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2006 Free Tax Filing

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2006 Free Tax Filing

2006 free tax filing 2. 2006 free tax filing   Estimated Tax for 2014 Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated TaxGeneral Rule Married Taxpayers Special Rules Aliens Estates and Trusts How To Figure Estimated Tax2014 Estimated Tax Worksheet When To Pay Estimated TaxWhen To Start Farmers and Fishermen How To Figure Each PaymentRegular Installment Method Annualized Income Installment Method Estimated Tax Payments Not Required How To Pay Estimated TaxCredit an Overpayment Pay Online Pay by Phone Pay by Check or Money Order Using the Estimated Tax Payment Voucher Introduction Estimated tax is the method used to pay tax on income that is not subject to withholding. 2006 free tax filing This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. 2006 free tax filing You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. 2006 free tax filing Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. 2006 free tax filing If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. 2006 free tax filing If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax , later), you may be charged a penalty even if you are due a refund when you file your tax return. 2006 free tax filing For information on when the penalty applies, see chapter 4. 2006 free tax filing It would be helpful for you to have a copy of your 2013 tax return and an estimate of your 2014 income nearby while reading this chapter. 2006 free tax filing Topics - This chapter discusses: Who must pay estimated tax, How to figure estimated tax (including illustrated examples), When to pay estimated tax, How to figure each payment, and How to pay estimated tax. 2006 free tax filing Useful Items - You may want to see: Form (and Instructions) 1040-ES Estimated Tax for Individuals See chapter 5 for information about how to get this publication and form. 2006 free tax filing Worksheets. 2006 free tax filing   You may need to use several of the blank worksheets included in this chapter. 2006 free tax filing See Worksheets for Chapter 2, later, to locate what you need. 2006 free tax filing Who Does Not Have To Pay Estimated Tax If you receive salaries and wages, you may be able to avoid paying estimated tax by asking your employer to take more tax out of your earnings. 2006 free tax filing To do this, file a new Form W-4 with your employer. 2006 free tax filing See chapter 1. 2006 free tax filing Estimated tax not required. 2006 free tax filing   You do not have to pay estimated tax for 2014 if you meet all three of the following conditions. 2006 free tax filing You had no tax liability for 2013. 2006 free tax filing You were a U. 2006 free tax filing S. 2006 free tax filing citizen or resident alien for the whole year. 2006 free tax filing Your 2013 tax year covered a 12-month period. 2006 free tax filing   You had no tax liability for 2013 if your total tax (defined later under Total tax for 2013—line 14b ) was zero or you did not have to file an income tax return. 2006 free tax filing Please click here for the text description of the image. 2006 free tax filing Figure 2-A: Do You Have To Pay Estimated Tax? Who Must Pay Estimated Tax If you owed additional tax for 2013, you may have to pay estimated tax for 2014. 2006 free tax filing You can use the following general rule as a guide during the year to see if you will have enough withholding, or should increase your withholding or make estimated tax payments. 2006 free tax filing General Rule In most cases, you must pay estimated tax for 2014 if both of the following apply. 2006 free tax filing You expect to owe at least $1,000 in tax for 2014, after subtracting your withholding and refundable credits. 2006 free tax filing You expect your withholding and refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return. 2006 free tax filing Your 2013 tax return must cover all 12 months. 2006 free tax filing Note. 2006 free tax filing The percentages in (2a) or (2b) above may be different if you are a farmer, fisherman, or higher income taxpayer. 2006 free tax filing See Special Rules , later. 2006 free tax filing If the result from using the general rule above suggests that you will not have enough withholding, complete the 2014 Estimated Tax Worksheet for a more accurate calculation. 2006 free tax filing Figure 2-A takes you through the general rule. 2006 free tax filing You may find this helpful in determining if you must pay estimated tax. 2006 free tax filing If all your income will be subject to income tax withholding, you probably do not need to pay estimated tax. 2006 free tax filing Example 1. 2006 free tax filing Jane Smart uses Figure 2-A and the following information to figure whether she should pay estimated tax for 2014. 2006 free tax filing She files as head of household claiming her dependent son, takes the standard deduction, and expects no refundable credits for 2014. 2006 free tax filing Expected adjusted gross income (AGI) for 2014 $82,800 AGI for 2013 $73,700 Total tax on 2013 return (Form 1040,  line 61) $  8,746 Total 2014 estimated tax (line 13c of the 2014 Estimated Tax Worksheet) $11,015 Tax expected to be withheld in 2014 $10,000 Jane's answer to Figure 2-A, box 1, is YES; she expects to owe at least $1,000 for 2014 after subtracting her withholding from her expected total tax ($11,015 − $10,000 = $1,015). 2006 free tax filing Her answer to box 2a is YES; she expects her income tax withholding ($10,000) to be at least 90% of the tax to be shown on her 2014 return ($11,015 × 90% = $9,913. 2006 free tax filing 50). 2006 free tax filing Jane does not need to pay estimated tax. 2006 free tax filing Example 2. 2006 free tax filing The facts are the same as in Example 1, except that Jane expects only $8,700 tax to be withheld in 2014. 2006 free tax filing Because that is less than $9,913. 2006 free tax filing 50, her answer to box 2a is NO. 2006 free tax filing Jane's answer to box 2b is also NO; she does not expect her income tax withholding ($8,700) to be at least 100% of the total tax shown on her 2013 return ($8,746). 2006 free tax filing Jane must increase her withholding or pay estimated tax for 2014. 2006 free tax filing Example 3. 2006 free tax filing The facts are the same as in Example 2, except that the total tax shown on Jane's 2013 return was $8,600. 2006 free tax filing Because she expects to have more than $8,600 withheld in 2014 ($8,700), her answer to box 2b is YES. 2006 free tax filing Jane does not need to pay estimated tax for 2014. 2006 free tax filing Married Taxpayers If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income. 2006 free tax filing You and your spouse can make joint estimated tax payments even if you are not living together. 2006 free tax filing However, you and your spouse cannot make joint estimated tax payments if: You are legally separated under a decree of divorce or separate maintenance, You and your spouse have different tax years, Either spouse is a nonresident alien (unless that spouse elected to be treated as a resident alien for tax purposes). 2006 free tax filing See Choosing Resident Alien Status in Publication 519, or Individuals of the same sex and opposite sex who are in registered domestic partnerships, civil unions, or other similar formal relationships that are not marriages under state law cannot make joint estimated tax payments. 2006 free tax filing These individuals can take credit only for the estimated tax payments that he or she made. 2006 free tax filing If you and your spouse cannot make joint estimated tax payments, apply these rules to your separate estimated income. 2006 free tax filing Making joint or separate estimated tax payments will not affect your choice of filing a joint tax return or separate returns for 2014. 2006 free tax filing 2013 separate returns and 2014 joint return. 2006 free tax filing   If you plan to file a joint return with your spouse for 2014, but you filed separate returns for 2013, your 2013 tax is the total of the tax shown on your separate returns. 2006 free tax filing You filed a separate return if you filed as single, head of household, or married filing separately. 2006 free tax filing 2013 joint return and 2014 separate returns. 2006 free tax filing   If you plan to file a separate return for 2014, but you filed a joint return for 2013, your 2013 tax is your share of the tax on the joint return. 2006 free tax filing You file a separate return if you file as single, head of household, or married filing separately. 2006 free tax filing   To figure your share of the tax on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2013 using the same filing status for 2014. 2006 free tax filing Then multiply the tax on the joint return by the following fraction. 2006 free tax filing      The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. 2006 free tax filing Joe and Heather filed a joint return for 2013 showing taxable income of $48,500 and a tax of $6,386. 2006 free tax filing Of the $48,500 taxable income, $40,100 was Joe's and the rest was Heather's. 2006 free tax filing For 2014, they plan to file married filing separately. 2006 free tax filing Joe figures his share of the tax on the 2013 joint return as follows: Tax on $40,100 based on separate return $5,960 Tax on $8,400 based on separate return 843 Total $6,803 Joe's percentage of total ($5,960 ÷ $6,803) 87. 2006 free tax filing 6% Joe's share of tax on joint return  ($6,386 × 87. 2006 free tax filing 6%) $5,594 Special Rules There are special rules for farmers, fishermen, and certain higher income taxpayers. 2006 free tax filing Farmers and Fishermen If at least two-thirds of your gross income for 2013 or 2014 is from farming or fishing, substitute 662/3% for 90% in (2a) under General Rule , earlier. 2006 free tax filing Gross income. 2006 free tax filing   Your gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. 2006 free tax filing To determine whether two-thirds of your gross income for 2013 was from farming or fishing, use as your gross income the total of the income (not loss) amounts. 2006 free tax filing Joint returns. 2006 free tax filing   On a joint return, you must add your spouse's gross income to your gross income to determine if at least two-thirds of your total gross income is from farming or fishing. 2006 free tax filing Gross income from farming. 2006 free tax filing   This is income from cultivating the soil or raising agricultural commodities. 2006 free tax filing It includes the following amounts. 2006 free tax filing Income from operating a stock, dairy, poultry, bee, fruit, or truck farm. 2006 free tax filing Income from a plantation, ranch, nursery, range, orchard, or oyster bed. 2006 free tax filing Crop shares for the use of your land. 2006 free tax filing Gains from sales of draft, breeding, dairy, or sporting livestock. 2006 free tax filing   For 2013, gross income from farming is the total of the following amounts. 2006 free tax filing Schedule F (Form 1040), Profit or Loss From Farming, line 9. 2006 free tax filing Form 4835, Farm Rental Income and Expenses, line 7. 2006 free tax filing Your share of the gross farming income from a partnership, S corporation, estate or trust, from: Schedule K-1 (Form 1065), Schedule K-1 (Form 1120S), or Schedule K-1 (Form 1041). 2006 free tax filing Your gains from sales of draft, breeding, dairy, or sporting livestock shown on Form 4797, Sales of Business Property. 2006 free tax filing   Wages you receive as a farm employee and wages you receive from a farm corporation are not gross income from farming. 2006 free tax filing Gross income from fishing. 2006 free tax filing   This is income from catching, taking, harvesting, cultivating, or farming any kind of fish, shellfish (for example, clams and mussels), crustaceans (for example, lobsters, crabs, and shrimp), sponges, seaweeds, or other aquatic forms of animal and vegetable life. 2006 free tax filing   Gross income from fishing includes the following amounts. 2006 free tax filing Schedule C (Form 1040), Profit or Loss From Business. 2006 free tax filing Income for services as an officer or crew member of a vessel while the vessel is engaged in fishing. 2006 free tax filing Your share of the gross fishing income from a partnership, S corporation, estate or trust, from: Schedule K-1 (Form 1065), Schedule K-1 (Form 1120S), or Schedule K-1 (Form 1041). 2006 free tax filing Certain taxable interest and punitive damage awards received in connection with the Exxon Valdez litigation. 2006 free tax filing Income for services normally performed in connection with fishing. 2006 free tax filing Services normally performed in connection with fishing include: Shore service as an officer or crew member of a vessel engaged in fishing, and Services that are necessary for the immediate preservation of the catch, such as cleaning, icing, and packing the catch. 