benefit is a form of pay for the performance of services. Turbotax deluxe federal e file 2012 You can generally deduct the cost of fringe benefits. Turbotax deluxe federal e file 2012 You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Turbotax deluxe federal e file 2012 You also may not owe employment taxes on the value of the fringe benefits. Turbotax deluxe federal e file 2012 See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Turbotax deluxe federal e file 2012 Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Turbotax deluxe federal e file 2012 Certain fringe benefits are discussed next. Turbotax deluxe federal e file 2012 See Publication 15-B for more details on these and other fringe benefits. Turbotax deluxe federal e file 2012 Meals and lodging. Turbotax deluxe federal e file 2012   You can usually deduct the cost of furnishing meals and lodging to your employees. Turbotax deluxe federal e file 2012 Deduct the cost in whatever category the expense falls. Turbotax deluxe federal e file 2012 For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Turbotax deluxe federal e file 2012 If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Turbotax deluxe federal e file 2012 Deduction limit on meals. Turbotax deluxe federal e file 2012   You can generally deduct only 50% of the cost of furnishing meals to your employees. Turbotax deluxe federal e file 2012 However, you can deduct the full cost of the following meals. Turbotax deluxe federal e file 2012 Meals whose value you include in an employee's wages. Turbotax deluxe federal e file 2012 Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Turbotax deluxe federal e file 2012 This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Turbotax deluxe federal e file 2012 Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Turbotax deluxe federal e file 2012 Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Turbotax deluxe federal e file 2012 Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Turbotax deluxe federal e file 2012 This does not include meals you furnish on vessels primarily providing luxury water transportation. Turbotax deluxe federal e file 2012 Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Turbotax deluxe federal e file 2012 This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Turbotax deluxe federal e file 2012 Employee benefit programs. Turbotax deluxe federal e file 2012   Employee benefit programs include the following. Turbotax deluxe federal e file 2012 Accident and health plans. Turbotax deluxe federal e file 2012 Adoption assistance. Turbotax deluxe federal e file 2012 Cafeteria plans. Turbotax deluxe federal e file 2012 Dependent care assistance. Turbotax deluxe federal e file 2012 Education assistance. Turbotax deluxe federal e file 2012 Life insurance coverage. Turbotax deluxe federal e file 2012 Welfare benefit funds. Turbotax deluxe federal e file 2012   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Turbotax deluxe federal e file 2012 For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Turbotax deluxe federal e file 2012 ). Turbotax deluxe federal e file 2012 Life insurance coverage. Turbotax deluxe federal e file 2012   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Turbotax deluxe federal e file 2012 See Regulations section 1. Turbotax deluxe federal e file 2012 264-1 for more information. Turbotax deluxe federal e file 2012 Welfare benefit funds. Turbotax deluxe federal e file 2012   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Turbotax deluxe federal e file 2012 Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Turbotax deluxe federal e file 2012   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Turbotax deluxe federal e file 2012 If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Turbotax deluxe federal e file 2012   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Turbotax deluxe federal e file 2012 The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Turbotax deluxe federal e file 2012 The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Turbotax deluxe federal e file 2012 These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Turbotax deluxe federal e file 2012   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Turbotax deluxe federal e file 2012 Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Turbotax deluxe federal e file 2012 However, if the employee performs no services, treat the amount you advanced as a loan. Turbotax deluxe federal e file 2012 If the employee does not repay the loan, treat it as income to the employee. Turbotax deluxe federal e file 2012 Below-market interest rate loans. Turbotax deluxe federal e file 2012   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Turbotax deluxe federal e file 2012 See Below-Market Loans in chapter 4. Turbotax deluxe federal e file 2012 Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Turbotax deluxe federal e file 2012 The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Turbotax deluxe federal e file 2012 You can claim the deduction only for the tax year in which your employee includes the property's value in income. Turbotax deluxe federal e file 2012 Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Turbotax deluxe federal e file 2012 You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Turbotax deluxe federal e file 2012 Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Turbotax deluxe federal e file 2012 These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Turbotax deluxe federal e file 2012 Restricted property. Turbotax deluxe federal e file 2012   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Turbotax deluxe federal e file 2012 However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Turbotax deluxe federal e file 2012    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Turbotax deluxe federal e file 2012 This means that the recipient is not likely to have to give up his or her rights in the property in the future. Turbotax deluxe federal e file 2012 Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Turbotax deluxe federal e file 2012 However, your deduction may be limited. Turbotax deluxe federal e file 2012 If you make the payment under an accountable plan, deduct it in the category of the expense paid. Turbotax deluxe federal e file 2012 For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Turbotax deluxe federal e file 2012 If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Turbotax deluxe federal e file 2012 See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Turbotax deluxe federal e file 2012 Sick and Vacation Pay Sick pay. Turbotax deluxe federal e file 2012   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Turbotax deluxe federal e file 2012 However, your deduction is limited to amounts not compensated by insurance or other means. Turbotax deluxe federal e file 2012 Vacation pay. Turbotax deluxe federal e file 2012   Vacation pay is an employee benefit. Turbotax deluxe federal e file 2012 It includes amounts paid for unused vacation leave. Turbotax deluxe federal e file 2012 You can deduct vacation pay only in the tax year in which the employee actually receives it. Turbotax deluxe federal e file 2012 This rule applies regardless of whether you use the cash or accrual method of accounting. Turbotax deluxe federal e file 2012 Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - Transactions of Foreign-Owned Domestic Corporations

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  • Data are taken from Form 5472 - Information Return of a Foreign Owned Corporation.
