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2012 Amended Tax Return

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2012 Amended Tax Return

2012 amended tax return 2. 2012 amended tax return   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. 2012 amended tax return You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. 2012 amended tax return This chapter discusses accounting methods. 2012 amended tax return For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. 2012 amended tax return Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. 2012 amended tax return Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. 2012 amended tax return Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. 2012 amended tax return A material item is one that affects the proper time for inclusion of income or allowance of a deduction. 2012 amended tax return An item considered material for financial statement purposes is generally also considered material for income tax purposes. 2012 amended tax return See Publication 538 for more information. 2012 amended tax return You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. 2012 amended tax return If you later want to change your accounting method, you generally must get IRS approval. 2012 amended tax return How to obtain IRS approval is discussed later under Changes in Methods of Accounting . 2012 amended tax return Types of accounting methods. 2012 amended tax return   Generally, you can use any of the following accounting methods. 2012 amended tax return Each method is discussed in detail below. 2012 amended tax return Cash method. 2012 amended tax return Accrual method. 2012 amended tax return Special methods of accounting for certain items of income and expenses. 2012 amended tax return Combination (hybrid) method using elements of two or more of the above. 2012 amended tax return Business and other items. 2012 amended tax return   You can account for business and personal items using different accounting methods. 2012 amended tax return For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. 2012 amended tax return Two or more businesses. 2012 amended tax return   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. 2012 amended tax return Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. 2012 amended tax return Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. 2012 amended tax return However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. 2012 amended tax return See Accrual Method Required , later. 2012 amended tax return Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. 2012 amended tax return Items of income include money received as well as property or services received. 2012 amended tax return If you receive property or services, you must include the fair market value (FMV) of the property or services in income. 2012 amended tax return See chapter 3 for information on how to report farm income on your income tax return. 2012 amended tax return Constructive receipt. 2012 amended tax return   Income is constructively received when an amount is credited to your account or made available to you without restriction. 2012 amended tax return You do not need to have possession of the income for it to be treated as income for the tax year. 2012 amended tax return If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. 2012 amended tax return Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. 2012 amended tax return Direct payments and counter-cyclical payments. 2012 amended tax return   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. 2012 amended tax return Delaying receipt of income. 2012 amended tax return   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. 2012 amended tax return You must report the income in the year the money or property is received or made available to you without restriction. 2012 amended tax return Example. 2012 amended tax return Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. 2012 amended tax return She was told in December that her payment was available. 2012 amended tax return She requested not to be paid until January 2014. 2012 amended tax return However, she must still include this payment in her 2013 income because it was made available to her in 2013. 2012 amended tax return Debts paid by another person or canceled. 2012 amended tax return   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. 2012 amended tax return If you receive income in this way, you constructively receive the income when the debt is canceled or paid. 2012 amended tax return See Cancellation of Debt in chapter 3. 2012 amended tax return Deferred payment contract. 2012 amended tax return   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. 2012 amended tax return However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. 2012 amended tax return Example. 2012 amended tax return You are a farmer who uses the cash method and a calendar tax year. 2012 amended tax return You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. 2012 amended tax return You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. 2012 amended tax return However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. 2012 amended tax return Repayment of income. 2012 amended tax return   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. 2012 amended tax return If the repayment is more than $3,000, a special rule applies. 2012 amended tax return For details, see Repayments in chapter 11 of Publication 535, Business Expenses. 2012 amended tax return Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. 2012 amended tax return This includes business expenses for which you contest liability. 2012 amended tax return However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. 2012 amended tax return See chapter 4 for information on how to deduct farm business expenses on your income tax return. 2012 amended tax return Prepayment. 2012 amended tax return   Generally, you cannot deduct expenses paid in advance. 2012 amended tax return This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. 2012 amended tax return Example. 2012 amended tax return On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. 2012 amended tax return In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. 2012 amended tax return In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. 2012 amended tax return An exception applies if the expense qualifies for the 12-month rule. 2012 amended tax return See Publication 538 for more information and examples. 2012 amended tax return See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. 2012 amended tax return Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. 2012 amended tax return The purpose of an accrual method of accounting is to correctly match income and expenses. 2012 amended tax return Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. 2012 amended tax return See Accrual Method Required and Farm Inventory , later. 2012 amended tax return Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. 2012 amended tax return Under this rule, include an amount in income on the earliest of the following dates. 2012 amended tax return When you receive payment. 