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Who Can Use 1040ez

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Who Can Use 1040ez

Who can use 1040ez 9. Who can use 1040ez   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Who can use 1040ez Depletion unit. Who can use 1040ez Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Who can use 1040ez The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Who can use 1040ez There are two ways of figuring depletion: cost depletion and percentage depletion. Who can use 1040ez For mineral property, you generally must use the method that gives you the larger deduction. Who can use 1040ez For standing timber, you must use cost depletion. Who can use 1040ez Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Who can use 1040ez More than one person can have an economic interest in the same mineral deposit or timber. Who can use 1040ez In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Who can use 1040ez You have an economic interest if both the following apply. Who can use 1040ez You have acquired by investment any interest in mineral deposits or standing timber. Who can use 1040ez You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Who can use 1040ez A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Who can use 1040ez A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Who can use 1040ez Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Who can use 1040ez Basis adjustment for depletion. Who can use 1040ez   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Who can use 1040ez Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Who can use 1040ez For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Who can use 1040ez You can treat two or more separate interests as one property or as separate properties. Who can use 1040ez See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Who can use 1040ez There are two ways of figuring depletion on mineral property. Who can use 1040ez Cost depletion. Who can use 1040ez Percentage depletion. Who can use 1040ez Generally, you must use the method that gives you the larger deduction. Who can use 1040ez However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Who can use 1040ez See Oil and Gas Wells , later. Who can use 1040ez Cost Depletion To figure cost depletion you must first determine the following. Who can use 1040ez The property's basis for depletion. Who can use 1040ez The total recoverable units of mineral in the property's natural deposit. Who can use 1040ez The number of units of mineral sold during the tax year. Who can use 1040ez Basis for depletion. Who can use 1040ez   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Who can use 1040ez Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Who can use 1040ez The residual value of land and improvements at the end of operations. Who can use 1040ez The cost or value of land acquired for purposes other than mineral production. Who can use 1040ez Adjusted basis. Who can use 1040ez   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Who can use 1040ez Your adjusted basis can never be less than zero. Who can use 1040ez See Publication 551, Basis of Assets, for more information on adjusted basis. Who can use 1040ez Total recoverable units. Who can use 1040ez   The total recoverable units is the sum of the following. Who can use 1040ez The number of units of mineral remaining at the end of the year (including units recovered but not sold). Who can use 1040ez The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Who can use 1040ez   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Who can use 1040ez You must include ores and minerals that are developed, in sight, blocked out, or assured. Who can use 1040ez You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Who can use 1040ez But see Elective safe harbor for owners of oil and gas property , later. Who can use 1040ez Number of units sold. Who can use 1040ez   You determine the number of units sold during the tax year based on your method of accounting. Who can use 1040ez Use the following table to make this determination. Who can use 1040ez    IF you  use . Who can use 1040ez . Who can use 1040ez . Who can use 1040ez THEN the units sold during the year are . Who can use 1040ez . Who can use 1040ez . Who can use 1040ez The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Who can use 1040ez An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Who can use 1040ez   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Who can use 1040ez Figuring the cost depletion deduction. Who can use 1040ez   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Who can use 1040ez Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Who can use 1040ez Rate per unit. Who can use 1040ez 2 Multiply the rate per unit by units sold during the tax year. Who can use 1040ez Cost depletion deduction. Who can use 1040ez You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Who can use 1040ez Elective safe harbor for owners of oil and gas property. Who can use 1040ez   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Who can use 1040ez If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Who can use 1040ez For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Who can use 1040ez irs. Who can use 1040ez gov/pub/irs-irbs/irb04-10. Who can use 1040ez pdf. Who can use 1040ez   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Who can use 1040ez The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Who can use 1040ez The election, if made, is effective for the tax year in which it is made and all later years. Who can use 1040ez