  • "Owned" generally indicates that a foreign entity owns 25 percent or more of the U.S. corporation's voting stock.

            Statistical Tables                    SOI Bulletin Articles
 


Statistical Tables

Foreign-Owned Domestic Corporations with Total Receipts of $500 Million or More and with Form 5472 Attached: Transactions Between Corporations and Related Foreign Persons
     Classified by: Industry*
     Tax Years: 2008    2006    2004    2002     2000      1998     1996     1994     1993     1992

 

     Classified by: Country of Residence of Related Foreign Person
     Tax Years: 2008    2006    2004    2002     2000      1998     1996     1994     1993     1992

 

     Classified by: Industry and Country of Residence of Related Foreign Person*
     Tax Years: 2008    2006    2004    2002     2000      1998     1996     1994     1993     1992

*For Study Years prior to 1998, industrial sectors are classified using the Standard Industry Classification (SIC).  Study Years from 1998 to present use the North American Industry Classification (NAICS).

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SOI Bulletin Articles 

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Page Last Reviewed or Updated: 14-Mar-2014

The Turbotax Deluxe Federal E File 2012

Turbotax deluxe federal e file 2012 2. Turbotax deluxe federal e file 2012   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. Turbotax deluxe federal e file 2012 Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. Turbotax deluxe federal e file 2012 Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Turbotax deluxe federal e file 2012 You must do this to figure your net capital gain or loss. Turbotax deluxe federal e file 2012 For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. Turbotax deluxe federal e file 2012 See Capital Gains Tax Rates in chapter 4. Turbotax deluxe federal e file 2012 Your deduction for a net capital loss may be limited. Turbotax deluxe federal e file 2012 See Treatment of Capital Losses in chapter 4. Turbotax deluxe federal e file 2012 Capital gain or loss. Turbotax deluxe federal e file 2012   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. Turbotax deluxe federal e file 2012 You also may have a capital gain if your section 1231 transactions result in a net gain. Turbotax deluxe federal e file 2012 Section 1231 transactions. Turbotax deluxe federal e file 2012   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. Turbotax deluxe federal e file 2012 They also include certain involuntary conversions of business or investment property, including capital assets. Turbotax deluxe federal e file 2012 See Section 1231 Gains and Losses in chapter 3 for more information. Turbotax deluxe federal e file 2012 Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Turbotax deluxe federal e file 2012 Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. Turbotax deluxe federal e file 2012 For exceptions, see Noncapital Assets, later. Turbotax deluxe federal e file 2012 The following items are examples of capital assets. Turbotax deluxe federal e file 2012 Stocks and bonds. Turbotax deluxe federal e file 2012 A home owned and occupied by you and your family. Turbotax deluxe federal e file 2012 Timber grown on your home property or investment property, even if you make casual sales of the timber. Turbotax deluxe federal e file 2012 Household furnishings. Turbotax deluxe federal e file 2012 A car used for pleasure or commuting. Turbotax deluxe federal e file 2012 Coin or stamp collections. Turbotax deluxe federal e file 2012 Gems and jewelry. Turbotax deluxe federal e file 2012 Gold, silver, and other metals. Turbotax deluxe federal e file 2012 Personal-use property. Turbotax deluxe federal e file 2012   Generally, property held for personal use is a capital asset. Turbotax deluxe federal e file 2012 Gain from a sale or exchange of that property is a capital gain. Turbotax deluxe federal e file 2012 Loss from the sale or exchange of that property is not deductible. Turbotax deluxe federal e file 2012 You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Turbotax deluxe federal e file 2012 Investment property. Turbotax deluxe federal e file 2012   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. Turbotax deluxe federal e file 2012 This treatment does not apply to property used to produce rental income. Turbotax deluxe federal e file 2012 See Business assets, later, under Noncapital Assets. Turbotax deluxe federal e file 2012 Release of restriction on land. Turbotax deluxe federal e file 2012   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. Turbotax deluxe federal e file 2012 Noncapital Assets A noncapital asset is property that is not a capital asset. Turbotax deluxe federal e file 2012 The following kinds of property are not capital assets. Turbotax deluxe federal e file 2012 Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Turbotax deluxe federal e file 2012 Inventories are discussed in Publication 538, Accounting Periods and Methods. Turbotax deluxe federal e file 2012 But, see the Tip below. Turbotax deluxe federal e file 2012 Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. Turbotax deluxe federal e file 2012 Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). Turbotax deluxe federal e file 2012 Sales of this type of property are discussed in chapter 3. Turbotax deluxe federal e file 2012 Real property used in your trade or business or as rental property, even if the property is fully depreciated. Turbotax deluxe federal e file 2012 A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. Turbotax deluxe federal e file 2012 But, see the Tip below. Turbotax deluxe federal e file 2012 U. Turbotax deluxe federal e file 2012 S. Turbotax deluxe federal e file 2012 Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. Turbotax deluxe federal e file 2012 Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. Turbotax deluxe