2006 free tax filing Higher Income Taxpayers If your AGI for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule , earlier. 2006 free tax filing For 2013, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. 2006 free tax filing Note. 2006 free tax filing This rule does not apply to farmers and fishermen. 2006 free tax filing Aliens Resident and nonresident aliens also may have to pay estimated tax. 2006 free tax filing Resident aliens should follow the rules in this publication, unless noted otherwise. 2006 free tax filing Nonresident aliens should get Form 1040-ES (NR), U. 2006 free tax filing S. 2006 free tax filing Estimated Tax for Nonresident Alien Individuals. 2006 free tax filing You are an alien if you are not a citizen or national of the United States. 2006 free tax filing You are a resident alien if you either have a green card or meet the substantial presence test. 2006 free tax filing For more information about withholding, the substantial presence test, and Form 1040-ES (NR), see Publication 519. 2006 free tax filing Estates and Trusts Estates and trusts also must pay estimated tax. 2006 free tax filing However, estates (and certain grantor trusts that receive the residue of the decedent's estate under the decedent's will) are exempt from paying estimated tax for the first 2 years after the decedent's death. 2006 free tax filing Estates and trusts must use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax. 2006 free tax filing How To Figure Estimated Tax To figure your estimated tax, you must figure your expected AGI, taxable income, taxes, deductions, and credits for the year. 2006 free tax filing When figuring your 2014 estimated tax, it may be helpful to use your income, deductions, and credits for 2013 as a starting point. 2006 free tax filing Use your 2013 federal tax return as a guide. 2006 free tax filing You can use Form 1040-ES to figure your estimated tax. 2006 free tax filing Nonresident aliens use Form 1040-ES (NR) to figure estimated tax. 2006 free tax filing You must make adjustments both for changes in your own situation and for recent changes in the tax law. 2006 free tax filing Some of these changes are discussed under What's New for 2014 , earlier. 2006 free tax filing For information about these and other changes in the law, visit the IRS website at IRS. 2006 free tax filing gov. 2006 free tax filing The instructions for Form 1040-ES include a worksheet to help you figure your estimated tax. 2006 free tax filing Keep the worksheet for your records. 2006 free tax filing 2014 Estimated Tax Worksheet Use Worksheet 2-1 to help guide you through the information about completing the 2014 Estimated Tax Worksheet. 2006 free tax filing You can also find a copy of the worksheet in the Instructions for Form 1040-ES. 2006 free tax filing Expected AGI—Line 1 Your expected AGI for 2014 (line 1) is your expected total income minus your expected adjustments to income. 2006 free tax filing Total income. 2006 free tax filing   Include in your total income all the income you expect to receive during the year, even income that is subject to withholding. 2006 free tax filing However, do not include income that is tax exempt. 2006 free tax filing   Total income includes all income and loss for 2014 that, if you had received it in 2013, would have been included on your 2013 tax return in the total on line 22 of Form 1040, line 15 of Form 1040A, or line 4 of Form 1040EZ. 2006 free tax filing Social security and railroad retirement benefits. 2006 free tax filing If you expect to receive social security or tier 1 railroad retirement benefits during 2014, use Worksheet 2-2 to figure the amount of expected taxable benefits you should include on line 1. 2006 free tax filing Adjustments to income. 2006 free tax filing   Be sure to subtract from your expected total income all of the adjustments you expect to take on your 2014 tax return. 2006 free tax filing Self-employed. 2006 free tax filing If you expect to have income from self-employment, use Worksheet 2-3 to figure your expected self-employment tax and your allowable deduction for self-employment tax. 2006 free tax filing Include the amount from Worksheet 2-3 in your expected adjustments to income. 2006 free tax filing If you file a joint return and both you and your spouse have net earnings from self-employment, each of you must complete a separate worksheet. 2006 free tax filing Expected Taxable Income— Lines 2–5 Reduce your expected AGI for 2014 (line 1) by either your expected itemized deductions or your standard deduction and by your exemptions (lines 2 through 5). 2006 free tax filing Itemized deductions—line 2. 2006 free tax filing   If you expect to claim itemized deductions on your 2014 tax return, enter the estimated amount on line 2. 2006 free tax filing   Itemized deductions are the deductions that can be claimed on Schedule A (Form 1040). 2006 free tax filing    For 2014, your total itemized deductions may be reduced if your AGI is more than the amount shown next for your filing status. 2006 free tax filing Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than this amount, use Worksheet 2-5 to figure the amount to enter on line 2. 2006 free tax filing Standard deduction—line 2. 2006 free tax filing   If you expect to claim the standard deduction on your 2014 tax return, enter the amount on line 2. 2006 free tax filing Use Worksheet 2-4 to figure your standard deduction. 2006 free tax filing No standard deduction. 2006 free tax filing   The standard deduction for some individuals is zero. 2006 free tax filing Your standard deduction will be zero if you: File a separate return and your spouse itemizes deductions, Are a dual-status alien, or File a return for a period of less than 12 months because you change your accounting period. 2006 free tax filing Exemptions—line 4. 2006 free tax filing   After you have subtracted either your expected itemized deductions or your standard deduction from your expected AGI, reduce the amount remaining by $3,950 for each exemption you expect to take on your 2014 tax return. 2006 free tax filing If another person (such as your parent) can claim an exemption for you on his or her tax return, you cannot claim your own personal exemption. 2006 free tax filing This is true even if the other person will not claim your exemption or the exemption will be reduced or eliminated under the phaseout rule. 2006 free tax filing    For 2014, your deduction for personal exemption is reduced if your AGI is more than the amount shown next for your filing status. 2006 free tax filing Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than this amount, use Worksheet 2-6 to figure the amount to enter on line 4. 2006 free tax filing Expected Taxes and Credits— Lines 6–13c After you have figured your expected taxable income (line 5), follow the steps next to figure your expected taxes, credits, and total tax for 2014. 2006 free tax filing Most people will have entries for only a few of these steps. 2006 free tax filing However, you should check every step to be sure you do not overlook anything. 2006 free tax filing Step 1. 2006 free tax filing   Figure your expected income tax (line 6). 2006 free tax filing Generally, you will use the 2014 Tax Rate Schedules, later, to figure your expected income tax. 2006 free tax filing   However, see below for situations where you must use a different method to compute your estimated tax. 2006 free tax filing Tax on child's investment income. 2006 free tax filing   You must use a special method to figure tax on the income of the following children who have more than $2,000 of investment income. 2006 free tax filing Children under age 18 at the end of 2014. 2006 free tax filing The following children if their earned income is not more than half their support. 2006 free tax filing Children age 18 at the end of 2014. 2006 free tax filing Children who are full-time students over age 18 and under age 24 at the end of 2014. 2006 free tax filing See Publication 929, Tax Rules for Children and Dependents. 2006 free tax filing Although the ages and dollar amounts in the publication may be different in the 2014 revision, this reference will give you basic information for figuring the tax. 2006 free tax filing Tax on net capital gain. 2006 free tax filing   The regular income tax rates for individuals do not apply to a net capital gain. 2006 free tax filing Instead, your net capital gain is taxed at a lower maximum rate. 2006 free tax filing   The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. 2006 free tax filing Tax on capital gain and qualified dividends. 2006 free tax filing If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-7 to figure your tax. 2006 free tax filing Note. 2006 free tax filing For 2014, your capital gains and dividends rate will depend on your income. 2006 free tax filing Tax if excluding foreign earned income or excluding or deducting foreign housing. 2006 free tax filing If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555 or Form 2555-EZ, use Worksheet 2-8 to figure your estimated tax. 2006 free tax filing Step 2. 2006 free tax filing   Total your expected taxes (line 8). 2006 free tax filing Include on line 8 the sum of the following. 2006 free tax filing Your tax on line 6. 2006 free tax filing Your expected alternative minimum tax (AMT) from Form 6251, or included on Form 1040A. 2006 free tax filing Your expected additional taxes from Form 8814, Parents' Election To Report Child's Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions. 2006 free tax filing Any recapture of education credits. 2006 free tax filing Step 3. 2006 free tax filing   Subtract your expected credits (line 9). 2006 free tax filing If you are using your 2013 return as a guide and filed Form 1040, your total credits for 2013 were shown on line 54. 2006 free tax filing If you filed Form 1040A, your total credits for 2013 were on line 34. 2006 free tax filing   If your credits on line 9 are more than your taxes on line 8, enter “-0-” on line 10 and go to Step 4. 2006 free tax filing Step 4. 2006 free tax filing   Add your expected self-employment tax (line 11). 2006 free tax filing You already should have figured your self-employment tax (see Self-employed under Expected AGI—Line 1, earlier). 2006 free tax filing Step 5. 2006 free tax filing   Add your expected other taxes (line 12). 2006 free tax filing   Other taxes include the following. 2006 free tax filing Additional tax on early distributions from: An IRA or other qualified retirement plan, A tax-sheltered annuity, or A modified endowment contract entered into after June 20, 1988. 2006 free tax filing Household employment taxes if: You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax. 2006 free tax filing Amounts written on Form 1040 on the line for “other taxes” (line 60 on the 2013 Form 1040). 2006 free tax filing But, do not include recapture of a federal mortgage subsidy; tax on excess golden parachute payments; look-back interest due under section 167(g) or 460(b) of the Internal Revenue Code; excise tax on insider stock compensation from an expatriated corporation; uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance; or additional tax on advance payments of health coverage tax credit when not eligible. 2006 free tax filing Repayment of the first-time homebuyer credit. 2006 free tax filing See Form 5405. 2006 free tax filing Additional Medicare Tax. 2006 free tax filing A 0. 2006 free tax filing 9% Additional Medicare Tax applies to your combined Medicare wages and self-employment income and/or your RRTA compensation that exceeds the amount listed in the following chart, based on your filing status. 2006 free tax filing Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household $200,000 Qualifying Widow(er) $200,000 Medicare wages and self-employment income are combined to determine if your income exceeds the threshold. 2006 free tax filing A self-employment loss should not be considered for purposes of this tax. 2006 free tax filing RRTA compensation should be separately compared to the threshold. 2006 free tax filing Your employer is responsible for withholding the 0. 2006 free tax filing 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in 2014. 2006 free tax filing You should consider this withholding, if applicable, in determining whether you need to make an estimated payment. 2006 free tax filing For more information on Additional Medicare Tax, go to IRS. 2006 free tax filing gov and enter “Additional Medicare Tax” in the search box. 2006 free tax filing Net Investment Income Tax (NIIT). 2006 free tax filing The NIIT is 3. 2006 free tax filing 8% of the lesser of your net investment income or the excess of your modified adjusted gross income over the amount listed in the following chart, based on your filing status. 2006 free tax filing Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household $200,000 Qualifying Widow(er) $250,000 For more information on Net Investment Income Tax, go to IRS. 2006 free tax filing gov and enter “Net Investment Income Tax” in the search box. 2006 free tax filing Step 6. 