2012 amended tax return When the income amount is due to you. 2012 amended tax return When you earn the income. 2012 amended tax return When title passes. 2012 amended tax return If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. 2012 amended tax return Inventory. 2012 amended tax return   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. 2012 amended tax return An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. 2012 amended tax return See Publication 538 for more information. 2012 amended tax return Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. 2012 amended tax return Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. 2012 amended tax return The all-events test has been met. 2012 amended tax return This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. 2012 amended tax return Economic performance has occurred. 2012 amended tax return Economic performance. 2012 amended tax return   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. 2012 amended tax return If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. 2012 amended tax return If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. 2012 amended tax return Example. 2012 amended tax return Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. 2012 amended tax return She entered into a contract with ABC Farm Consulting in 2012. 2012 amended tax return The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. 2012 amended tax return It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. 2012 amended tax return Jane paid ABC Farm Consulting $2,000 in December 2012. 2012 amended tax return Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. 2012 amended tax return Economic performance for Jane's liability in the contract occurs as the services are provided. 2012 amended tax return Jane incurs the $2,000 cost in 2013. 2012 amended tax return An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. 2012 amended tax return For more information, see Economic Performance in Publication 538. 2012 amended tax return Special rule for related persons. 2012 amended tax return   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. 2012 amended tax return Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. 2012 amended tax return For more information, see Internal Revenue Code section 267. 2012 amended tax return Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. 2012 amended tax return A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. 2012 amended tax return A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. 2012 amended tax return A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. 2012 amended tax return A tax shelter. 2012 amended tax return Note. 2012 amended tax return Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). 2012 amended tax return Family corporation. 2012 amended tax return   A family corporation is generally a corporation that meets one of the following ownership requirements. 2012 amended tax return Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. 2012 amended tax return Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. 2012 amended tax return Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. 2012 amended tax return For more information on family corporations, see Internal Revenue Code section 447. 2012 amended tax return Tax shelter. 2012 amended tax return   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. 2012 amended tax return Its principal purpose is the avoidance or evasion of federal income tax. 2012 amended tax return It is a farming syndicate. 2012 amended tax return A farming syndicate is an entity that meets either of the following tests. 2012 amended tax return Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. 2012 amended tax return More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. 2012 amended tax return   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. 2012 amended tax return   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. 2012 amended tax return Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. 2012 amended tax return This record should show the actual count or measurement of the inventory. 2012 amended tax return It should also show all factors that enter into its valuation, including quality and weight, if applicable. 2012 amended tax return Hatchery business. 2012 amended tax return   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. 2012 amended tax return Products held for sale. 2012 amended tax return   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. 2012 amended tax return , must be included in inventory. 2012 amended tax return Supplies. 2012 amended tax return   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. 2012 amended tax return Deduct the cost of supplies in the year used or consumed in operations. 2012 amended tax return Do not include incidental supplies in inventory as these are deductible in the year of purchase. 2012 amended tax return Livestock. 2012 amended tax return   Livestock held primarily for sale must be included in inventory. 2012 amended tax return Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. 2012 amended tax return See also Unit-livestock-price method , later. 2012 amended tax return If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. 2012 amended tax return Growing crops. 2012 amended tax return   Generally, growing crops are not required to be included in inventory. 2012 amended tax return However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. 2012 amended tax return See Uniform capitalization rules below. 2012 amended tax return Also see Uniform Capitalization Rules in  chapter 6. 2012 amended tax return Items to include in inventory. 2012 amended tax return   Your inventory should include all items held for sale, or for use as feed, seed, etc. 2012 amended tax return , whether raised or purchased, that are unsold at the end of the year. 2012 amended tax return Uniform capitalization rules. 2012 amended tax return   The following applies if you are required to use an accrual method of accounting. 2012 amended tax return The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. 2012 amended tax return The costs of animals are subject to the uniform capitalization rules. 2012 amended tax return Inventory valuation methods. 2012 amended tax return   The following methods, described below, are those generally available for valuing inventory. 2012 amended tax return The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. 2012 amended tax return Cost. 2012 amended tax return Lower of cost or market. 2012 amended tax return Farm-price method. 2012 amended tax return Unit-livestock-price method. 2012 amended tax return Cost and lower of cost or market methods. 2012 amended tax return   See Publication 538 for information on these valuation methods. 2012 amended tax return If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. 2012 amended tax return However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. 2012 amended tax return Farm-price method. 2012 amended tax return   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. 