federal e file 2012 It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. Turbotax deluxe federal e file 2012 The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. Turbotax deluxe federal e file 2012 Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. Turbotax deluxe federal e file 2012 Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Turbotax deluxe federal e file 2012 You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. Turbotax deluxe federal e file 2012 See chapter 4 of Publication 550 for details. Turbotax deluxe federal e file 2012 Property held mainly for sale to customers. Turbotax deluxe federal e file 2012   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. Turbotax deluxe federal e file 2012 Inventories are discussed in Publication 538. Turbotax deluxe federal e file 2012 Business assets. Turbotax deluxe federal e file 2012   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. Turbotax deluxe federal e file 2012 The sale or disposition of business property is discussed in chapter 3. Turbotax deluxe federal e file 2012 Letters and memoranda. Turbotax deluxe federal e file 2012   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. Turbotax deluxe federal e file 2012 Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. Turbotax deluxe federal e file 2012 For this purpose, letters and memoranda addressed to you are considered prepared for you. Turbotax deluxe federal e file 2012 If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. Turbotax deluxe federal e file 2012 Commodities derivative financial instrument. Turbotax deluxe federal e file 2012   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). Turbotax deluxe federal e file 2012 Commodities derivative dealer. Turbotax deluxe federal e file 2012   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. Turbotax deluxe federal e file 2012 Hedging transaction. Turbotax deluxe federal e file 2012   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. Turbotax deluxe federal e file 2012 Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. Turbotax deluxe federal e file 2012 Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. Turbotax deluxe federal e file 2012 Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. Turbotax deluxe federal e file 2012 If these rules apply, gains may be treated as ordinary income and losses may not be deductible. Turbotax deluxe federal e file 2012 See Transfers to Spouse in chapter 1 for rules that apply to spouses. Turbotax deluxe federal e file 2012 Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. Turbotax deluxe federal e file 2012 It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. Turbotax deluxe federal e file 2012 Depreciable property transaction. Turbotax deluxe federal e file 2012   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. Turbotax deluxe federal e file 2012 A person and the person's controlled entity or entities. Turbotax deluxe federal e file 2012 A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. Turbotax deluxe federal e file 2012 An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). Turbotax deluxe federal e file 2012 An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). Turbotax deluxe federal e file 2012 Controlled entity. Turbotax deluxe federal e file 2012   A person's controlled entity is either of the following. Turbotax deluxe federal e file 2012 A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. Turbotax deluxe federal e file 2012 An entity whose relationship with that person is one of the following. Turbotax deluxe federal e file 2012 A corporation and 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 interest or profits interest in the partnership. Turbotax deluxe federal e file 2012 Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. Turbotax deluxe federal e file 2012 Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. Turbotax deluxe federal e file 2012 Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Turbotax deluxe federal e file 2012 Controlled partnership transaction. Turbotax deluxe federal e file 2012   A gain recognized in a controlled partnership transaction may be ordinary income. Turbotax deluxe federal e file 2012 The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. Turbotax deluxe federal e file 2012   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. Turbotax deluxe federal e file 2012 A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Turbotax deluxe federal e file 2012 Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Turbotax deluxe federal e file 2012 Determining ownership. Turbotax deluxe federal e file 2012   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. Turbotax deluxe federal e file 2012 Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Turbotax deluxe federal e file 2012 (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Turbotax deluxe federal e file 2012 ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Turbotax deluxe federal e file 2012 Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Turbotax deluxe federal e file 2012 For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Turbotax deluxe federal e file 2012 But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. Turbotax deluxe federal e file 2012 Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. Turbotax deluxe federal e file 2012 This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. Turbotax deluxe federal e file 2012 For the list of related persons, see Related persons next. Turbotax deluxe federal e file 2012 If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. Turbotax deluxe federal e file 2012 The gain on each item is taxable. Turbotax deluxe federal e file 2012 The loss on any item is nondeductible. Turbotax deluxe federal e file 2012 Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. Turbotax deluxe federal e file 2012 Related persons. Turbotax deluxe federal e file 2012   The following