2006 free tax filing   Subtract your refundable credit (line 13b). 2006 free tax filing   To figure your expected fuel tax credit, do not include fuel tax for the first three quarters of the year that you expect to have refunded to you. 2006 free tax filing   The result of steps 1 through 6 is your total estimated tax for 2014 (line 13c). 2006 free tax filing Required Annual Payment— Line 14c On lines 14a through 14c, figure the total amount you must pay for 2014, through withholding and estimated tax payments, to avoid paying a penalty. 2006 free tax filing General rule. 2006 free tax filing   The total amount you must pay is the smaller of: 90% of your total expected tax for 2014, or 100% of the total tax shown on your 2013 return. 2006 free tax filing Your 2013 tax return must cover all 12 months. 2006 free tax filing Special rules. 2006 free tax filing   There are special rules for higher income taxpayers and for farmers and fishermen. 2006 free tax filing Higher income taxpayers. 2006 free tax filing   If your AGI for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. 2006 free tax filing This rule does not apply to farmers and fishermen. 2006 free tax filing For 2013, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. 2006 free tax filing Example. 2006 free tax filing   Jeremy Martin's total tax on his 2013 return was $42,581, and his expected tax for 2014 is $71,253. 2006 free tax filing His 2013 AGI was $180,000. 2006 free tax filing Because Jeremy had more than $150,000 of AGI in 2013, he figures his required annual payment as follows. 2006 free tax filing He determines that 90% of his expected tax for 2014 is $64,128 (. 2006 free tax filing 90 × $71,253). 2006 free tax filing Next, he determines that 110% of the tax shown on his 2013 return is $46,839 (1. 2006 free tax filing 10 x $42,581). 2006 free tax filing Finally, he determines that his required annual payment is $46,839, the smaller of the two. 2006 free tax filing Farmers and fishermen. 2006 free tax filing   If at least two-thirds of your gross income for 2013 or 2014 is from farming or fishing, your required annual payment is the smaller of: 662/3% (. 2006 free tax filing 6667) of your total tax for 2014, or 100% of the total tax shown on your 2013 return. 2006 free tax filing (Your 2013 tax return must cover all 12 months. 2006 free tax filing )   For definitions of “gross income from farming” and “gross income from fishing,” see Farmers and Fishermen , under Special Rules discussed earlier. 2006 free tax filing Total tax for 2013—line 14b. 2006 free tax filing   Your 2013 total tax, if you filed Form 1040, is the amount on line 61 reduced by the following. 2006 free tax filing Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). 2006 free tax filing The following amounts from Form 5329 included on line 58. 2006 free tax filing Any tax on excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts. 2006 free tax filing Any tax on excess accumulations in qualified retirement plans. 2006 free tax filing The following write-ins on line 60. 2006 free tax filing Excise tax on excess golden parachute payments (identified as “EPP”). 2006 free tax filing Excise tax on insider stock compensation from an expatriated corporation (identified as “ISC”). 2006 free tax filing Look-back interest due under section 167(g) (identified as “From Form 8866”). 2006 free tax filing Look-back interest due under section 460(b) (identified as “From Form 8697”). 2006 free tax filing Recapture of federal mortgage subsidy (identified as “FMSR”). 2006 free tax filing Additional tax on advance payments of health coverage tax credit when not eligible (identified as “HCTC”). 2006 free tax filing Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance (identified as “UT”). 2006 free tax filing Any refundable credit amounts. 2006 free tax filing   If you filed Form 1040A, your 2013 total tax is the amount on line 35 reduced by any refundable credits. 2006 free tax filing   If you filed Form 1040EZ, your 2013 total tax is the amount on line 10 reduced by the amount on line 8a. 2006 free tax filing Total Estimated Tax Payments Needed—Line 16a Use lines 15 and 16a to figure the total estimated tax you may be required to pay for 2014. 2006 free tax filing Subtract your expected withholding from your required annual payment (line 14c). 2006 free tax filing You usually must pay this difference in four equal installments. 2006 free tax filing See When To Pay Estimated Tax and How To Figure Each Payment . 2006 free tax filing You do not have to pay estimated tax if: Line 14c minus line 15 is zero or less, or Line 13c minus line 15 is less than $1,000. 2006 free tax filing Withholding—line 15. 2006 free tax filing   Your expected withholding for 2014 (line 15) includes the income tax you expect to be withheld from all sources (wages, pensions and annuities, etc. 2006 free tax filing ). 2006 free tax filing It includes excess social security, and tier 1 railroad retirement tax you expect to be withheld from your wages and compensation. 2006 free tax filing For this purpose, you will have excess social security or tier 1 railroad retirement tax withholding for 2014 only if your wages and compensation from two or more employers are more than $117,000. 2006 free tax filing See Excess Social Security or Railroad Retirement Tax Withholding in chapter 3. 2006 free tax filing   It also includes Additional Medicare Tax you expect to be withheld from your wages or compensation. 2006 free tax filing Your employer is responsible for withholding the 0. 2006 free tax filing 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000. 2006 free tax filing When To Pay Estimated Tax For estimated tax purposes, the year is divided into four payment periods. 2006 free tax filing Each period has a specific payment due date. 2006 free tax filing If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return. 2006 free tax filing If a payment is mailed, the date of the U. 2006 free tax filing S. 2006 free tax filing postmark is considered the date of payment. 2006 free tax filing The payment periods and due dates for estimated tax payments are shown next. 2006 free tax filing For exceptions to the dates listed, see Saturday, Sunday, holiday rule below. 2006 free tax filing For the period: Due date: Jan. 2006 free tax filing 11 – March 31 April 15 April 1 – May 31 June 16 June 1 – August 31 September 15 Sept. 2006 free tax filing 1 – Dec. 2006 free tax filing 31 January 15  next year2 1If your tax year does not begin on January 1,  see Fiscal year taxpayers . 2006 free tax filing 2See January payment . 2006 free tax filing Saturday, Sunday, holiday rule. 2006 free tax filing   If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or a holiday. 2006 free tax filing January payment. 2006 free tax filing   If you file your 2014 Form 1040 or Form 1040A by February 2, 2015, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2015. 2006 free tax filing Example. 2006 free tax filing Janet Adams does not pay any estimated tax for 2014. 2006 free tax filing She files her 2014 income tax return and pays the balance due shown on her return on January 26, 2015. 2006 free tax filing Janet's estimated tax for the fourth payment period is considered to have been paid on time. 2006 free tax filing However, she may owe a penalty for not making the first three estimated tax payments, if required. 2006 free tax filing Any penalty for not making those payments will be figured up to January 26, 2015. 2006 free tax filing Fiscal year taxpayers. 2006 free tax filing   If your tax year does not start on January 1, your payment due dates are: The 15th day of the 4th month of your fiscal year, The 15th day of the 6th month of your fiscal year, The 15th day of the 9th month of your fiscal year, and The 15th day of the 1st month after the end of your fiscal year. 2006 free tax filing   You do not have to make the last payment listed above if you file your income tax return by the last day of the first month after the end of your fiscal year and pay all the tax you owe with your return. 2006 free tax filing When To Start You do not have to make estimated tax payments until you have income on which you will owe income tax. 2006 free tax filing If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. 2006 free tax filing You have several options when paying estimated taxes. 2006 free tax filing You can: apply an overpayment from the previous tax year, pay all your estimated tax by the due date of your first payment, or pay it in installments. 2006 free tax filing If you choose to pay in installments, make your first payment by the due date for the first payment period. 2006 free tax filing Make your remaining installment payments by the due dates for the later periods. 2006 free tax filing To avoid any estimated tax penalties, all installments must be paid by their due date and for the required amount. 2006 free tax filing No income subject to estimated tax during first period. 2006 free tax filing   If you do not have income subject to estimated tax until a later payment period, you must make your first payment by the due date for that period. 2006 free tax filing You can pay your entire estimated tax by the due date for that period or you can pay it in installments by the due date for that period and the due dates for the remaining periods. 2006 free tax filing Table 2-1 shows the dates for making installment payments. 2006 free tax filing    Table 2-1. 2006 free tax filing Due Dates for Estimated Tax Installment Payments If you first have income on which you must pay estimated tax: Make a payment  by:* Make later  installments  by:* Before April 1 April 15 June 16     Sept. 2006 free tax filing 15     Jan. 2006 free tax filing 15 next year April 1–May 31 June 16 Sept. 2006 free tax filing 15     Jan. 2006 free tax filing 15 next year June 1–Aug. 2006 free tax filing 31 Sept. 2006 free tax filing 15 Jan. 2006 free tax filing 15 next year After Aug. 2006 free tax filing 31 Jan. 2006 free tax filing 15 next year (None) *See January payment and Saturday, Sunday, holiday rule . 2006 free tax filing How much to pay to avoid penalty. 2006 free tax filing   To determine how much you should pay by each payment due date, see How To Figure Each Payment , later. 2006 free tax filing Farmers and Fishermen If at least two-thirds of your gross income for 2013 or 2014 is from farming or fishing, you have only one payment due date for your 2014 estimated tax, January 15, 2015. 2006 free tax filing The due dates for the first three payment periods, discussed under When To Pay Estimated Tax , earlier, do not apply to you. 2006 free tax filing If you file your 2014 Form 1040 by March 2, 2015, and pay all the tax you owe at that time, you do not need to make an estimated tax payment. 2006 free tax filing Fiscal year farmers and fishermen. 2006 free tax filing   If you are a farmer or fisherman, but your tax year does not start on January 1, you can either: Pay all your estimated tax by the 15th day after the end of your tax year, or File your return and pay all the tax you owe by the 1st day of the 3rd month after the end of your tax year. 2006 free tax filing How To Figure Each Payment After you have figured your total estimated tax, figure how much you must pay by the due date of each payment period. 2006 free tax filing You should pay enough by each due date to avoid a penalty for that period. 2006 free tax filing If you do not pay enough during any payment period, you may be charged a penalty even if you are due a refund when you file your tax return. 2006 free tax filing The penalty is discussed in chapter 4. 2006 free tax filing Regular Installment Method If your first estimated tax payment is due April 15, 2014, you can figure your required payment for each period by dividing your annual estimated tax due (line 16a of the 2014 Estimated Tax Worksheet (Worksheet 2-1)) by 4. 2006 free tax filing Enter this amount on line 17. 2006 free tax filing However, use this method only if your income is basically the same throughout the year. 2006 free tax filing Change in estimated tax. 2006 free tax filing   After you make an estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. 2006 free tax filing Pay the unpaid balance of your amended estimated tax by the next payment due date after the change or in installments by that date and the due dates for the remaining payment periods. 2006 free tax filing If you do not receive your income evenly throughout the year, your required estimated tax payments may not be the same for each period. 2006 free tax filing See Annualized Income Installment Method . 2006 free tax filing Amended estimated tax. 2006 free tax filing If you refigure your estimated tax during the year, or if your first estimated tax payment is due after April 15, 2014, figure your required payment for each remaining payment period using Worksheet 2-14. 2006 free tax filing Example. 