2012 amended tax return Market price is the current price at the nearest market in the quantities you usually sell. 2012 amended tax return Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. 2012 amended tax return If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. 2012 amended tax return Unit-livestock-price method. 2012 amended tax return   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. 2012 amended tax return You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. 2012 amended tax return The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. 2012 amended tax return Unit prices and classifications are subject to approval by the IRS on examination of your return. 2012 amended tax return You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. 2012 amended tax return IRS approval is not required for these adjustments. 2012 amended tax return Any other changes in unit prices or classifications do require IRS approval. 2012 amended tax return   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. 2012 amended tax return This method accounts only for the increase in cost of raising an animal to maturity. 2012 amended tax return It does not provide for any decrease in the animal's market value after it reaches maturity. 2012 amended tax return Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. 2012 amended tax return   Do not include sold or lost animals in the year-end inventory. 2012 amended tax return If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. 2012 amended tax return The animals on hand at the end of the year are considered those most recently acquired. 2012 amended tax return   You must include in inventory all livestock purchased primarily for sale. 2012 amended tax return You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. 2012 amended tax return However, you must be consistent from year to year, regardless of the method you have chosen. 2012 amended tax return You cannot change your method without obtaining approval from the IRS. 2012 amended tax return   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. 2012 amended tax return If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. 2012 amended tax return However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. 2012 amended tax return This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. 2012 amended tax return It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. 2012 amended tax return Uniform capitalization rules. 2012 amended tax return   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. 2012 amended tax return This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. 2012 amended tax return Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. 2012 amended tax return Example 1. 2012 amended tax return You are a farmer who uses an accrual method of accounting. 2012 amended tax return You keep your books on the calendar year basis. 2012 amended tax return You sell grain in December 2013 but you are not paid until January 2014. 2012 amended tax return Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. 2012 amended tax return Example 2. 2012 amended tax return Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. 2012 amended tax return Under this method, you include the sales proceeds in income for 2014, the year you receive payment. 2012 amended tax return Deduct the costs of producing the grain in the year you pay for them. 2012 amended tax return Special Methods of Accounting There are special methods of accounting for certain items of income and expense. 2012 amended tax return Crop method. 2012 amended tax return   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. 2012 amended tax return You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. 2012 amended tax return Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. 2012 amended tax return    See chapter 4 for details on deducting the costs of operating a farm. 2012 amended tax return Also see Regulations section 1. 2012 amended tax return 162-12. 2012 amended tax return Other special methods. 2012 amended tax return   Other special methods of accounting apply to the following items. 2012 amended tax return Amortization, see chapter 7. 2012 amended tax return Casualties, see chapter 11. 2012 amended tax return Condemnations, see chapter 11. 2012 amended tax return Depletion, see chapter 7. 2012 amended tax return Depreciation, see chapter 7. 2012 amended tax return Farm business expenses, see chapter 4. 2012 amended tax return Farm income, see chapter 3. 2012 amended tax return Installment sales, see chapter 10. 2012 amended tax return Soil and water conservation expenses, see chapter 5. 2012 amended tax return Thefts, see chapter 11. 2012 amended tax return Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. 2012 amended tax return However, the following restrictions apply. 2012 amended tax return If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. 2012 amended tax return If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. 2012 amended tax return Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). 2012 amended tax return Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. 2012 amended tax return You may also have to pay a fee. 2012 amended tax return To obtain approval, you must generally file Form 3115. 2012 amended tax return There are instances when you can obtain automatic consent to change certain methods of accounting. 2012 amended tax return See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. 2012 amended tax return For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. 2012 amended tax return Also see Publication 538. 2012 amended tax return Prev  Up  Next   Home   More Online Publications
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The 2012 Amended Tax Return

2012 amended tax return 1. 2012 amended tax return   Traditional IRAs Table of Contents What's New for 2013 What's New for 2014 Introduction Who Can Open a Traditional IRA?What Is Compensation? When Can a Traditional IRA Be Opened? How Can a Traditional IRA Be Opened?Individual Retirement Account Individual Retirement Annuity Individual Retirement Bonds Simplified Employee Pension (SEP) Employer and Employee Association Trust Accounts Required Disclosures How Much Can Be Contributed?Limit. 2012 amended tax return When repayment contributions can be made. 2012 amended tax return No deduction. 2012 amended tax return Reserve component. 2012 amended tax return Figuring your IRA deduction. 2012 amended tax return Reporting the repayment. 2012 amended tax return Example. 2012 amended tax return General Limit Kay Bailey Hutchison Spousal IRA Limit Filing Status Less Than Maximum Contributions More Than Maximum Contributions When Can Contributions Be Made? How Much Can You Deduct?Kay Bailey Hutchison Spousal IRA. 2012 amended tax return Are You Covered by an Employer Plan? Limit if Covered by Employer Plan Reporting Deductible Contributions Nondeductible Contributions Examples — Worksheet for Reduced IRA Deduction for 2013 What if You Inherit an IRA?Treating it as your own. 2012 amended tax return Can You Move Retirement Plan Assets?Transfers to Roth IRAs from other retirement plans. 