is a list of related persons. Turbotax deluxe federal e file 2012 Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Turbotax deluxe federal e file 2012 ), and lineal descendants (children, grandchildren, etc. Turbotax deluxe federal e file 2012 ). Turbotax deluxe federal e file 2012 An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Turbotax deluxe federal e file 2012 Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. Turbotax deluxe federal e file 2012 A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Turbotax deluxe federal e file 2012 A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Turbotax deluxe federal e file 2012 Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Turbotax deluxe federal e file 2012 A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. Turbotax deluxe federal e file 2012 A corporation and 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 interest or profits interest in the partnership. Turbotax deluxe federal e file 2012 Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Turbotax deluxe federal e file 2012 Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Turbotax deluxe federal e file 2012 An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Turbotax deluxe federal e file 2012 Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Turbotax deluxe federal e file 2012 A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Turbotax deluxe federal e file 2012 Partnership interests. Turbotax deluxe federal e file 2012   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. Turbotax deluxe federal e file 2012 Controlled groups. Turbotax deluxe federal e file 2012   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. Turbotax deluxe federal e file 2012   For more information, see section 267(f) of the Internal Revenue Code. Turbotax deluxe federal e file 2012 Ownership of stock or partnership interests. Turbotax deluxe federal e file 2012   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. Turbotax deluxe federal e file 2012 Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Turbotax deluxe federal e file 2012 (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Turbotax deluxe federal e file 2012 ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Turbotax deluxe federal e file 2012 Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Turbotax deluxe federal e file 2012 An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Turbotax deluxe federal e file 2012 For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Turbotax deluxe federal e file 2012 But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. Turbotax deluxe federal e file 2012 Indirect transactions. Turbotax deluxe federal e file 2012   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. Turbotax deluxe federal e file 2012 This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. Turbotax deluxe federal e file 2012 Property received from a related person. Turbotax deluxe federal e file 2012   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. Turbotax deluxe federal e file 2012 This rule applies only to the original transferee. Turbotax deluxe federal e file 2012 Example 1. Turbotax deluxe federal e file 2012 Your brother sold stock to you for $7,600. Turbotax deluxe federal e file 2012 His cost basis was $10,000. Turbotax deluxe federal e file 2012 His loss of $2,400 was not deductible. Turbotax deluxe federal e file 2012 You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). Turbotax deluxe federal e file 2012 Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. Turbotax deluxe federal e file 2012 Example 2. Turbotax deluxe federal e file 2012 Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. Turbotax deluxe federal e file 2012 Your recognized loss is only $700 ($7,600 − $6,900). Turbotax deluxe federal e file 2012 You cannot deduct the loss not allowed to your brother. Turbotax deluxe federal e file 2012 Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. Turbotax deluxe federal e file 2012 Sale of a Business The sale of a business usually is not a sale of one asset. Turbotax deluxe federal e file 2012 Instead, all the assets of the business are sold. Turbotax deluxe federal e file 2012 Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Turbotax deluxe federal e file 2012 A business usually has many assets. Turbotax deluxe federal e file 2012 When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. Turbotax deluxe federal e file 2012 The gain or loss on each asset is figured separately. Turbotax deluxe federal e file 2012 The sale of capital assets results in capital gain or loss. Turbotax deluxe federal e file 2012 The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). Turbotax deluxe federal e file 2012 The sale of inventory results in ordinary income or loss. Turbotax deluxe federal e file 2012 Partnership interests. Turbotax deluxe federal e file 2012   An interest in a partnership or joint venture is treated as a capital asset when sold. Turbotax deluxe federal e file 2012 The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. Turbotax deluxe federal e file 2012 For more information, see Disposition of Partner's Interest in Publication 541. Turbotax deluxe federal e file 2012 Corporation interests. Turbotax deluxe federal e file 2012   Your interest in a corporation is represented by stock certificates. Turbotax deluxe federal e file 2012 When you sell these certificates, you usually realize capital gain or loss. Turbotax deluxe federal e file 2012 For information on the sale of stock, see chapter 4 in Publication 550. Turbotax deluxe federal e file 2012 Corporate liquidations. Turbotax deluxe federal e file 2012   Corporate liquidations of property generally are treated as a sale or exchange. Turbotax deluxe federal e file 2012 Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Turbotax deluxe federal e file 2012 Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. Turbotax deluxe