2006 free tax filing Early in 2014, Mira Roberts figures that her estimated tax due is $1,800. 2006 free tax filing She makes estimated tax payments on April 15 and June 16 of $450 each ($1,800 ÷ 4). 2006 free tax filing On July 10, she sells investment property at a gain. 2006 free tax filing Her refigured estimated tax is $4,100. 2006 free tax filing Her required estimated tax payment for the third payment period is $2,175, as shown in her filled-in Worksheet 2-14. 2006 free tax filing If Mira's estimated tax does not change again, her required estimated tax payment for the fourth payment period will be $1,025. 2006 free tax filing Worksheet 2-14. 2006 free tax filing Amended Estimated Tax Worksheet—Illustrated               1. 2006 free tax filing Amended total estimated tax due 1. 2006 free tax filing $4,100 2. 2006 free tax filing Multiply line 1 by:           50% (. 2006 free tax filing 50) if next payment is due June 16, 2014           75% (. 2006 free tax filing 75) if next payment is due September 15,  2014           100% (1. 2006 free tax filing 00) if next payment is due January 15,  2015 2. 2006 free tax filing 3,075     3. 2006 free tax filing Estimated tax payments for all previous periods 3. 2006 free tax filing 900     4. 2006 free tax filing Next required payment: Subtract line 3 from line 2 and enter the result (but not less than zero) here and on your payment voucher for your next required payment 4. 2006 free tax filing $2,175       Note. 2006 free tax filing If the payment on line 4 is due January 15, 2015, stop here. 2006 free tax filing Otherwise, go to line 5. 2006 free tax filing         5. 2006 free tax filing Add lines 3 and 4 5. 2006 free tax filing 3,075 6. 2006 free tax filing Subtract line 5 from line 1 and enter the result (but not less than zero) 6. 2006 free tax filing 1,025 7. 2006 free tax filing Each following required payment: If the payment on line 4 is due June 16, 2014, enter one-half of the amount on line 6 here and on the payment vouchers for your payments due September 15, 2014, and January 15, 2015. 2006 free tax filing If the amount on line 4 is due September 15, 2014, enter the amount from line 6 here and on the payment voucher for your payment due January 15, 2015 7. 2006 free tax filing $1,025 Worksheet 2-14. 2006 free tax filing Amended Estimated Tax Worksheet—Blank               1. 2006 free tax filing Amended total estimated tax due 1. 2006 free tax filing   2. 2006 free tax filing Multiply line 1 by:           50% (. 2006 free tax filing 50) if next payment is due June 16, 2014           75% (. 2006 free tax filing 75) if next payment is due September 15,  2014           100% (1. 2006 free tax filing 00) if next payment is due January 15,  2015 2. 2006 free tax filing       3. 2006 free tax filing Estimated tax payments for all previous periods 3. 2006 free tax filing       4. 2006 free tax filing Next required payment: Subtract line 3 from line 2 and enter the result (but not less than zero) here and on your payment voucher for your next required payment 4. 2006 free tax filing         Note. 2006 free tax filing If the payment on line 4 is due January 15, 2015, stop here. 2006 free tax filing Otherwise, go to line 5. 2006 free tax filing         5. 2006 free tax filing Add lines 3 and 4 5. 2006 free tax filing   6. 2006 free tax filing Subtract line 5 from line 1 and enter the result (but not less than zero) 6. 2006 free tax filing   7. 2006 free tax filing Each following required payment: If the payment on line 4 is due June 16, 2014, enter one-half of the amount on line 6 here and on the payment vouchers for your payments due September 15, 2014, and January 15, 2015. 2006 free tax filing If the amount on line 4 is due September 15, 2014, enter the amount from line 6 here and on the payment voucher for your payment due January 15, 2015 7. 2006 free tax filing   Underpayment penalty. 2006 free tax filing   The penalty is figured separately for each payment period. 2006 free tax filing If you figure your payments using the regular installment method and later refigure your payments because of an increase in income, you may be charged a penalty for underpayment of estimated tax for the period(s) before you changed your payments. 2006 free tax filing To see how you may be able to avoid or reduce this penalty, see Annualized Income Installment Method (Schedule AI) in chapter 4. 2006 free tax filing Annualized Income Installment Method If you do not receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method. 2006 free tax filing The annualized income installment method annualizes your tax at the end of each period based on a reasonable estimate of your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. 2006 free tax filing To see whether you can pay less for any period, complete the 2014 Annualized Estimated Tax Worksheet (Worksheet 2-9). 2006 free tax filing You first must complete the 2014 Estimated Tax Worksheet (Worksheet 2-1) through line 16b. 2006 free tax filing Use the result you figure on line 32 of Worksheet 2-9 to make your estimated tax payments and complete your payment vouchers. 2006 free tax filing Note. 2006 free tax filing If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210 with your 2014 tax return. 2006 free tax filing See Annualized Income Installment Method (Schedule AI) in chapter 4 for more information. 2006 free tax filing Instructions for the 2014 Annualized Estimated Tax Worksheet (Worksheet 2-9) Use Worksheet 2-9 to help you follow these instructions. 2006 free tax filing The purpose of this worksheet is to determine your estimated tax liability as your income accumulates throughout the year, rather than dividing your entire year's estimated tax liability by four as if your income was earned equally throughout the year. 2006 free tax filing The top of the worksheet shows the dates for each payment period. 2006 free tax filing The periods build; that is, each period includes all previous periods. 2006 free tax filing After the end of each payment period, complete the corresponding worksheet column to figure the payment due for that period. 2006 free tax filing Line 1. 2006 free tax filing   Enter your AGI for the period. 2006 free tax filing This is your gross income for the period, including your share of partnership or S corporation income or loss, minus your adjustments to income for that period. 2006 free tax filing See Expected AGI—Line 1 , earlier. 2006 free tax filing Self-employment income. 2006 free tax filing   If you had self-employment income, first complete Section B of this worksheet. 2006 free tax filing Use the amounts on line 43 when figuring your expected AGI to enter in each column of Section A, line 1. 2006 free tax filing Line 4. 2006 free tax filing   Be sure to consider all deduction limits figured on Schedule A (Form 1040), such as reducing your medical expenses by 10% (7. 2006 free tax filing 5% if either you or your spouse was born before January 2, 1950) or reducing certain miscellaneous deductions by 2% of your AGI. 2006 free tax filing Figure your deduction limits using your expected AGI in the corresponding column of line 1 (2014 Annualized Estimated Tax Worksheet (Worksheet 2-9)). 2006 free tax filing Line 6. 2006 free tax filing   Multiply line 4 by line 5 and enter the result on line 6 unless line 3 is more than $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately. 2006 free tax filing In that case, use Worksheet 2-10 to figure the amount to enter on line 6. 2006 free tax filing Complete Worksheet 2–10 for each period, as necessary. 2006 free tax filing Line 7. 2006 free tax filing   If you will not itemize your deductions, use Worksheet 2-4 to figure your standard deduction. 2006 free tax filing Line 10. 2006 free tax filing   Multiply $3,950 by your total expected exemptions and enter the result on line 10 unless line 3 is more than $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately. 2006 free tax filing   In that case, use Worksheet 2-11 to figure the amount to enter on line 10. 2006 free tax filing Line 12. 2006 free tax filing   Generally, you will use the Tax Rate Schedules to figure the tax on your annualized income. 2006 free tax filing However, see below for situations where you must use a different method to compute your estimated tax. 2006 free tax filing Tax on child's investment income. 2006 free tax filing   You must use a special method to figure tax on the income of the following children who have more than $2,000 of investment income. 2006 free tax filing Children under age 18 at the end of 2014. 2006 free tax filing The following children if their earned income is not more than half their support. 2006 free tax filing Children age 18 at the end of 2014. 2006 free tax filing Children who are full-time students over age 18 and under age 24 at the end of 2014. 2006 free tax filing See Publication 929. 2006 free tax filing Tax on net capital gain. 2006 free tax filing   The regular income tax rates for individuals do not apply to a net capital gain. 2006 free tax filing Instead, your net capital gain is taxed at a lower maximum rate. 2006 free tax filing   The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. 2006 free tax filing Tax on qualified dividends and capital gains. 2006 free tax filing   For 2014, your capital gain and dividends rate will depend on your income. 2006 free tax filing Tax on capital gain or qualified dividends. 2006 free tax filing If the amount on line 1 includes a net capital gain or qualified dividends, use Worksheet 2-12 to figure the amount to enter on line 12. 2006 free tax filing Tax if excluding foreign earned income or excluding or deducting foreign housing. 2006 free tax filing If you expect to claim the foreign earned income exclusion or the housing exclusion or deduction on Form 2555 or Form 2555-EZ, use Worksheet 2-13 to figure the amount to enter on line 12. 2006 free tax filing Line 13. 2006 free tax filing   If you file Form 1040, add the tax from Forms 8814, 4972, and 6251 for the period. 2006 free tax filing If you file Form 1040A, add the amount from the Alternative Minimum Tax Worksheet found in the instructions. 2006 free tax filing Also include any recapture of an education credit for each period. 2006 free tax filing You may owe this tax if you claimed an education credit in an earlier year and you received either tax-free educational assistance or a refund of qualifying expenses for the same student after filing your 2013 return. 2006 free tax filing   Use the 2013 forms or worksheets to see if you will owe any of the taxes discussed above. 2006 free tax filing Figure the tax based on your income and deductions during the period shown in the column headings. 2006 free tax filing Multiply this amount by the annualization amounts shown for each column on line 2 of the 2014 Annualized Estimated Tax Worksheet (Worksheet 2-9). 2006 free tax filing Enter the result on line 13 of this worksheet. 2006 free tax filing Line 15. 2006 free tax filing   Include all the nonrefundable credits you expect to claim because of events that will occur during the period. 2006 free tax filing Note. 2006 free tax filing When figuring your credits for each period, annualize any item of income or deduction to figure each credit. 2006 free tax filing For example, if you need to use your AGI to figure a credit, use line 3 of Worksheet 2-9 to figure the credit for each column. 2006 free tax filing Line 18. 2006 free tax filing   Add your expected other taxes. 2006 free tax filing   Other taxes include the following. 2006 free tax filing Additional tax on early distributions from: An IRA or other qualified retirement plan, A tax-sheltered annuity, or A modified endowment contract entered into after June 20, 1988. 2006 free tax filing Household employment taxes if: You will have federal income tax withheld from wages, pensions, annuities, gambling winnings, or other income, or You would be required to make estimated tax payments even if you did not include household employment taxes when figuring your estimated tax. 2006 free tax filing Amounts on Form 1040 written on the line for “other taxes” (line 60 on the 2013 Form 1040). 2006 free tax filing But do not include recapture of a federal mortgage subsidy; tax on excess golden parachute payments; look-back interest due under section 167(g) or 460(b) of the Internal Revenue Code; excise tax on insider stock compensation from an expatriated corporation; uncollected social security, Medicare, or RRTA tax on tips or group-term life insurance; or additional tax on advance payments of health coverage tax credit when not eligible. 2006 free tax filing Repayment of the first-time homebuyer credit if the home will cease to be your main home in 2014. 2006 free tax filing See Form 5405 for exceptions. 2006 free tax filing Additional Medicare Tax. 2006 free tax filing A 0. 2006 free tax filing 9% Additional Medicare Tax applies to your combined Medicare wages and self-employment income and/or your RRTA compensation that exceeds the amount listed in the following chart, based on your filing status. 