2012 amended tax return Trustee-to-Trustee Transfer Rollovers Transfers Incident To Divorce Converting From Any Traditional IRA Into a Roth IRA Recharacterizations When Can You Withdraw or Use Assets?Contributions Returned Before Due Date of Return When Must You Withdraw Assets? (Required Minimum Distributions)IRA Owners IRA Beneficiaries Which Table Do You Use To Determine Your Required Minimum Distribution? What Age(s) Do You Use With the Table(s)? Miscellaneous Rules for Required Minimum Distributions Are Distributions Taxable?January 2013 QCDs treated as made in 2012. 2012 amended tax return 2013 Reporting. 2012 amended tax return Additional reporting requirements if you made the election to treat a January 2013 QCD as made in 2012. 2012 amended tax return One-time transfer. 2012 amended tax return Testing period rules apply. 2012 amended tax return More information. 2012 amended tax return Distributions Fully or Partly Taxable Figuring the Nontaxable and Taxable Amounts Recognizing Losses on Traditional IRA Investments Other Special IRA Distribution Situations Reporting and Withholding Requirements for Taxable Amounts What Acts Result in Penalties or Additional Taxes?Prohibited Transactions Investment in Collectibles Excess Contributions Early Distributions Excess Accumulations (Insufficient Distributions) Reporting Additional Taxes What's New for 2013 Traditional IRA contribution and deduction limit. 2012 amended tax return  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. 2012 amended tax return If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. 2012 amended tax return For more information, see How Much Can Be Contributed? in this chapter. 2012 amended tax return Modified AGI limit for traditional IRA contributions increased. 2012 amended tax return  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. 2012 amended tax return If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. 2012 amended tax return If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. 2012 amended tax return See How Much Can You Deduct? in this chapter. 2012 amended tax return Net Investment Income Tax. 2012 amended tax return  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). 2012 amended tax return However, these distributions are taken into account when determining the modified adjusted gross income threshold. 2012 amended tax return Distributions from a nonqualified retirement plan are included in net investment income. 2012 amended tax return See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. 2012 amended tax return What's New for 2014 Modified AGI limit for traditional IRA contributions increased. 2012 amended tax return  For 2014, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $96,000 but less than $116,000 for a married couple filing a joint return or a qualifying widow(er), More than $60,000 but less than $70,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. 2012 amended tax return If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. 2012 amended tax return If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. 2012 amended tax return Introduction This chapter discusses the original IRA. 2012 amended tax return In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. 2012 amended tax return ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. 2012 amended tax return The following are two advantages of a traditional IRA: You may be able to deduct some or all of your contributions to it, depending on your circumstances. 2012 amended tax return Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. 2012 amended tax return Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. 2012 amended tax return You can have a traditional IRA whether or not you are covered by any other retirement plan. 2012 amended tax return However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. 2012 amended tax return See How Much Can You Deduct , later. 2012 amended tax return Both spouses have compensation. 2012 amended tax return   If both you and your spouse have compensation and are under age 70½, each of you can open an IRA. 2012 amended tax return You cannot both participate in the same IRA. 2012 amended tax return If you file a joint return, only one of you needs to have compensation. 2012 amended tax return What Is Compensation? Generally, compensation is what you earn from working. 2012 amended tax return For a summary of what compensation does and does not include, see Table 1-1. 2012 amended tax return Compensation includes all of the items discussed next (even if you have more than one type). 2012 amended tax return Wages, salaries, etc. 2012 amended tax return   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. 2012 amended tax return The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). 2012 amended tax return Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2. 2012 amended tax return Commissions. 2012 amended tax return   An amount you receive that is a percentage of profits or sales price is compensation. 2012 amended tax return Self-employment income. 2012 amended tax return   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deduction allowed for the deductible part of your self-employment taxes. 2012 amended tax return   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. 2012 amended tax return Self-employment loss. 2012 amended tax return   If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. 2012 amended tax return Alimony and separate maintenance. 2012 amended tax return   For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. 2012 amended tax return Nontaxable combat pay. 2012 amended tax return   If you were a member of the U. 2012 amended tax return S. 2012 amended tax return Armed Forces, compensation includes any nontaxable combat pay you received. 2012 amended tax return This amount should be reported in box 12 of your 2013 Form W-2 with code Q. 2012 amended tax return Table 1-1. 2012 amended tax return Compensation for Purposes of an IRA Includes . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return Does not include . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return   earnings and profits from property. 2012 amended tax return wages, salaries, etc. 2012 amended tax return     interest and dividend income. 2012 amended tax return commissions. 2012 amended tax return     pension or annuity income. 2012 amended tax return self-employment income. 2012 amended tax return     deferred compensation. 2012 amended tax return alimony and separate maintenance. 2012 amended tax return     income from certain  partnerships. 2012 amended tax return nontaxable combat pay. 2012 amended tax return     any amounts you exclude from income. 2012 amended tax return     What Is Not Compensation? Compensation does not include any of the following items. 2012 amended tax return Earnings and profits from property, such as rental income, interest income, and dividend income. 2012 amended tax return Pension or annuity income. 2012 amended tax return Deferred compensation received (compensation payments postponed from a past year). 2012 amended tax return Income from a partnership for which you do not provide services that are a material income-producing factor. 