federal e file 2012   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. Turbotax deluxe federal e file 2012 For more information, see section 332 of the Internal Revenue Code and the related regulations. Turbotax deluxe federal e file 2012 Allocation of consideration paid for a business. Turbotax deluxe federal e file 2012   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Turbotax deluxe federal e file 2012 Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. Turbotax deluxe federal e file 2012 This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. Turbotax deluxe federal e file 2012 It also determines the buyer's basis in the business assets. Turbotax deluxe federal e file 2012 Consideration. Turbotax deluxe federal e file 2012   The buyer's consideration is the cost of the assets acquired. Turbotax deluxe federal e file 2012 The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. Turbotax deluxe federal e file 2012 Residual method. Turbotax deluxe federal e file 2012   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Turbotax deluxe federal e file 2012 This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Turbotax deluxe federal e file 2012 Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. Turbotax deluxe federal e file 2012   A group of assets constitutes a trade or business if either of the following applies. Turbotax deluxe federal e file 2012 Goodwill or going concern value could, under any circumstances, attach to them. Turbotax deluxe federal e file 2012 The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. Turbotax deluxe federal e file 2012   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). Turbotax deluxe federal e file 2012 The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Turbotax deluxe federal e file 2012 See Classes of assets next for the complete order. Turbotax deluxe federal e file 2012 Classes of assets. Turbotax deluxe federal e file 2012   The following definitions are the classifications for deemed or actual asset acquisitions. Turbotax deluxe federal e file 2012 Allocate the consideration among the assets in the following order. Turbotax deluxe federal e file 2012 The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. Turbotax deluxe federal e file 2012 The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. Turbotax deluxe federal e file 2012 Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Turbotax deluxe federal e file 2012 Class II assets are certificates of deposit, U. Turbotax deluxe federal e file 2012 S. Turbotax deluxe federal e file 2012 Government securities, foreign currency, and actively traded personal property, including stock and securities. Turbotax deluxe federal e file 2012 Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Turbotax deluxe federal e file 2012 However, see section 1. Turbotax deluxe federal e file 2012 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Turbotax deluxe federal e file 2012 Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Turbotax deluxe federal e file 2012 Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. Turbotax deluxe federal e file 2012    Note. Turbotax deluxe federal e file 2012 Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. Turbotax deluxe federal e file 2012 Class VI assets are section 197 intangibles (other than goodwill and going concern value). Turbotax deluxe federal e file 2012 Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). Turbotax deluxe federal e file 2012   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. Turbotax deluxe federal e file 2012 For example, if an asset is described in both Class II and Class IV, choose Class II. Turbotax deluxe federal e file 2012 Example. Turbotax deluxe federal e file 2012 The total paid in the sale of the assets of Company SKB is $21,000. Turbotax deluxe federal e file 2012 No cash or deposit accounts or similar accounts were sold. Turbotax deluxe federal e file 2012 The company's U. Turbotax deluxe federal e file 2012 S. Turbotax deluxe federal e file 2012 Government securities sold had a fair market value of $3,200. Turbotax deluxe federal e file 2012 The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. Turbotax deluxe federal e file 2012 Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. Turbotax deluxe federal e file 2012 S. Turbotax deluxe federal e file 2012 Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. Turbotax deluxe federal e file 2012 Agreement. Turbotax deluxe federal e file 2012   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Turbotax deluxe federal e file 2012 This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Turbotax deluxe federal e file 2012 Reporting requirement. Turbotax deluxe federal e file 2012   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Turbotax deluxe federal e file 2012 Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Turbotax deluxe federal e file 2012 Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Turbotax deluxe federal e file 2012 See the Instructions for Form 8594. Turbotax deluxe federal e file 2012 Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. Turbotax deluxe federal e file 2012 It includes such items as patents, copyrights, and the goodwill value of a business. Turbotax deluxe federal e file 2012 Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. Turbotax deluxe federal e file 2012 The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. Turbotax deluxe federal e file 2012 See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. Turbotax deluxe federal e file 2012 Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. Turbotax deluxe federal e file 2012 The following discussions explain special rules that apply to certain dispositions of intangible property. Turbotax deluxe federal e file 2012 Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. Turbotax deluxe federal e file 2012 They include the following assets. Turbotax deluxe