It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Who can use 1040ez Once revoked, it cannot be re-elected for the next 5 years. Who can use 1040ez Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Who can use 1040ez The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Who can use 1040ez Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Who can use 1040ez Gross income. Who can use 1040ez   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Who can use 1040ez Any rents or royalties you paid or incurred for the property. Who can use 1040ez The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Who can use 1040ez A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Who can use 1040ez   Use the following fraction to figure the part of the bonus you must subtract. Who can use 1040ez No. Who can use 1040ez of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Who can use 1040ez For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Who can use 1040ez Taxable income limit. Who can use 1040ez   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Who can use 1040ez   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Who can use 1040ez These deductible items include, but are not limited to, the following. Who can use 1040ez Operating expenses. Who can use 1040ez Certain selling expenses. Who can use 1040ez Administrative and financial overhead. Who can use 1040ez Depreciation. Who can use 1040ez Intangible drilling and development costs. Who can use 1040ez Exploration and development expenditures. Who can use 1040ez Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Who can use 1040ez Losses sustained. Who can use 1040ez   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Who can use 1040ez Do not deduct any net operating loss deduction from the gross income from the property. Who can use 1040ez Corporations do not deduct charitable contributions from the gross income from the property. Who can use 1040ez If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Who can use 1040ez See section 1. Who can use 1040ez 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Who can use 1040ez Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Who can use 1040ez You are either an independent producer or a royalty owner. Who can use 1040ez The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Who can use 1040ez If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Who can use 1040ez For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Who can use 1040ez Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Who can use 1040ez However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Who can use 1040ez For information on figuring the deduction, see Figuring percentage depletion , later. Who can use 1040ez Refiners who cannot claim percentage depletion. Who can use 1040ez   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Who can use 1040ez The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Who can use 1040ez Related person. Who can use 1040ez   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Who can use 1040ez For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Who can use 1040ez A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Who can use 1040ez For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Who can use 1040ez The value of the outstanding stock of a corporation. Who can use 1040ez The interest in the profits or capital of a partnership. Who can use 1040ez The beneficial interests in an estate or trust. Who can use 1040ez Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Who can use 1040ez Retailers who cannot claim percentage depletion. Who can use 1040ez   You cannot claim percentage depletion if both the following apply. Who can use 1040ez You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Who can use 1040ez Through a retail outlet operated by you or a related person. Who can use 1040ez To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Who can use 1040ez To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Who can use 1040ez The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Who can use 1040ez   For the purpose of determining if this rule applies, do not count the following. Who can use 1040ez Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Who can use 1040ez Bulk sales of aviation fuels to the Department of Defense. Who can use 1040ez Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Who can use 1040ez Related person. Who can use 1040ez   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Who can use 1040ez Sales through a related person. Who can use 1040ez   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Who can use 1040ez   You are not considered to be selling through a related person who is a retailer if all the following apply. Who can use 1040ez You do not have a significant ownership interest in the retailer. Who can use 1040ez You sell your production to persons who are not related to either you or the retailer. Who can use 1040ez The retailer does not buy oil or natural gas from your customers or persons related to your customers. Who can use 1040ez There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Who can use 1040ez Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Who can use 1040ez Transferees who cannot claim percentage depletion. Who can use 1040ez   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Who can use 1040ez For a definition of the term “transfer,” see section 1. Who can use 1040ez 613A-7(n) of the regulations. Who can use 1040ez For a definition of the term “interest in proven oil or gas property,” see section 1. Who can use 1040ez 613A-7(p) of