2012 amended tax return Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. 2012 amended tax return Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. 2012 amended tax return When Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. 2012 amended tax return However, the time for making contributions for any year is limited. 2012 amended tax return See When Can Contributions Be Made , later. 2012 amended tax return How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of organizations. 2012 amended tax return You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. 2012 amended tax return You can also open an IRA through your stockbroker. 2012 amended tax return Any IRA must meet Internal Revenue Code requirements. 2012 amended tax return The requirements for the various arrangements are discussed below. 2012 amended tax return Kinds of traditional IRAs. 2012 amended tax return   Your traditional IRA can be an individual retirement account or annuity. 2012 amended tax return It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. 2012 amended tax return Individual Retirement Account An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. 2012 amended tax return The account is created by a written document. 2012 amended tax return The document must show that the account meets all of the following requirements. 2012 amended tax return The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. 2012 amended tax return The trustee or custodian generally cannot accept contributions of more than the deductible amount for the year. 2012 amended tax return However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount. 2012 amended tax return Contributions, except for rollover contributions, must be in cash. 2012 amended tax return See Rollovers , later. 2012 amended tax return You must have a nonforfeitable right to the amount at all times. 2012 amended tax return Money in your account cannot be used to buy a life insurance policy. 2012 amended tax return Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund. 2012 amended tax return You must start receiving distributions by April 1 of the year following the year in which you reach age 70½. 2012 amended tax return See When Must You Withdraw Assets? (Required Minimum Distributions) , later. 2012 amended tax return Individual Retirement Annuity You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. 2012 amended tax return An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments. 2012 amended tax return An individual retirement annuity must meet all the following requirements. 2012 amended tax return Your entire interest in the contract must be nonforfeitable. 2012 amended tax return The contract must provide that you cannot transfer any portion of it to any person other than the issuer. 2012 amended tax return There must be flexible premiums so that if your compensation changes, your payment can also change. 2012 amended tax return This provision applies to contracts issued after November 6, 1978. 2012 amended tax return The contract must provide that contributions cannot be more than the deductible amount for an IRA for the year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits before the end of the calendar year after the year in which you receive the refund. 2012 amended tax return Distributions must begin by April 1 of the year following the year in which you reach age 70½. 2012 amended tax return See When Must You Withdraw Assets? (Required Minimum Distributions) , later. 2012 amended tax return Individual Retirement Bonds The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. 2012 amended tax return The bonds have the following features. 2012 amended tax return They stop earning interest when you reach age 70½. 2012 amended tax return If you die, interest will stop 5 years after your death, or on the date you would have reached age 70½, whichever is earlier. 2012 amended tax return You cannot transfer the bonds. 2012 amended tax return If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. 2012 amended tax return See Age 59½ Rule under Early Distributions, later. 2012 amended tax return You can roll over redemption proceeds into IRAs. 2012 amended tax return Simplified Employee Pension (SEP) A simplified employee pension (SEP) is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. 2012 amended tax return Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. 2012 amended tax return See Publication 560 for more information about SEPs. 2012 amended tax return Employer and Employee Association Trust Accounts Your employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members. 2012 amended tax return The requirements for individual retirement accounts apply to these traditional IRAs. 2012 amended tax return Required Disclosures The trustee or issuer (sometimes called the sponsor) of your traditional IRA generally must give you a disclosure statement at least 7 days before you open your IRA. 2012 amended tax return However, the sponsor does not have to give you the statement until the date you open (or purchase, if earlier) your IRA, provided you are given at least 7 days from that date to revoke the IRA. 2012 amended tax return The disclosure statement must explain certain items in plain language. 2012 amended tax return For example, the statement should explain when and how you can revoke the IRA, and include the name, address, and telephone number of the person to receive the notice of cancellation. 2012 amended tax return This explanation must appear at the beginning of the disclosure statement. 2012 amended tax return If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. 2012 amended tax return The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a trustee-to-trustee transfer) and the amount returned to you. 2012 amended tax return These requirements apply to all sponsors. 2012 amended tax return How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. 2012 amended tax return These limits and rules are explained below. 2012 amended tax return Community property laws. 2012 amended tax return   Except as discussed later under Kay Bailey Hutchison Spousal IRA Limit , each spouse figures his or her limit separately, using his or her own compensation. 2012 amended tax return This is the rule even in states with community property laws. 2012 amended tax return Brokers' commissions. 2012 amended tax return   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. 2012 amended tax return For information about whether you can deduct brokers' commissions, see Brokers' commissions , later, under How Much Can You Deduct. 2012 amended tax return Trustees' fees. 2012 amended tax return   Trustees' administrative fees are not subject to the contribution limit. 2012 amended tax return For information about whether you can deduct trustees' fees, see Trustees' fees , later, under How Much Can You Deduct. 2012 amended tax return Qualified reservist repayments. 2012 amended tax return   If you were a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined later under Early Distributions) you received. 2012 amended tax return You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. 