federal e file 2012 Goodwill. Turbotax deluxe federal e file 2012 Going concern value. Turbotax deluxe federal e file 2012 Workforce in place. Turbotax deluxe federal e file 2012 Business books and records, operating systems, and other information bases. Turbotax deluxe federal e file 2012 Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. Turbotax deluxe federal e file 2012 Customer-based intangibles. Turbotax deluxe federal e file 2012 Supplier-based intangibles. Turbotax deluxe federal e file 2012 Licenses, permits, and other rights granted by a governmental unit. Turbotax deluxe federal e file 2012 Covenants not to compete entered into in connection with the acquisition of a business. Turbotax deluxe federal e file 2012 Franchises, trademarks, and trade names. Turbotax deluxe federal e file 2012 See chapter 8 of Publication 535 for a description of each intangible. Turbotax deluxe federal e file 2012 Dispositions. Turbotax deluxe federal e file 2012   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. Turbotax deluxe federal e file 2012 Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. Turbotax deluxe federal e file 2012 If you retain more than one section 197 intangible, increase each intangible's adjusted basis. Turbotax deluxe federal e file 2012 Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. Turbotax deluxe federal e file 2012   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. Turbotax deluxe federal e file 2012 For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. Turbotax deluxe federal e file 2012 Covenant not to compete. Turbotax deluxe federal e file 2012   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. Turbotax deluxe federal e file 2012 Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. Turbotax deluxe federal e file 2012 Anti-churning rules. Turbotax deluxe federal e file 2012   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. Turbotax deluxe federal e file 2012 However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. Turbotax deluxe federal e file 2012 Recognize gain on the transfer of the property. Turbotax deluxe federal e file 2012 Pay income tax on the gain at the highest tax rate. Turbotax deluxe federal e file 2012   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. Turbotax deluxe federal e file 2012 But each partner or shareholder must pay the tax on his or her share of gain. Turbotax deluxe federal e file 2012   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. Turbotax deluxe federal e file 2012 You must file the tax return by the due date (including extensions). Turbotax deluxe federal e file 2012 You must also notify the transferee of the election in writing by the due date of the return. Turbotax deluxe federal e file 2012   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Turbotax deluxe federal e file 2012 Attach the statement to the amended return and write “Filed pursuant to section 301. Turbotax deluxe federal e file 2012 9100-2” at the top of the statement. Turbotax deluxe federal e file 2012 File the amended return at the same address the original return was filed. Turbotax deluxe federal e file 2012 For more information about making the election, see Regulations section 1. Turbotax deluxe federal e file 2012 197-2(h)(9). Turbotax deluxe federal e file 2012 For information about reporting the tax on your income tax return, see the Instructions for Form 4797. Turbotax deluxe federal e file 2012 Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. Turbotax deluxe federal e file 2012 This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. Turbotax deluxe federal e file 2012 For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. Turbotax deluxe federal e file 2012 This treatment applies to your transfer of a patent if you meet all the following conditions. Turbotax deluxe federal e file 2012 You are the holder of the patent. Turbotax deluxe federal e file 2012 You transfer the patent other than by gift, inheritance, or devise. Turbotax deluxe federal e file 2012 You transfer all substantial rights to the patent or an undivided interest in all such rights. Turbotax deluxe federal e file 2012 You do not transfer the patent to a related person. Turbotax deluxe federal e file 2012 Holder. Turbotax deluxe federal e file 2012   You are the holder of a patent if you are either of the following. Turbotax deluxe federal e file 2012 The individual whose effort created the patent property and who qualifies as the original and first inventor. Turbotax deluxe federal e file 2012 The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. Turbotax deluxe federal e file 2012 All substantial rights. Turbotax deluxe federal e file 2012   All substantial rights to patent property are all rights that have value when they are transferred. Turbotax deluxe federal e file 2012 A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. Turbotax deluxe federal e file 2012   All substantial rights to a patent are not transferred if any of the following apply to the transfer. Turbotax deluxe federal e file 2012 The rights are limited geographically within a country. Turbotax deluxe federal e file 2012 The rights are limited to a period less than the remaining life of the patent. Turbotax deluxe federal e file 2012 The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. Turbotax deluxe federal e file 2012 The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. Turbotax deluxe federal e file 2012 Related persons. Turbotax deluxe federal e file 2012   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. Turbotax deluxe federal e file 2012 Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. Turbotax deluxe federal e file 2012 Substitute “25% or more” ownership for “more than 50%. Turbotax deluxe federal e file 2012 ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. Turbotax deluxe federal e file 2012 For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. Turbotax