the regulations. Who can use 1040ez Figuring percentage depletion. Who can use 1040ez   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Who can use 1040ez If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Who can use 1040ez If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Who can use 1040ez   In addition, there is a limit on the percentage depletion deduction. Who can use 1040ez See Taxable income limit , later. Who can use 1040ez Average daily production. Who can use 1040ez   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Who can use 1040ez Partial interest. Who can use 1040ez   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Who can use 1040ez   You have a partial interest in the production from a property if you have a net profits interest in the property. Who can use 1040ez To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Who can use 1040ez To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Who can use 1040ez Then multiply the total production from the property by your percentage participation to figure your share of the production. Who can use 1040ez Example. Who can use 1040ez Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Who can use 1040ez During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Who can use 1040ez Javier had expenses of $90,000 attributable to the property. Who can use 1040ez The property generated a net profit of $110,000 ($200,000 − $90,000). Who can use 1040ez Pablo received income of $22,000 ($110,000 × . Who can use 1040ez 20) for his net profits interest. Who can use 1040ez Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Who can use 1040ez Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Who can use 1040ez Depletable oil or natural gas quantity. Who can use 1040ez   Generally, your depletable oil quantity is 1,000 barrels. Who can use 1040ez Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Who can use 1040ez If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Who can use 1040ez Example. Who can use 1040ez You have both oil and natural gas production. Who can use 1040ez To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Who can use 1040ez Your depletable natural gas quantity is 2. Who can use 1040ez 16 million cubic feet of gas (360 × 6000). Who can use 1040ez You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Who can use 1040ez If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Who can use 1040ez Also, see Notice 2012-50, available at www. Who can use 1040ez irs. Who can use 1040ez gov/irb/2012–31_IRB/index. Who can use 1040ez html. Who can use 1040ez Business entities and family members. Who can use 1040ez   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Who can use 1040ez Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Who can use 1040ez You and your spouse and minor children. Who can use 1040ez A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Who can use 1040ez Controlled group of corporations. Who can use 1040ez   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Who can use 1040ez They share the depletable quantity. Who can use 1040ez A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Who can use 1040ez ” Gross income from the property. Who can use 1040ez   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Who can use 1040ez If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Who can use 1040ez   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Who can use 1040ez   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Who can use 1040ez Average daily production exceeds depletable quantities. Who can use 1040ez   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Who can use 1040ez Figure your average daily production of oil or natural gas for the year. Who can use 1040ez Figure your depletable oil or natural gas quantity for the year. Who can use 1040ez Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Who can use 1040ez Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Who can use 1040ez This is your depletion allowance for that property for the year. Who can use 1040ez Taxable income limit. Who can use 1040ez   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Who can use 1040ez 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Who can use 1040ez For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Who can use 1040ez 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Who can use 1040ez You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Who can use 1040ez Add it to your depletion allowance (before applying any limits) for the following year. Who can use 1040ez Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Who can use 1040ez (However, see Electing large partnerships must figure depletion allowance , later. Who can use 1040ez ) Each partner or shareholder must decide whether to use cost or percentage depletion. Who can use 1040ez If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Who can use 1040ez Partner's or shareholder's adjusted basis. Who can use 1040ez   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Who can use 1040ez The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Who can use 1040ez   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Who can use 1040ez However, in some cases, it is figured according to the partner's interest in partnership income. Who can use 1040ez   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Who can use 1040ez Recordkeeping. Who can use 1040ez Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Who can use 1040ez The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Who can use 1040ez The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Who