2012 amended tax return To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or a similar arrangement. 2012 amended tax return Limit. 2012 amended tax return   Your qualified reservist repayments cannot be more than your qualified reservist distributions, explained under Early Distributions , later. 2012 amended tax return When repayment contributions can be made. 2012 amended tax return   You cannot make these repayment contributions later than the date that is 2 years after your active duty period ends. 2012 amended tax return No deduction. 2012 amended tax return   You cannot deduct qualified reservist repayments. 2012 amended tax return Reserve component. 2012 amended tax return   The term “reserve component” means the: Army National Guard of the United States, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National Guard of the United States, Air Force Reserve, Coast Guard Reserve, or Reserve Corps of the Public Health Service. 2012 amended tax return Figuring your IRA deduction. 2012 amended tax return   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. 2012 amended tax return Reporting the repayment. 2012 amended tax return   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. 2012 amended tax return Example. 2012 amended tax return   In 2013, your IRA contribution limit is $5,500. 2012 amended tax return However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. 2012 amended tax return You can make a nondeductible contribution of $2,000 ($5,500 - $3,500). 2012 amended tax return In an earlier year you received a $3,000 qualified reservist distribution, which you would like to repay this year. 2012 amended tax return   For 2013, you can contribute a total of $8,500 to your IRA. 2012 amended tax return This is made up of the maximum deductible contribution of $3,500; a nondeductible contribution of $2,000; and a $3,000 qualified reservist repayment. 2012 amended tax return You contribute the maximum allowable for the year. 2012 amended tax return Since you are making a nondeductible contribution ($2,000) and a qualified reservist repayment ($3,000), you must file Form 8606 with your return and include $5,000 ($2,000 + $3,000) on line 1 of Form 8606. 2012 amended tax return The qualified reservist repayment is not deductible. 2012 amended tax return Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. 2012 amended tax return See chapter 2 for information about Roth IRAs. 2012 amended tax return General Limit For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation (defined earlier) for the year. 2012 amended tax return Note. 2012 amended tax return This limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). 2012 amended tax return This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. 2012 amended tax return (See Nondeductible Contributions , later. 2012 amended tax return ) Qualified reservist repayments do not affect this limit. 2012 amended tax return Examples. 2012 amended tax return George, who is 34 years old and single, earns $24,000 in 2013. 2012 amended tax return His IRA contributions for 2013 are limited to $5,500. 2012 amended tax return Danny, an unmarried college student working part time, earns $3,500 in 2013. 2012 amended tax return His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. 2012 amended tax return More than one IRA. 2012 amended tax return   If you have more than one IRA, the limit applies to the total contributions made on your behalf to all your traditional IRAs for the year. 2012 amended tax return Annuity or endowment contracts. 2012 amended tax return   If you invest in an annuity or endowment contract under an individual retirement annuity, no more than $5,500 ($6,500 if you are age 50 or older) can be contributed toward its cost for the tax year, including the cost of life insurance coverage. 2012 amended tax return If more than this amount is contributed, the annuity or endowment contract is disqualified. 2012 amended tax return Kay Bailey Hutchison Spousal IRA Limit For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts: $5,500 ($6,500 if you are age 50 or older), or The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. 2012 amended tax return Your spouse's IRA contribution for the year to a traditional IRA. 2012 amended tax return Any contributions for the year to a Roth IRA on behalf of your spouse. 2012 amended tax return This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is age 50 or older or $13,000 if both of you are age 50 or older). 2012 amended tax return Note. 2012 amended tax return This traditional IRA limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). 2012 amended tax return Example. 2012 amended tax return Kristin, a full-time student with no taxable compensation, marries Carl during the year. 2012 amended tax return Neither of them was age 50 by the end of 2013. 2012 amended tax return For the year, Carl has taxable compensation of $30,000. 2012 amended tax return He plans to contribute (and deduct) $5,500 to a traditional IRA. 2012 amended tax return If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. 2012 amended tax return This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution ($30,000 − $5,500 = $24,500), to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. 2012 amended tax return In her case, $5,500 is her contribution limit, because $5,500 is less than $24,500 (her compensation for purposes of figuring her contribution limit). 2012 amended tax return Filing Status Generally, except as discussed earlier under Kay Bailey Hutchison Spousal IRA Limit , your filing status has no effect on the amount of allowable contributions to your traditional IRA. 2012 amended tax return However, if during the year either you or your spouse was covered by a retirement plan at work, your deduction may be reduced or eliminated, depending on your filing status and income. 2012 amended tax return See How Much Can You Deduct , later. 2012 amended tax return Example. 2012 amended tax return Tom and Darcy are married and both are 53. 2012 amended tax return They both work and each has a traditional IRA. 2012 amended tax return Tom earned $3,800 and Darcy earned $48,000 in 2013. 2012 amended tax return Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though Tom earned less than $6,500, they can contribute up to $6,500 to his IRA for 2013 if they file a joint return. 2012 amended tax return They can contribute up to $6,500 to Darcy's IRA. 2012 amended tax return If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. 2012 amended tax return Less Than Maximum Contributions If contributions to your traditional IRA for a year were less than the limit, you cannot contribute more after the due date of your return for that year to make up the difference. 2012 amended tax return Example. 2012 amended tax return Rafael, who is 40, earns $30,000 in 2013. 2012 amended tax return Although he can contribute up to $5,500 for 2013, he contributes only $3,000. 2012 amended tax return After April 15, 2014, Rafael cannot make up the difference between his actual contributions for 2013 ($3,000) and his 2013 limit ($5,500). 