2006 free tax filing Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household $200,000 Qualifying Widow(er) $200,000 Medicare wages and self-employment income are combined to determine if your income exceeds the threshold. 2006 free tax filing A self-employment loss should not be considered for purposes of this tax. 2006 free tax filing RRTA compensation should be separately compared to the threshold. 2006 free tax filing Your employer is responsible for withholding the 0. 2006 free tax filing 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays you in excess of $200,000 in 2014. 2006 free tax filing You should consider this withholding, if applicable, in determining whether you need to make an estimated payment. 2006 free tax filing For more information on Additional Medicare Tax, go to IRS. 2006 free tax filing gov and enter “Additional Medicare Tax” in the search box. 2006 free tax filing Net Investment Income Tax (NIIT). 2006 free tax filing The NIIT is 3. 2006 free tax filing 8% of the lesser of your net investment income or the excess of your modified adjusted gross income over a specified threshold amount. 2006 free tax filing Threshold amounts: Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household $200,000 Qualifying Widow(er) $250,000 For more information on Net Investment Income Tax, go to IRS. 2006 free tax filing gov and enter “Net Investment Income Tax” in the search box. 2006 free tax filing Line 20. 2006 free tax filing   Include all the refundable credits (other than withholding credits) you can claim because of events that occurred during the period. 2006 free tax filing Note. 2006 free tax filing When figuring your refundable credits for each period, annualize any item of income or deduction used to figure each credit. 2006 free tax filing Line 29. 2006 free tax filing   If line 28 is smaller than line 25 and you are not certain of the estimate of your 2014 tax, you can avoid a penalty by entering the amount from line 25 on line 29. 2006 free tax filing Line 31. 2006 free tax filing   For each period, include estimated tax payments made and any excess social security and railroad retirement tax. 2006 free tax filing   Also include estimated federal income tax withholding. 2006 free tax filing One-fourth of your estimated withholding is considered withheld on the due date of each payment period. 2006 free tax filing To figure the amount to include on line 31 for each period, multiply your total expected withholding for 2014 by: 25% (. 2006 free tax filing 25) for the first period, 50% (. 2006 free tax filing 50) for the second period, 75% (. 2006 free tax filing 75) for the third period, and 100% (1. 2006 free tax filing 00) for the fourth period. 2006 free tax filing   However, you may choose to include your withholding according to the actual dates on which the amounts will be withheld. 2006 free tax filing For each period, include withholding made from the beginning of the period up to and including the payment due date. 2006 free tax filing You can make this choice separately for the taxes withheld from your wages and all other withholding. 2006 free tax filing For an explanation of what to include in withholding, see Total Estimated Tax Payments Needed—Line 16a , earlier. 2006 free tax filing Nonresident aliens. 2006 free tax filing   If you will file Form 1040NR and you do not receive wages as an employee subject to U. 2006 free tax filing S. 2006 free tax filing income tax withholding, the instructions for the worksheet are modified as follows. 2006 free tax filing Skip column (a). 2006 free tax filing On line 1, enter your income for the period that is effectively connected with a U. 2006 free tax filing S. 2006 free tax filing trade or business. 2006 free tax filing On line 21, increase your entry by the amount determined by multiplying your income for the period that is not effectively connected with a U. 2006 free tax filing S. 2006 free tax filing trade or business by the following. 2006 free tax filing 72% for column (b). 2006 free tax filing 45% for column (c). 2006 free tax filing 30% for column (d). 2006 free tax filing However, if you can use a treaty rate lower than 30%, use the percentages determined by multiplying your treaty rate by 2. 2006 free tax filing 4, 1. 2006 free tax filing 5, and 1, respectively. 2006 free tax filing On line 26, enter one-half of the amount from line 16c of the Form 1040-ES (NR) 2014 Estimated Tax Worksheet in column (b), and one-fourth in columns (c) and (d) of Worksheet 2-9. 2006 free tax filing On lines 24 and 27, skip column (b). 2006 free tax filing On line 31, if you do not use the actual withholding method, include one-half of your total expected withholding in column (b) and one-fourth in columns (c) and (d). 2006 free tax filing See Publication 519 for more information. 2006 free tax filing Estimated Tax Payments Not Required You do not have to pay estimated tax if your withholding in each payment period is at least as much as: One-fourth of your required annual payment, or Your required annualized income installment for that period. 2006 free tax filing You also do not have to pay estimated tax if you will pay enough through withholding to keep the amount you will owe with your return under $1,000. 2006 free tax filing How To Pay Estimated Tax There are several ways to pay estimated tax. 2006 free tax filing Credit an overpayment on your 2013 return to your 2014 estimated tax. 2006 free tax filing Pay by direct transfer from your bank account, or pay by credit or debit card using a pay-by-phone system or the Internet. 2006 free tax filing Send in your payment (check or money order) with a payment voucher from Form 1040-ES. 2006 free tax filing Credit an Overpayment If you show an overpayment of tax after completing your Form 1040 or Form 1040A for 2013, you can apply part or all of it to your estimated tax for 2014. 2006 free tax filing On Form 1040, or Form 1040A, enter the amount you want credited to your estimated tax rather than refunded. 2006 free tax filing Take the amount you have credited into account when figuring your estimated tax payments. 2006 free tax filing If you timely file your 2013 return, treat the credit as a payment made on April 15, 2014. 2006 free tax filing If you are a beneficiary of an estate or trust, and the trustee elects to credit 2014 trust payments of estimated tax to you, you can treat the amount credited as paid by you on January 15, 2015. 2006 free tax filing If you choose to have an overpayment of tax credited to your estimated tax, you cannot have any of that amount refunded to you until you file your tax return for the following year. 2006 free tax filing You also cannot use that overpayment in any other way. 2006 free tax filing Example. 2006 free tax filing When Kathleen finished filling out her 2013 tax return, she saw that she had overpaid her taxes by $750. 2006 free tax filing Kathleen knew she would owe additional tax in 2014. 2006 free tax filing She credited $600 of the overpayment to her 2014 estimated tax and had the remaining $150 refunded to her. 2006 free tax filing In September, she amended her 2013 return by filing Form 1040X, Amended U. 2006 free tax filing S. 2006 free tax filing Individual Income Tax Return. 2006 free tax filing It turned out that she owed $250 more in tax than she had thought. 2006 free tax filing This reduced her 2013 overpayment from $750 to $500. 2006 free tax filing Because the $750 had already been applied to her 2014 estimated tax or refunded to her, the IRS billed her for the additional $250 she owed, plus penalties and interest. 2006 free tax filing Kathleen could not use any of the $600 she had credited to her 2014 estimated tax to pay this bill. 2006 free tax filing Pay Online Paying online is convenient and secure and helps make sure we get your payments on time. 2006 free tax filing You can make your estimated tax payments online when you e-file or at any time during the year. 2006 free tax filing You can pay using either of the following electronic payment methods. 2006 free tax filing Direct transfer from your bank account. 2006 free tax filing Credit or debit card. 2006 free tax filing To pay your taxes online or for more information, go to www. 2006 free tax filing irs. 2006 free tax filing gov/e-pay. 2006 free tax filing Pay by Phone Paying by phone is another safe and secure method of paying electronically. 2006 free tax filing Use one of the following methods. 2006 free tax filing Direct transfer from your bank account. 2006 free tax filing Credit or debit card. 2006 free tax filing To pay by direct transfer from your bank account, call EFTPS Customer Service at 1-800-555-4477 (English), 1-800-244-4829 (Espanol), or TTY/TDD 1-800-733-4829. 2006 free tax filing To pay using a credit or debit card, you can call one of the following service providers. 2006 free tax filing There is a convenience fee charged by these providers that varies by provider, card type, and payment amount. 2006 free tax filing WorldPay 1-888-9-PAY-TAXTM (1-888-972-9829) www. 2006 free tax filing payUSAtax. 2006 free tax filing com Official Payments Corporation 1-888-UPAY-TAXTM (1-888-872-9829) www. 2006 free tax filing officialpayments. 2006 free tax filing com Link2GOV Corporation 1-888-PAY-1040TM (1-888-729-1040) www. 2006 free tax filing PAY1040. 2006 free tax filing com For the latest details on how to pay by phone, go to www. 2006 free tax filing irs. 2006 free tax filing gov/e-pay. 2006 free tax filing Pay by Check or Money Order Using the Estimated Tax Payment Voucher Each payment of estimated tax by check or money order must be accompanied by a payment voucher from Form 1040-ES. 2006 free tax filing If you use your own envelopes (and not the window envelope that comes with the 1040-ES package), make sure you mail your payment vouchers to the address shown in the Form 1040-ES instructions for the place where you live. 2006 free tax filing Do not use the address shown in the Form 1040 or Form 1040A instructions. 2006 free tax filing If you did not pay estimated tax last year, get a copy of Form 1040-ES from the IRS (see chapter 5). 2006 free tax filing Follow the instructions to make sure you use the vouchers correctly. 2006 free tax filing Joint estimated tax payments. 2006 free tax filing    If you file a joint return and are making joint estimated tax payments, enter the names and social security numbers on the payment voucher in the same order as they will appear on the joint return. 2006 free tax filing Change of address. 2006 free tax filing    You must notify the IRS if you are making estimated tax payments and you changed your address during the year. 2006 free tax filing Complete Form 8822, Change of Address, and mail it to the address shown in the instructions for that form. 2006 free tax filing Worksheets for Chapter 2 Use the following worksheets and tables to figure your correct estimated tax. 2006 free tax filing IF you need. 2006 free tax filing . 2006 free tax filing . 2006 free tax filing THEN use. 2006 free tax filing . 2006 free tax filing . 2006 free tax filing 2014 Tax Rate Schedules   the 2014 Estimated Tax Worksheet Worksheet 2-1 to estimate your taxable social security and railroad retirement benefits—line 1 of ES Worksheet (or Annualized ES Worksheet (Worksheet 2-9)) Worksheet 2-2 to estimate your self-employment (SE) tax and your deduction for SE tax—lines 1 and 11 of ES Worksheet (lines 1 and 17 of Annualized ES Worksheet (Worksheet 2-9)) Worksheet 2-3 to estimate your standard deduction—line 2 of ES Worksheet (line 7 of Annualized ES Worksheet (Worksheet 2-9)) Worksheet 2-4 to reduce your itemized deductions because your estimated AGI is more than $152,525—line 2 of ES Worksheet Worksheet 2-5 to reduce your exemption amount because your estimated AGI is more than $152,525—line 4 of ES Worksheet Worksheet 2-6 to estimate your income tax if line 1 of your ES Worksheet includes a net capital gain or qualified dividends—line 6 of ES Worksheet Worksheet 2-7 to estimate your income tax if you expect to claim a foreign earned income exclusion or foreign housing exclusion or deduction on Form 2555 or Form 2555-EZ—line 6 of ES Worksheet Worksheet 2-8 the 2014 Annualized Estimated Tax Worksheet (Annualized ES Worksheet) Worksheet 2-9 to reduce your itemized deductions because your estimated annualized AGI is more than $152,525—line 6 of Annualized ES Worksheet Worksheet 2-10 to reduce your exemption amount because your estimated annualized AGI is more than $152,525—line 10 of Annualized ES Worksheet Worksheet 2-11 to estimate your income tax if line 1 of your Annualized ES Worksheet includes a net capital gain or qualified dividends—line 12 of Annualized ES Worksheet Worksheet 2-12 to estimate your income tax if you expect to claim a foreign earned income exclusion or foreign housing exclusion or deduction on Form 2555 or Form 2555-EZ—line 12 of Annualized ES Worksheet Worksheet 2-13 to refigure (amend) your estimated tax during the year Worksheet 2-14 2014 Tax Rate Schedules Do not use these Tax Rate Schedules to figure your 2013 taxes. 