can use 1040ez Reporting the deduction. Who can use 1040ez   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Who can use 1040ez Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Who can use 1040ez The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Who can use 1040ez The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Who can use 1040ez Form 6198, At-Risk Limitations. Who can use 1040ez Form 8582, Passive Activity Loss Limitations. Who can use 1040ez Electing large partnerships must figure depletion allowance. Who can use 1040ez   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Who can use 1040ez The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Who can use 1040ez Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Who can use 1040ez   An electing large partnership is one that meets both the following requirements. Who can use 1040ez The partnership had 100 or more partners in the preceding year. Who can use 1040ez The partnership chooses to be an electing large partnership. Who can use 1040ez Disqualified persons. Who can use 1040ez   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Who can use 1040ez Disqualified persons must figure it themselves, as explained earlier. Who can use 1040ez   All the following are disqualified persons. Who can use 1040ez Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Who can use 1040ez Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Who can use 1040ez Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Who can use 1040ez Average daily production is discussed earlier. Who can use 1040ez Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Who can use 1040ez Natural gas sold under a fixed contract. Who can use 1040ez   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Who can use 1040ez This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Who can use 1040ez The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Who can use 1040ez Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Who can use 1040ez Natural gas from geopressured brine. Who can use 1040ez   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Who can use 1040ez This is natural gas that is both the following. Who can use 1040ez Produced from a well you began to drill after September 1978 and before 1984. Who can use 1040ez Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Who can use 1040ez Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Who can use 1040ez Mines and other natural deposits. Who can use 1040ez   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Who can use 1040ez   The following is a list of the percentage depletion rates for the more common minerals. Who can use 1040ez DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Who can use 1040ez Corporate deduction for iron ore and coal. Who can use 1040ez   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Who can use 1040ez Gross income from the property. Who can use 1040ez   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Who can use 1040ez Mining includes all the following. Who can use 1040ez Extracting ores or minerals from the ground. Who can use 1040ez Applying certain treatment processes described later. Who can use 1040ez Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Who can use 1040ez Excise tax. Who can use 1040ez   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Who can use 1040ez Extraction. Who can use 1040ez   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Who can use 1040ez This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Who can use 1040ez Treatment processes. Who can use 1040ez   The processes included as mining depend on the ore or mineral mined. Who can use 1040ez To qualify as mining, the treatment processes must be applied by the mine owner or operator. Who can use 1040ez For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Who can use 1040ez Transportation of more than 50 miles. Who can use 1040ez   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Who can use 1040ez    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Who can use 1040ez Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Who can use 1040ez For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Who can use 1040ez irs. Who can use 1040ez gov/irb/2013-01_IRB/ar11. Who can use 1040ez html. Who can use 1040ez Disposal of coal or iron ore. Who can use 1040ez   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Who can use 1040ez You disposed of it after holding it for more than 1 year. Who can use 1040ez You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Who can use 1040ez Treat any gain on the disposition as a capital gain. Who can use 1040ez Disposal to related person. Who can use 1040ez   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Who can use 1040ez A related person (as listed in chapter 2 of Publication 544). Who can use 1040ez A person owned or controlled by the same interests that own or control you. Who can use 1040ez Geothermal deposits. Who can use 1040ez   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Who can use 1040ez A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Who can use 1040ez For percentage depletion purposes, a geothermal deposit is not considered a gas well. Who can use 1040ez   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Who can use 1040ez See Gross income from the property , earlier, under Oil and Gas Wells. Who can use 1040ez Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Who can use 1040ez Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Who can use 1040ez A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Who can