deluxe federal e file 2012 The brother-sister exception does not apply because the trust relationship is independent of family status. Turbotax deluxe federal e file 2012 Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. Turbotax deluxe federal e file 2012 A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. Turbotax deluxe federal e file 2012 Significant power, right, or continuing interest. Turbotax deluxe federal e file 2012   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. Turbotax deluxe federal e file 2012   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. Turbotax deluxe federal e file 2012 A right to disapprove any assignment of the interest, or any part of it. Turbotax deluxe federal e file 2012 A right to end the agreement at will. Turbotax deluxe federal e file 2012 A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. Turbotax deluxe federal e file 2012 A right to make the recipient sell or advertise only your products or services. Turbotax deluxe federal e file 2012 A right to make the recipient buy most supplies and equipment from you. Turbotax deluxe federal e file 2012 A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. Turbotax deluxe federal e file 2012 Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. Turbotax deluxe federal e file 2012 However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. Turbotax deluxe federal e file 2012 See section 1237 of the Internal Revenue Code. Turbotax deluxe federal e file 2012 Timber Standing timber held as investment property is a capital asset. Turbotax deluxe federal e file 2012 Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. Turbotax deluxe federal e file 2012 If you held the timber primarily for sale to customers, it is not a capital asset. Turbotax deluxe federal e file 2012 Gain or loss on its sale is ordinary business income or loss. Turbotax deluxe federal e file 2012 It is reported in the gross receipts or sales and cost of goods sold items of your return. Turbotax deluxe federal e file 2012 Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Turbotax deluxe federal e file 2012 These sales constitute a very minor part of their farm businesses. Turbotax deluxe federal e file 2012 In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. Turbotax deluxe federal e file 2012 , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. Turbotax deluxe federal e file 2012 Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. Turbotax deluxe federal e file 2012 Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Turbotax deluxe federal e file 2012 This is true whether the timber is cut under contract or whether you cut it yourself. Turbotax deluxe federal e file 2012 Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. Turbotax deluxe federal e file 2012 See chapter 3. Turbotax deluxe federal e file 2012 Gain or loss is reported on Form 4797. Turbotax deluxe federal e file 2012 Christmas trees. Turbotax deluxe federal e file 2012   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Turbotax deluxe federal e file 2012 They qualify for both rules discussed below. Turbotax deluxe federal e file 2012 Election to treat cutting as a sale or exchange. Turbotax deluxe federal e file 2012   Under the general rule, the cutting of timber results in no gain or loss. Turbotax deluxe federal e file 2012 It is not until a sale or exchange occurs that gain or loss is realized. Turbotax deluxe federal e file 2012 But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year the timber is cut. Turbotax deluxe federal e file 2012 Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Turbotax deluxe federal e file 2012 Any later sale results in ordinary business income or loss. Turbotax deluxe federal e file 2012 See Example, later. Turbotax deluxe federal e file 2012   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or for use in your trade or business. Turbotax deluxe federal e file 2012 Making the election. Turbotax deluxe federal e file 2012   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of the gain or loss. Turbotax deluxe federal e file 2012 You do not have to make the election in the first year you cut timber. Turbotax deluxe federal e file 2012 You can make it in any year to which the election would apply. Turbotax deluxe federal e file 2012 If the timber is partnership property, the election is made on the partnership return. Turbotax deluxe federal e file 2012 This election cannot be made on an amended return. Turbotax deluxe federal e file 2012   Once you have made the election, it remains in effect for all later years unless you cancel it. Turbotax deluxe federal e file 2012   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. Turbotax deluxe federal e file 2012 The prior election (and revocation) is disregarded for purposes of making a subsequent election. Turbotax deluxe federal e file 2012 See Form T (Timber), Forest Activities Schedule, for more information. Turbotax deluxe federal e file 2012 Gain or loss. Turbotax deluxe federal e file 2012   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. Turbotax deluxe federal e file 2012   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Turbotax deluxe federal e file 2012 Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 of the Internal Revenue Code and the related regulations. Turbotax deluxe federal e file 2012   Timber depletion is discussed in chapter 9 of Publication 535. Turbotax deluxe federal e file 2012 Example. Turbotax deluxe federal e file 2012 In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Turbotax deluxe federal e file 2012 It had an adjusted basis for depletion of $40 per MBF. Turbotax deluxe federal e file 2012 You are a calendar year taxpayer. Turbotax deluxe federal e file 2012 On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. Turbotax deluxe federal e file 2012 It was cut in April for sale. Turbotax deluxe federal e file 2012 