2006 free tax filing Use them only to figure your 2014 estimated taxes. 2006 free tax filing Schedule X—Use if your 2014 filing status is  Single Schedule Z—Use if your 2014 filing status is Head of household If line 5 is: The tax is:     If line 5 is: The tax is:     Over— But not  over—         of the  amount  over— Over— But not  over—         of the  amount  over— $0 $9,075     10. 2006 free tax filing 0%   $0 $0 $12,950     10. 2006 free tax filing 0%   $0 9,075 36,900 $907. 2006 free tax filing 50 + 15. 2006 free tax filing 0%   9,075 12,950 49,400 $1,295. 2006 free tax filing 00 + 15. 2006 free tax filing 0%   12,950 36,900 89,350 5,081. 2006 free tax filing 25 + 25. 2006 free tax filing 0%   36,900 49,400 127,550 6,762. 2006 free tax filing 50 + 25. 2006 free tax filing 0%   49,400 89,350 186,350 18,193. 2006 free tax filing 75 + 28. 2006 free tax filing 0%   89,350 127,550 206,600 26,300. 2006 free tax filing 00 + 28. 2006 free tax filing 0%   127,550 186,350 405,100 45,353. 2006 free tax filing 75 + 33. 2006 free tax filing 0%   186,350 206,600 405,100 48,434. 2006 free tax filing 00 + 33. 2006 free tax filing 0%   206,600 405,100 406,750 117,541. 2006 free tax filing 25 + 35. 2006 free tax filing 0%   405,100 405,100 432,200 113,939. 2006 free tax filing 00 + 35. 2006 free tax filing 0%   405,100 406,750 - - - - - - 118,118. 2006 free tax filing 75 + 39. 2006 free tax filing 6%   406,750 432,200 - - - - - - 123,424. 2006 free tax filing 00 + 39. 2006 free tax filing 6%   432,200 Schedule Y-1—Use if your 2014 filing status is Married filing jointly or Qualifying widow(er) Schedule Y-2—Use if your 2014 filing status is  Married filing separately If line 5 is: The tax is:     If line 5 is: The tax is:     Over— But not  over—         of the  amount  over— Over— But not  over—         of the  amount  over— $0 $18,150     10. 2006 free tax filing 0%   $0 $0 $9,075     10. 2006 free tax filing 0%   $0 18,150 73,800 $1,815. 2006 free tax filing 00 + 15. 2006 free tax filing 0%   18,150 9,075 36,900 $907. 2006 free tax filing 50 + 15. 2006 free tax filing 0%   9,075 73,800 148,850 10,162. 2006 free tax filing 50 + 25. 2006 free tax filing 0%   73,800 36,900 74,425 5,081. 2006 free tax filing 25 + 25. 2006 free tax filing 0%   36,900 148,850 226,850 28,925. 2006 free tax filing 00 + 28. 2006 free tax filing 0%   148,850 74,425 113,425 14,462. 2006 free tax filing 50 + 28. 2006 free tax filing 0%   74,425 226,850 405,100 50,765. 2006 free tax filing 00 + 33. 2006 free tax filing 0%   226,850 113,425 202,550 25,382. 2006 free tax filing 50 + 33. 2006 free tax filing 0%   113,425 405,100 457,600 109,587. 2006 free tax filing 50 + 35. 2006 free tax filing 0%   405,100 202,550 228,800 54,793. 2006 free tax filing 75 + 35. 2006 free tax filing 0%   202,550 457,600 - - - - - - 127,962. 2006 free tax filing 50 + 39. 2006 free tax filing 6%   457,600 228,800 - - - - - - 63,981. 2006 free tax filing 25 + 39. 2006 free tax filing 6%   228,800                             Worksheet 2-1. 2006 free tax filing 2014 Estimated Tax Worksheet When this worksheet refers you to instructions, you can find those instructions in the Instructions for 2014 Form 1040-ES. 2006 free tax filing 1 Adjusted gross income you expect in 2014 (see instructions) 1     2 If you plan to itemize deductions, enter the estimated total of your itemized deductions. 2006 free tax filing  Caution: If line 1 is over $152,525, your deduction may be reduced. 2006 free tax filing See Worksheet 2-5. 2006 free tax filing If you do not plan to itemize deductions, enter your standard deduction. 2006 free tax filing 2     3 Subtract line 2 from line 1 3     4 Exemptions. 2006 free tax filing Multiply $3,950 by the number of personal exemptions. 2006 free tax filing  Caution: If line 1 is over $152,525, the amount of your personal exemptions may be limited. 2006 free tax filing See Worksheet 2-6. 2006 free tax filing 4     5 Subtract line 4 from line 3 5     6 Tax. 2006 free tax filing Figure your tax on the amount on line 5 by using the 2014 Tax Rate Schedules Caution: If you will have qualified dividends or a net capital gain, or expect to exclude or deduct foreign earned income or housing, see Worksheets 2-7 and 2-8 to figure the tax 6     7 Alternative minimum tax from Form 6251 or included on Form 1040A, line 28 7     8 Add lines 6 and 7. 2006 free tax filing Add to this amount any other taxes you expect to include in the total on Form 1040, line 44 8     9 Credits (see instructions). 2006 free tax filing Do not include any income tax withholding on this line 9     10 Subtract line 9 from line 8. 2006 free tax filing If zero or less, enter -0- 10     11 Self-employment tax (see instructions) 11     12 Other taxes including, if applicable, Additional Medicare Tax and/or NIIT (see instructions) 12     13a Add lines 10 through 12 13a     b Earned income credit, additional child tax credit, fuel tax credit, and refundable American opportunity credit 13b     c Total 2014 estimated tax. 2006 free tax filing Subtract line 13b from line 13a. 2006 free tax filing If zero or less, enter -0- ▶ 13c     14a Multiply line 13c by 90% (662/3% for farmers and fishermen) 14a           b Required annual payment based on prior year's tax (see instructions) 14b           c Required annual payment to avoid a penalty. 2006 free tax filing Enter the smaller of line 14a or 14b ▶ 14c        Caution: Generally, if you do not prepay (through income tax withholding and estimated tax payments) at least the amount on line 14c, you may owe a penalty for not paying enough estimated tax. 2006 free tax filing To avoid a penalty, make sure your estimate on line 13c is as accurate as possible. 2006 free tax filing Even if you pay the required annual payment, you may still owe tax when you file your return. 2006 free tax filing If you prefer, you can pay the amount shown on line 13c. 2006 free tax filing                         15 Income tax withheld and estimated to be withheld during 2014 (including income tax withholding on pensions, annuities, certain deferred income, etc. 2006 free tax filing ) 15     16a Subtract line 15 from line 14c 16a             Is the result zero or less? □ Yes. 2006 free tax filing Stop here. 2006 free tax filing You are not required to make estimated tax payments. 2006 free tax filing  □ No. 2006 free tax filing Go to line 16b. 2006 free tax filing             b Subtract line 15 from line 13c 16b             Is the result less than $1,000? □ Yes. 2006 free tax filing Stop here. 2006 free tax filing You are not required to make estimated tax payments. 2006 free tax filing  □ No. 2006 free tax filing Go to line 17 to figure your required payment. 2006 free tax filing                         17 If the first payment you are required to make is due April 15, 2014, enter ¼ of line 16a (minus any 2013 overpayment that you are applying to this installment) here, and on your estimated tax payment voucher(s) if you are paying by check or money order 17     Worksheet 2-2. 2006 free tax filing 2014 Estimated Tax Worksheet—Line 1 Estimated Taxable Social Security and Railroad Retirement Benefits Note. 2006 free tax filing If you are using this worksheet to estimate your taxable social security or railroad retirement benefits for Worksheet 2-9, 2014 Annualized Estimated Tax Worksheet, multiply the expected amount of benefits for each period by the annualization amount shown on Worksheet 2-9, line 2, for the same period before entering it on line 1 below. 2006 free tax filing     1. 2006 free tax filing Enter your expected social security and railroad retirement benefits 1. 2006 free tax filing   2. 2006 free tax filing Enter one-half of line 1 2. 2006 free tax filing   3. 2006 free tax filing Enter your expected total income. 2006 free tax filing Do not include any social security and railroad retirement benefits, nontaxable interest income, nontaxable IRA distributions, or nontaxable pension distributions 3. 2006 free tax filing   4. 2006 free tax filing Enter your expected nontaxable interest income 4. 2006 free tax filing   5. 2006 free tax filing Enter (as a positive amount) the total of any expected exclusions or deductions for: U. 2006 free tax filing S. 2006 free tax filing savings bond interest used for higher education expenses (Form 8815) Employer-provided adoption benefits (Form 8839) Foreign earned income or housing (Form 2555 or 2555-EZ) Income by bona fide residents of American Samoa (Form 4563) or Puerto Rico 5. 2006 free tax filing   6. 2006 free tax filing Add lines 2, 3, 4, and 5 6. 2006 free tax filing   7. 2006 free tax filing Enter your expected adjustments to income. 2006 free tax filing Do not include any student loan interest deduction 7. 2006 free tax filing   8. 2006 free tax filing Subtract line 7 from line 6. 2006 free tax filing If zero or less, stop here. 2006 free tax filing  Note. 2006 free tax filing Do not include any social security or railroad retirement benefits in the amount on line 1 of your 2014 Estimated Tax Worksheet (Worksheet 2-1) (or Annualized Estimated Tax Worksheet (Worksheet 2-9)) 8. 2006 free tax filing   9. 2006 free tax filing Enter $25,000 ($32,000 if you expect to file married filing jointly; $0 if you expect to file married filing separately and expect to live with your spouse at any time during the year) 9. 2006 free tax filing   10. 2006 free tax filing Subtract line 9 from line 8. 2006 free tax filing If zero or less, stop here. 2006 free tax filing  Note. 2006 free tax filing Do not include any social security or railroad retirement benefits in the amount on line 1 of your Worksheet 2-1 (or Annualized Estimated Tax Worksheet (Worksheet 2-9)) 10. 2006 free tax filing   11. 2006 free tax filing Enter $9,000 ($12,000 if you expect to file married filing jointly; $0 if you expect to file married filing separately and expect to live with your spouse at any time during the year) 11. 2006 free tax filing   12. 2006 free tax filing Subtract line 11 from line 10. 2006 free tax filing If zero or less, enter -0- 12. 2006 free tax filing   13. 2006 free tax filing Enter the smaller of line 10 or line 11 13. 2006 free tax filing   14. 2006 free tax filing Enter one-half of line 13 14. 2006 free tax filing   15
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The 2006 Free Tax Filing

2006 free tax filing 9. 2006 free tax filing   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. 2006 free tax filing Depletion unit. 2006 free tax filing Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. 2006 free tax filing The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. 2006 free tax filing There are two ways of figuring depletion: cost depletion and percentage depletion. 2006 free tax filing For mineral property, you generally must use the method that gives you the larger deduction. 2006 free tax filing For standing timber, you must use cost depletion. 2006 free tax filing 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. 2006 free tax filing More than one person can have an economic interest in the same mineral deposit or timber. 2006 free tax filing In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2006 free tax filing You have an economic interest if both the following apply. 2006 free tax filing You have acquired by investment any interest in mineral deposits or standing timber. 2006 free tax filing 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. 2006 free tax filing 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. 2006 free tax filing A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. 2006 free tax filing Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. 2006 free tax filing Basis adjustment for depletion. 2006 free tax filing   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. 2006 free tax filing Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). 2006 free tax filing For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. 2006 free tax filing You can treat two or more separate interests as one property or as separate properties. 2006 free tax filing See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. 2006 free tax filing There are two ways of figuring depletion on mineral property. 2006 free tax filing Cost depletion. 2006 free tax filing Percentage depletion. 2006 free tax filing Generally, you must use the method that gives you the larger deduction. 2006 free tax filing However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. 2006 free tax filing See Oil and Gas Wells , later. 2006 free tax filing Cost Depletion To figure cost depletion you must first determine the following. 2006 free tax filing The property's basis for depletion. 2006 free tax filing The total recoverable units of mineral in the property's natural deposit. 2006 free tax filing The number of units of mineral sold during the tax year. 2006 free tax filing Basis for depletion. 