use 1040ez Bonuses and advanced royalties. Who can use 1040ez   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Who can use 1040ez If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Who can use 1040ez Figuring cost depletion. Who can use 1040ez   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Who can use 1040ez To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Who can use 1040ez Figuring percentage depletion. Who can use 1040ez   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Who can use 1040ez Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Who can use 1040ez However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Who can use 1040ez Ending the lease. Who can use 1040ez   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Who can use 1040ez Do this for the year the lease ends or is abandoned. Who can use 1040ez Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Who can use 1040ez   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Who can use 1040ez Include this amount in income for the year the lease ends. Who can use 1040ez Increase your adjusted basis in the property by the amount you include in income. Who can use 1040ez Delay rentals. Who can use 1040ez   These are payments for deferring development of the property. Who can use 1040ez Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Who can use 1040ez These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Who can use 1040ez Timber You can figure timber depletion only by the cost method. Who can use 1040ez Percentage depletion does not apply to timber. Who can use 1040ez Base your depletion on your cost or other basis in the timber. Who can use 1040ez Your cost does not include the cost of land or any amounts recoverable through depreciation. Who can use 1040ez Depletion takes place when you cut standing timber. Who can use 1040ez You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Who can use 1040ez Figuring cost depletion. Who can use 1040ez   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Who can use 1040ez Timber units. Who can use 1040ez   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Who can use 1040ez You measure the timber using board feet, log scale, cords, or other units. Who can use 1040ez If you later determine that you have more or less units of timber, you must adjust the original estimate. Who can use 1040ez   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Who can use 1040ez Depletion unit. Who can use 1040ez   You figure your depletion unit each year by taking the following steps. Who can use 1040ez Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Who can use 1040ez Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Who can use 1040ez Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Who can use 1040ez Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Who can use 1040ez Divide the result of (2) by the result of (3). Who can use 1040ez This is your depletion unit. Who can use 1040ez Example. Who can use 1040ez You bought a timber tract for $160,000 and the land was worth as much as the timber. Who can use 1040ez Your basis for the timber is $80,000. Who can use 1040ez Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Who can use 1040ez If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Who can use 1040ez When to claim depletion. Who can use 1040ez   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Who can use 1040ez Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Who can use 1040ez The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Who can use 1040ez Example. Who can use 1040ez The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Who can use 1040ez You would deduct $20,000 of the $40,000 depletion that year. Who can use 1040ez You would add the remaining $20,000 depletion to your closing inventory of timber products. Who can use 1040ez Electing to treat the cutting of timber as a sale or exchange. Who can use 1040ez   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Who can use 1040ez You must make the election on your income tax return for the tax year to which it applies. Who can use 1040ez If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Who can use 1040ez You generally report the gain as long-term capital gain. Who can use 1040ez The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Who can use 1040ez For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Who can use 1040ez   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Who can use 1040ez The prior election (and revocation) is disregarded for purposes of making a subsequent election. Who can use 1040ez See Form T (Timber), Forest Activities Schedule, for more information. Who can use 1040ez Form T. Who can use 1040ez   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Who can use 1040ez Prev  Up  Next   Home   More Online Publications
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The Who Can Use 1040ez