On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Turbotax deluxe federal e file 2012 You report the difference between the fair market value and your adjusted basis for depletion as a gain. Turbotax deluxe federal e file 2012 This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. Turbotax deluxe federal e file 2012 You figure your gain as follows. Turbotax deluxe federal e file 2012 FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value becomes your basis in the cut timber and a later sale of the cut timber including any by-product or tree tops will result in ordinary business income or loss. Turbotax deluxe federal e file 2012 Outright sales of timber. Turbotax deluxe federal e file 2012   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined below). Turbotax deluxe federal e file 2012 However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see below). Turbotax deluxe federal e file 2012 Cutting contract. Turbotax deluxe federal e file 2012   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Turbotax deluxe federal e file 2012 You are the owner of the timber. Turbotax deluxe federal e file 2012 You held the timber longer than 1 year before its disposal. Turbotax deluxe federal e file 2012 You kept an economic interest in the timber. Turbotax deluxe federal e file 2012   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Turbotax deluxe federal e file 2012   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Turbotax deluxe federal e file 2012 Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. Turbotax deluxe federal e file 2012 Date of disposal. Turbotax deluxe federal e file 2012   The date of disposal is the date the timber is cut. Turbotax deluxe federal e file 2012 However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Turbotax deluxe federal e file 2012   This election applies only to figure the holding period of the timber. Turbotax deluxe federal e file 2012 It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Turbotax deluxe federal e file 2012   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Turbotax deluxe federal e file 2012 The statement must identify the advance payments subject to the election and the contract under which they were made. Turbotax deluxe federal e file 2012   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Turbotax deluxe federal e file 2012 Attach the statement to the amended return and write “Filed pursuant to section 301. Turbotax deluxe federal e file 2012 9100-2” at the top of the statement. Turbotax deluxe federal e file 2012 File the amended return at the same address the original return was filed. Turbotax deluxe federal e file 2012 Owner. Turbotax deluxe federal e file 2012   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. Turbotax deluxe federal e file 2012 You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Turbotax deluxe federal e file 2012 Tree stumps. Turbotax deluxe federal e file 2012   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Turbotax deluxe federal e file 2012 Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Turbotax deluxe federal e file 2012 However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Turbotax deluxe federal e file 2012 Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Turbotax deluxe federal e file 2012   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Turbotax deluxe federal e file 2012 Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. Turbotax deluxe federal e file 2012 , are capital assets except when they are held for sale by a dealer. Turbotax deluxe federal e file 2012 Any gain or loss from their sale or exchange generally is a capital gain or loss. Turbotax deluxe federal e file 2012 If you are a dealer, the amount received from the sale is ordinary business income. Turbotax deluxe federal e file 2012 Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. Turbotax deluxe federal e file 2012 You owned the coal or iron ore longer than 1 year before its disposal. Turbotax deluxe federal e file 2012 You kept an economic interest in the coal or iron ore. Turbotax deluxe federal e file 2012 For this rule, the date the coal or iron ore is mined is considered the date of its disposal. Turbotax deluxe federal e file 2012 Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). Turbotax deluxe federal e file 2012 This amount is included on Form 4797 along with your other section 1231 gains and losses. Turbotax deluxe federal e file 2012 You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. Turbotax deluxe federal e file 2012 If you own only an option to buy the coal in place, you do not qualify as an owner. Turbotax deluxe federal e file 2012 In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. Turbotax deluxe federal e file 2012 The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. Turbotax deluxe federal e file 2012 Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. Turbotax deluxe federal e file 2012 If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. Turbotax deluxe federal e file 2012 Special rule. Turbotax deluxe federal e file 2012   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. Turbotax deluxe federal e file 2012 A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). Turbotax deluxe federal e file 2012 An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. Turbotax deluxe federal e file 2012 Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. Turbotax deluxe federal e file 2012 This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. Turbotax deluxe federal e file 2012 An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). Turbotax deluxe federal e file 2012 A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. Turbotax deluxe federal e file 2012 Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. Turbotax deluxe federal e file 2012 For more information, see chapter 4 of Publication 550. Turbotax deluxe federal e file 2012 Prev  Up  Next   Home   More Online Publications