2006 free tax filing   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. 2006 free tax filing Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. 2006 free tax filing The residual value of land and improvements at the end of operations. 2006 free tax filing The cost or value of land acquired for purposes other than mineral production. 2006 free tax filing Adjusted basis. 2006 free tax filing   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. 2006 free tax filing Your adjusted basis can never be less than zero. 2006 free tax filing See Publication 551, Basis of Assets, for more information on adjusted basis. 2006 free tax filing Total recoverable units. 2006 free tax filing   The total recoverable units is the sum of the following. 2006 free tax filing The number of units of mineral remaining at the end of the year (including units recovered but not sold). 2006 free tax filing The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). 2006 free tax filing   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. 2006 free tax filing You must include ores and minerals that are developed, in sight, blocked out, or assured. 2006 free tax filing You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. 2006 free tax filing But see Elective safe harbor for owners of oil and gas property , later. 2006 free tax filing Number of units sold. 2006 free tax filing   You determine the number of units sold during the tax year based on your method of accounting. 2006 free tax filing Use the following table to make this determination. 2006 free tax filing    IF you  use . 2006 free tax filing . 2006 free tax filing . 2006 free tax filing THEN the units sold during the year are . 2006 free tax filing . 2006 free tax filing . 2006 free tax filing The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). 2006 free tax filing An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. 2006 free tax filing   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. 2006 free tax filing Figuring the cost depletion deduction. 2006 free tax filing   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. 2006 free tax filing Step Action Result 1 Divide your property's basis for depletion by total recoverable units. 2006 free tax filing Rate per unit. 2006 free tax filing 2 Multiply the rate per unit by units sold during the tax year. 2006 free tax filing Cost depletion deduction. 2006 free tax filing You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. 2006 free tax filing Elective safe harbor for owners of oil and gas property. 2006 free tax filing   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. 2006 free tax filing If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). 2006 free tax filing For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. 2006 free tax filing irs. 2006 free tax filing gov/pub/irs-irbs/irb04-10. 2006 free tax filing pdf. 2006 free tax filing   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. 2006 free tax filing The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. 2006 free tax filing The election, if made, is effective for the tax year in which it is made and all later years. 2006 free tax filing It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. 2006 free tax filing Once revoked, it cannot be re-elected for the next 5 years. 2006 free tax filing 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. 2006 free tax filing 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 . 2006 free tax filing Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . 2006 free tax filing Gross income. 2006 free tax filing   When figuring percentage depletion, subtract from your gross income from the property the following amounts. 2006 free tax filing Any rents or royalties you paid or incurred for the property. 2006 free tax filing 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. 2006 free tax filing A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. 2006 free tax filing   Use the following fraction to figure the part of the bonus you must subtract. 2006 free tax filing No. 2006 free tax filing 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. 2006 free tax filing For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. 2006 free tax filing Taxable income limit. 2006 free tax filing   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. 2006 free tax filing   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. 2006 free tax filing These deductible items include, but are not limited to, the following. 2006 free tax filing Operating expenses. 2006 free tax filing Certain selling expenses. 2006 free tax filing Administrative and financial overhead. 2006 free tax filing Depreciation. 2006 free tax filing Intangible drilling and development costs. 2006 free tax filing Exploration and development expenditures. 2006 free tax filing Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. 2006 free tax filing Losses sustained. 2006 free tax filing   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. 2006 free tax filing Do not deduct any net operating loss deduction from the gross income from the property. 2006 free tax filing Corporations do not deduct charitable contributions from the gross income from the property. 2006 free tax filing 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. 2006 free tax filing See section 1. 2006 free tax filing 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. 2006 free tax filing Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. 2006 free tax filing You are either an independent producer or a royalty owner. 2006 free tax filing The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. 2006 free tax filing If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. 2006 free tax filing 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. 2006 free tax filing 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. 2006 free tax filing However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. 2006 free tax filing For information on figuring the deduction, see Figuring percentage depletion , later. 2006 free tax filing Refiners who cannot claim percentage depletion. 2006 free tax filing   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. 2006 free tax filing 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. 2006 free tax filing Related person. 2006 free tax filing   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. 2006 free tax filing For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. 2006 free tax filing A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. 2006 free tax filing 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. 2006 free tax filing The value of the outstanding stock of a corporation. 2006 free tax filing The interest in the profits or capital of a partnership. 2006 free tax filing The beneficial interests in an estate or trust. 2006 free tax filing 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. 2006 free tax filing Retailers who cannot claim percentage depletion. 2006 free tax filing   You cannot claim percentage depletion if both the following apply. 2006 free tax filing You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. 2006 free tax filing Through a retail outlet operated by you or a related person. 2006 free tax filing 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. 2006 free tax filing 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. 2006 free tax filing 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. 2006 free tax filing   For the purpose of determining if this rule applies, do not count the following. 2006 free tax filing Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. 2006 free tax filing Bulk sales of aviation fuels to the Department of Defense. 2006 free tax filing 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. 2006 free tax filing Related person. 2006 free tax filing   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. 2006 free tax filing Sales through a related person. 2006 free tax filing   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. 2006 free tax filing   You are not considered to be selling through a related person who is a retailer if all the following apply. 2006 free tax filing You do not have a significant ownership interest in the retailer. 2006 free tax filing You sell your production to persons who are not related to either you or the retailer. 2006 free tax filing The retailer does not buy oil or natural gas from your customers or persons related to your customers. 2006 free tax filing 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. 2006 free tax filing 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. 2006 free tax filing Transferees who cannot claim percentage depletion. 2006 free tax filing   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. 2006 free tax filing For a definition of the term “transfer,” see section 1. 2006 free tax filing 613A-7(n) of the regulations. 2006 free tax filing For a definition of the term “interest in proven oil or gas property,” see section 1. 2006 free tax filing 613A-7(p) of the regulations. 2006 free tax filing Figuring percentage depletion. 2006 free tax filing   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. 2006 free tax filing 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%. 2006 free tax filing 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. 2006 free tax filing   In addition, there is a limit on the percentage depletion deduction. 2006 free tax filing See Taxable income limit , later. 2006 free tax filing Average daily production. 2006 free tax filing   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. 2006 free tax filing Partial interest. 2006 free tax filing   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. 2006 free tax filing   You have a partial interest in the production from a property if you have a net profits interest in the property. 2006 free tax filing 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. 2006 free tax filing To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. 2006 free tax filing Then multiply the total production from the property by your percentage participation to figure your share of the production. 2006 free tax filing Example. 2006 free tax filing Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. 2006 free tax filing During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. 2006 free tax filing Javier had expenses of $90,000 attributable to the property. 2006 free tax filing The property generated a net profit of $110,000 ($200,000 − $90,000). 2006 free tax filing Pablo received income of $22,000 ($110,000 × . 2006 free tax filing 20) for his net profits interest. 2006 free tax filing 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). 2006 free tax filing Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). 2006 free tax filing Depletable oil or natural gas quantity. 2006 free tax filing   Generally, your depletable oil quantity is 1,000 barrels. 2006 free tax filing 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. 2006 free tax filing 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. 2006 free tax filing Example. 2006 free tax filing You have both oil and natural gas production. 2006 free tax filing To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. 2006 free tax filing Your depletable natural gas quantity is 2. 2006 free tax filing 16 million cubic feet of gas (360 × 6000). 2006 free tax filing You must reduce your depletable oil quantity to 640 barrels (1000 − 360). 2006 free tax filing 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. 2006 free tax filing Also, see Notice 2012-50, available at www. 2006 free tax filing irs. 2006 free tax filing gov/irb/2012–31_IRB/index. 2006 free tax filing html. 2006 free tax filing Business entities and family members. 2006 free tax filing   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. 2006 free tax filing 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). 2006 free tax filing You and your spouse and minor children. 2006 free tax filing 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. 2006 free tax filing Controlled group of corporations. 2006 free tax filing   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. 2006 free tax filing They share the depletable quantity. 2006 free tax filing 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%. 2006 free tax filing ” Gross income from the property. 2006 free tax filing   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. 2006 free tax filing 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. 2006 free tax filing   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. 2006 free tax filing   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. 2006 free tax filing Average daily production exceeds depletable quantities. 2006 free tax filing   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. 