Who can use 1040ez Index A Adoption Child tax credit, Adopted child. Who can use 1040ez (see also Child tax credit) Afghanistan, Afghanistan area. Who can use 1040ez Aliens, Alien Status Amount of exclusion, Amount of Exclusion Arabian peninsula, Arabian peninsula. Who can use 1040ez Assistance (see Tax help) C Child tax credit, Child Tax Credit Limits Modified adjusted gross income, Modified AGI. Who can use 1040ez Qualifying child, Qualifying Child Child, qualifying, Qualifying child. Who can use 1040ez Claims for tax forgiveness, Claims for Tax Forgiveness Codes, W-2, Form W-2 Codes Combat zone Election to include pay for earned income credit, Nontaxable combat pay election. Who can use 1040ez Exclusion, Combat Zone Exclusion Extension of deadlines, Service That Qualifies for an Extension of Deadline Related forgiveness, Combat Zone Related Forgiveness Community property, Community Property, Residents of community property states. Who can use 1040ez Contingency operation, Service That Qualifies for an Extension of Deadline Credits Child tax, Child Tax Credit Earned income, Earned Income Credit Excess social security tax withheld, Credit for Excess Social Security Tax Withheld First-time homebuyer, First-Time Homebuyer Credit D Decedents, Forgiveness of Decedent's Tax Liability Deductions, itemized, Itemized Deductions Domicile, Domicile. Who can use 1040ez Dual-status aliens, Dual-Status Aliens E Earned income credit, Earned Income Credit Social security card, Social security number. Who can use 1040ez Social security number, Social security number. Who can use 1040ez Educational expenses, Educational Expenses Employee business expenses, Employee Business Expenses Excess social security tax withholding credit, Credit for Excess Social Security Tax Withheld Excess withholding credit How to take, How to take the credit. Who can use 1040ez Expenses Employee business, Employee Business Expenses Moving, Moving Expenses Extension of deadlines, Extension of Deadlines Extension of time to file, Extensions F Family, Adopted child. Who can use 1040ez (see also Child tax credit) Filing returns, Filing Returns First-time homebuyer credit, First-Time Homebuyer Credit Foreclosures Mortgage settlement payouts, Foreclosures Foreign income, Foreign Source Income Foreign moves, Foreign Moves Forms 1040, Foreign Moves, Itemized Deductions, Where To File 1040A, Where To File 1040EZ, Where To File 1040NR, Nonresident Aliens 2106, Employee Business Expenses, Reimbursement. Who can use 1040ez 2106-EZ, Employee Business Expenses 2848, Signing Returns, Spouse overseas. Who can use 1040ez 3903, Moving Expenses 4868, Extensions W-2, Form W-2 Codes, Form W-2. Who can use 1040ez , Nontaxable combat pay election. Who can use 1040ez Foster care Child tax credit, Qualifying Child Free tax services, Free help with your tax return. Who can use 1040ez G Gross income, Gross Income H Help (see Tax help) Home Away from, Away from home. Who can use 1040ez Definition of, Away from home. Who can use 1040ez Sale of, Sale of Home Homebuyer credit, First-Time Homebuyer Credit Hospitalization, Hospitalized While Serving in a Combat Zone, Hospitalized After Leaving a Combat Zone, Qualified hospitalization. Who can use 1040ez I Income Foreign source, Foreign Source Income Gross, Gross Income Individual retirement arrangements, Individual Retirement Arrangements Installment agreement Payment deferment, Request for deferment. Who can use 1040ez Interest rate (maximum), Maximum Rate of Interest Iraq, Arabian peninsula. Who can use 1040ez Itemized deductions, Itemized Deductions J Joint returns, Joint returns. Who can use 1040ez , Joint returns. Who can use 1040ez , Joint returns. Who can use 1040ez K Kosovo, The Kosovo area. Who can use 1040ez M Military action related forgiveness, Terrorist or Military Action Related Forgiveness Military Spouses Residency Relief Act Domicile, Military Spouses Residency Relief Act (MSRRA) Miscellaneous itemized deductions, Employee Business Expenses Missing status, Missing status. Who can use 1040ez , Spouse in missing status. Who can use 1040ez , Missing status. Who can use 1040ez Modified adjusted gross income (MAGI) Child tax credit limits, Modified AGI. Who can use 1040ez Moving expenses, Moving Expenses N Nonresident aliens, Nonresident Aliens P Permanent change of station, Permanent change of station. Who can use 1040ez Personal representative, Forgiveness of Decedent's Tax Liability Power of attorney, Signing Returns Professional dues, Professional Dues Publications (see Tax help) Q Qualifying child, Qualifying child. Who can use 1040ez R Reimbursements Employee business expenses, Reimbursement. Who can use 1040ez Moving and storage, Services or reimbursements provided by the government. Who can use 1040ez Uniforms, Uniforms Reservists, Armed Forces reservists. Who can use 1040ez Travel, Armed Forces Reservists Uniforms, Uniforms Resident aliens, Resident Aliens Returns Filing, Filing Returns Signing, Signing Returns S Sale of home, Sale of Home Same-sex marriage, Same-Sex Marriage SCRA violation payouts, Foreclosures Separate returns, Separate returns. Who can use 1040ez Servicemembers Civil Relief Act, Maximum Rate of Interest Serving in a combat zone, Serving in a Combat Zone Social security numbers (SSNs) Earned income credit, Residency test. Who can use 1040ez Spouse Deadline extension, Spouses. Who can use 1040ez Died, Spouse died during the year. Who can use 1040ez Incapacitated, Spouse incapacitated. Who can use 1040ez Missing, Spouse in missing status. Who can use 1040ez Nonresident alien, Treating nonresident alien spouse as resident alien. Who can use 1040ez Overseas, Spouse overseas. Who can use 1040ez State bonus payments, State bonus payments. Who can use 1040ez T Tax forgiven, Combat Zone Related Forgiveness Tax help, How To Get Tax Help Temporary work location, Temporary work location. Who can use 1040ez Terrorist related forgiveness, Terrorist or Military Action Related Forgiveness Transportation, Armed Forces reservists. Who can use 1040ez Transportation expenses, Transportation Expenses Travel expenses, Travel Expenses TTY/TDD information, How To Get Tax Help U Uniforms, Uniforms W When to file, When To File Where to file, Where To File Y Yugoslavia, The Kosovo area. Who can use 1040ez Prev  Up     Home   More Online Publications