2012 amended tax return He cannot contribute $2,500 more than the limit for any later year. 2012 amended tax return More Than Maximum Contributions If contributions to your IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. 2012 amended tax return However, a penalty or additional tax may apply. 2012 amended tax return See Excess Contributions , later, under What Acts Result in Penalties or Additional Taxes. 2012 amended tax return When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). 2012 amended tax return Contributions must be in the form of money (cash, check, or money order). 2012 amended tax return Property cannot be contributed. 2012 amended tax return Although property cannot be contributed, your IRA may invest in certain property. 2012 amended tax return For example, your IRA may purchase shares of stock. 2012 amended tax return For other restrictions on the use of funds in your IRA, see Prohibited Transactions , later in this chapter. 2012 amended tax return You may be able to transfer or roll over certain property from one retirement plan to another. 2012 amended tax return See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets . 2012 amended tax return You can make a contribution to your IRA by having your income tax refund (or a portion of your refund), if any, paid directly to your traditional IRA, Roth IRA, or SEP IRA. 2012 amended tax return For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases). 2012 amended tax return Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. 2012 amended tax return For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation. 2012 amended tax return See Who Can Open a Traditional IRA , earlier. 2012 amended tax return Even if contributions cannot be made for the current year, the amounts contributed for years in which you did qualify can remain in your IRA. 2012 amended tax return Contributions can resume for any years that you qualify. 2012 amended tax return Contributions must be made by due date. 2012 amended tax return   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. 2012 amended tax return For most people, this means that contributions for 2013 must be made by April 15, 2014, and contributions for 2014 must be made by April 15, 2015. 2012 amended tax return Age 70½ rule. 2012 amended tax return   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. 2012 amended tax return   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. 2012 amended tax return If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. 2012 amended tax return Designating year for which contribution is made. 2012 amended tax return   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. 2012 amended tax return If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). 2012 amended tax return Filing before a contribution is made. 2012 amended tax return    You can file your return claiming a traditional IRA contribution before the contribution is actually made. 2012 amended tax return Generally, the contribution must be made by the due date of your return, not including extensions. 2012 amended tax return Contributions not required. 2012 amended tax return   You do not have to contribute to your traditional IRA for every tax year, even if you can. 2012 amended tax return How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if applicable) explained earlier under How Much Can Be Contributed . 2012 amended tax return However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. 2012 amended tax return See Limit if Covered by Employer Plan , later. 2012 amended tax return You may be able to claim a credit for contributions to your traditional IRA. 2012 amended tax return For more information, see chapter 4. 2012 amended tax return Trustees' fees. 2012 amended tax return   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. 2012 amended tax return However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). 2012 amended tax return For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions. 2012 amended tax return Brokers' commissions. 2012 amended tax return   These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. 2012 amended tax return Full deduction. 2012 amended tax return   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older), or 100% of your compensation. 2012 amended tax return   This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. 2012 amended tax return Kay Bailey Hutchison Spousal IRA. 2012 amended tax return   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of: $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older), or The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. 2012 amended tax return The IRA deduction for the year of the spouse with the greater compensation. 2012 amended tax return Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. 2012 amended tax return Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. 2012 amended tax return   This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. 2012 amended tax return Note. 2012 amended tax return If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. 2012 amended tax return After a divorce or legal separation, you can deduct only the contributions to your own IRA. 2012 amended tax return Your deductions are subject to the rules for single individuals. 2012 amended tax return Covered by an employer retirement plan. 2012 amended tax return   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. 2012 amended tax return This is discussed later under Limit if Covered by Employer Plan . 2012 amended tax return Limits on the amount you can deduct do not affect the amount that can be contributed. 2012 amended tax return Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. 2012 amended tax return The “Retirement Plan” box should be checked if you were covered. 2012 amended tax return Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered , later. 2012 amended tax return If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. 2012 amended tax return Federal judges. 2012 amended tax return   For purposes of the IRA deduction, federal judges are covered by an employer plan. 2012 amended tax return For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. 2012 amended tax return These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. 2012 amended tax return Tax year. 2012 amended tax return   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. 2012 amended tax return For almost all people, the tax year is the calendar year. 2012 amended tax return Defined contribution plan. 2012 amended tax return   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. 2012 amended tax return However, also see Situations in Which You Are Not Covered , later. 2012 amended tax return   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. 2012 amended tax return In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. 2012 amended tax return The level of benefits actually provided to a participant depends on the total amount contributed to that participant's account and any earnings and losses on those contributions. 2012 amended tax return Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. 2012 amended tax return Example. 