2006 free tax filing Figure your average daily production of oil or natural gas for the year. 2006 free tax filing Figure your depletable oil or natural gas quantity for the year. 2006 free tax filing Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. 2006 free tax filing 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). 2006 free tax filing This is your depletion allowance for that property for the year. 2006 free tax filing Taxable income limit. 2006 free tax filing   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. 2006 free tax filing 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. 2006 free tax filing For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. 2006 free tax filing 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. 2006 free tax filing You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. 2006 free tax filing Add it to your depletion allowance (before applying any limits) for the following year. 2006 free tax filing Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. 2006 free tax filing (However, see Electing large partnerships must figure depletion allowance , later. 2006 free tax filing ) Each partner or shareholder must decide whether to use cost or percentage depletion. 2006 free tax filing 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. 2006 free tax filing Partner's or shareholder's adjusted basis. 2006 free tax filing   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. 2006 free tax filing The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. 2006 free tax filing   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. 2006 free tax filing However, in some cases, it is figured according to the partner's interest in partnership income. 2006 free tax filing   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. 2006 free tax filing Recordkeeping. 2006 free tax filing 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. 2006 free tax filing The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. 2006 free tax filing 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. 2006 free tax filing Reporting the deduction. 2006 free tax filing   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). 2006 free tax filing Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). 2006 free tax filing The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. 2006 free tax filing The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. 2006 free tax filing Form 6198, At-Risk Limitations. 2006 free tax filing Form 8582, Passive Activity Loss Limitations. 2006 free tax filing Electing large partnerships must figure depletion allowance. 2006 free tax filing   An electing large partnership, rather than each partner, generally must figure the depletion allowance. 2006 free tax filing 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. 2006 free tax filing Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. 2006 free tax filing   An electing large partnership is one that meets both the following requirements. 2006 free tax filing The partnership had 100 or more partners in the preceding year. 2006 free tax filing The partnership chooses to be an electing large partnership. 2006 free tax filing Disqualified persons. 2006 free tax filing   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. 2006 free tax filing Disqualified persons must figure it themselves, as explained earlier. 2006 free tax filing   All the following are disqualified persons. 2006 free tax filing Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2006 free tax filing Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 2006 free tax filing 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. 2006 free tax filing Average daily production is discussed earlier. 2006 free tax filing 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. 2006 free tax filing Natural gas sold under a fixed contract. 2006 free tax filing   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. 2006 free tax filing 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. 2006 free tax filing The contract must have been in effect from February 1, 1975, until the date of sale of the gas. 2006 free tax filing 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. 2006 free tax filing Natural gas from geopressured brine. 2006 free tax filing   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. 2006 free tax filing This is natural gas that is both the following. 2006 free tax filing Produced from a well you began to drill after September 1978 and before 1984. 2006 free tax filing Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. 2006 free tax filing Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. 2006 free tax filing Mines and other natural deposits. 2006 free tax filing   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. 2006 free tax filing   The following is a list of the percentage depletion rates for the more common minerals. 2006 free tax filing 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. 2006 free tax filing Corporate deduction for iron ore and coal. 2006 free tax filing   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). 2006 free tax filing Gross income from the property. 2006 free tax filing   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. 2006 free tax filing Mining includes all the following. 2006 free tax filing Extracting ores or minerals from the ground. 2006 free tax filing Applying certain treatment processes described later. 2006 free tax filing 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. 2006 free tax filing Excise tax. 2006 free tax filing   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. 2006 free tax filing Extraction. 2006 free tax filing   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. 2006 free tax filing 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. 2006 free tax filing Treatment processes. 2006 free tax filing   The processes included as mining depend on the ore or mineral mined. 2006 free tax filing To qualify as mining, the treatment processes must be applied by the mine owner or operator. 2006 free tax filing For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. 2006 free tax filing Transportation of more than 50 miles. 2006 free tax filing   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. 2006 free tax filing    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. 2006 free tax filing 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. 2006 free tax filing For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. 2006 free tax filing irs. 2006 free tax filing gov/irb/2013-01_IRB/ar11. 2006 free tax filing html. 2006 free tax filing Disposal of coal or iron ore. 2006 free tax filing   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. 2006 free tax filing You disposed of it after holding it for more than 1 year. 2006 free tax filing You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. 2006 free tax filing Treat any gain on the disposition as a capital gain. 2006 free tax filing Disposal to related person. 2006 free tax filing   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. 2006 free tax filing A related person (as listed in chapter 2 of Publication 544). 2006 free tax filing A person owned or controlled by the same interests that own or control you. 2006 free tax filing Geothermal deposits. 2006 free tax filing   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. 2006 free tax filing A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. 2006 free tax filing For percentage depletion purposes, a geothermal deposit is not considered a gas well. 2006 free tax filing   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. 2006 free tax filing See Gross income from the property , earlier, under Oil and Gas Wells. 2006 free tax filing Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. 2006 free tax filing Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 2006 free tax filing A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. 2006 free tax filing Bonuses and advanced royalties. 2006 free tax filing   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. 2006 free tax filing 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. 2006 free tax filing Figuring cost depletion. 2006 free tax filing   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. 2006 free tax filing 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. 2006 free tax filing Figuring percentage depletion. 2006 free tax filing   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 . 2006 free tax filing 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. 2006 free tax filing 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. 2006 free tax filing Ending the lease. 2006 free tax filing   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. 2006 free tax filing Do this for the year the lease ends or is abandoned. 2006 free tax filing Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. 2006 free tax filing   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. 2006 free tax filing Include this amount in income for the year the lease ends. 2006 free tax filing Increase your adjusted basis in the property by the amount you include in income. 2006 free tax filing Delay rentals. 2006 free tax filing   These are payments for deferring development of the property. 2006 free tax filing Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. 2006 free tax filing These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. 2006 free tax filing Timber You can figure timber depletion only by the cost method. 2006 free tax filing Percentage depletion does not apply to timber. 2006 free tax filing Base your depletion on your cost or other basis in the timber. 2006 free tax filing Your cost does not include the cost of land or any amounts recoverable through depreciation. 2006 free tax filing Depletion takes place when you cut standing timber. 2006 free tax filing You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. 2006 free tax filing Figuring cost depletion. 2006 free tax filing   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. 2006 free tax filing Timber units. 2006 free tax filing   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. 2006 free tax filing You measure the timber using board feet, log scale, cords, or other units. 2006 free tax filing If you later determine that you have more or less units of timber, you must adjust the original estimate. 2006 free tax filing   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. 2006 free tax filing Depletion unit. 2006 free tax filing   You figure your depletion unit each year by taking the following steps. 2006 free tax filing Determine your cost or adjusted basis of the timber on hand at the beginning of the year. 2006 free tax filing Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. 2006 free tax filing Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. 2006 free tax filing 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. 2006 free tax filing Divide the result of (2) by the result of (3). 2006 free tax filing This is your depletion unit. 2006 free tax filing Example. 2006 free tax filing You bought a timber tract for $160,000 and the land was worth as much as the timber. 2006 free tax filing Your basis for the timber is $80,000. 2006 free tax filing 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). 2006 free tax filing If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). 2006 free tax filing When to claim depletion. 2006 free tax filing   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). 2006 free tax filing 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. 2006 free tax filing The inventory is your basis for determining gain or loss in the tax year you sell the timber products. 2006 free tax filing Example. 2006 free tax filing The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. 2006 free tax filing You would deduct $20,000 of the $40,000 depletion that year. 2006 free tax filing You would add the remaining $20,000 depletion to your closing inventory of timber products. 2006 free tax filing Electing to treat the cutting of timber as a sale or exchange. 2006 free tax filing   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. 2006 free tax filing You must make the election on your income tax return for the tax year to which it applies. 2006 free tax filing 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. 2006 free tax filing You generally report the gain as long-term capital gain. 2006 free tax filing 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. 2006 free tax filing For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 2006 free tax filing   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. 2006 free tax filing The prior election (and revocation) is disregarded for purposes of making a subsequent election. 2006 free tax filing See Form T (Timber), Forest Activities Schedule, for more information. 2006 free tax filing Form T. 2006 free tax filing   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. 2006 free tax filing Prev  Up  Next   Home   More Online Publications