2012 amended tax return Company A has a money purchase pension plan. 2012 amended tax return Its plan year is from July 1 to June 30. 2012 amended tax return The plan provides that contributions must be allocated as of June 30. 2012 amended tax return Bob, an employee, leaves Company A on December 31, 2012. 2012 amended tax return The contribution for the plan year ending on June 30, 2013, is made February 15, 2014. 2012 amended tax return Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2013 tax year. 2012 amended tax return   A special rule applies to certain plans in which it is not possible to determine if an amount will be contributed to your account for a given plan year. 2012 amended tax return If, for a plan year, no amounts have been allocated to your account that are attributable to employer contributions, employee contributions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you are not covered for the tax year in which the plan year ends. 2012 amended tax return If, after the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. 2012 amended tax return Example. 2012 amended tax return Mickey was covered by a profit-sharing plan and left the company on December 31, 2012. 2012 amended tax return The plan year runs from July 1 to June 30. 2012 amended tax return Under the terms of the plan, employer contributions do not have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. 2012 amended tax return Such contributions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. 2012 amended tax return As of June 30, 2013, no contributions were made that were allocated to the June 30, 2013, plan year, and no forfeitures had been allocated within the plan year. 2012 amended tax return In addition, as of that date, the company was not obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. 2012 amended tax return On December 31, 2013, the company decided to contribute to the plan for the plan year ending June 30, 2013. 2012 amended tax return That contribution was made on February 15, 2014. 2012 amended tax return Mickey is an active participant in the plan for his 2014 tax year but not for his 2013 tax year. 2012 amended tax return No vested interest. 2012 amended tax return   If an amount is allocated to your account for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the account. 2012 amended tax return Defined benefit plan. 2012 amended tax return   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. 2012 amended tax return This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. 2012 amended tax return   A defined benefit plan is any plan that is not a defined contribution plan. 2012 amended tax return In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. 2012 amended tax return The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. 2012 amended tax return Defined benefit plans include pension plans and annuity plans. 2012 amended tax return Example. 2012 amended tax return Nick, an employee of Company B, is eligible to participate in Company B's defined benefit plan, which has a July 1 to June 30 plan year. 2012 amended tax return Nick leaves Company B on December 31, 2012. 2012 amended tax return Because Nick is eligible to participate in the plan for its year ending June 30, 2013, he is covered by the plan for his 2013 tax year. 2012 amended tax return No vested interest. 2012 amended tax return   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. 2012 amended tax return Situations in Which You Are Not Covered Unless you are covered by another employer plan, you are not covered by an employer plan if you are in one of the situations described below. 2012 amended tax return Social security or railroad retirement. 2012 amended tax return   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. 2012 amended tax return Benefits from previous employer's plan. 2012 amended tax return   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. 2012 amended tax return Reservists. 2012 amended tax return   If the only reason you participate in a plan is because you are a member of a reserve unit of the Armed Forces, you may not be covered by the plan. 2012 amended tax return You are not covered by the plan if both of the following conditions are met. 2012 amended tax return The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. 2012 amended tax return You did not serve more than 90 days on active duty during the year (not counting duty for training). 2012 amended tax return Volunteer firefighters. 2012 amended tax return   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. 2012 amended tax return You are not covered by the plan if both of the following conditions are met. 2012 amended tax return The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. 2012 amended tax return Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. 2012 amended tax return Limit if Covered by Employer Plan As discussed earlier, the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year by an employer retirement plan. 2012 amended tax return Your deduction is also affected by how much income you had and by your filing status. 2012 amended tax return Your deduction may also be affected by social security benefits you received. 2012 amended tax return Reduced or no deduction. 2012 amended tax return   If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. 2012 amended tax return   Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. 2012 amended tax return These amounts vary depending on your filing status. 2012 amended tax return   To determine if your deduction is subject to the phaseout, you must determine your modified adjusted gross income (AGI) and your filing status, as explained later under Deduction Phaseout . 2012 amended tax return Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies. 2012 amended tax return Social Security Recipients Instead of using Table 1-2 or Table 1-3 and Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, later, complete the worksheets in Appendix B of this publication if, for the year, all of the following apply. 2012 amended tax return You received social security benefits. 2012 amended tax return You received taxable compensation. 2012 amended tax return Contributions were made to your traditional IRA. 2012 amended tax return You or your spouse was covered by an employer retirement plan. 2012 amended tax return Use the worksheets in Appendix B to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. 2012 amended tax return Appendix B includes an example with filled-in worksheets to assist you. 2012 amended tax return Table 1-2. 2012 amended tax return Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. 2012 amended tax return IF your filing status is . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your modified adjusted gross income (modified AGI) is . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return THEN you can take . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return single or head of household $59,000 or less a full deduction. 2012 amended tax return more than $59,000 but less than $69,000 a partial deduction. 2012 amended tax return $69,000 or more no deduction. 2012 amended tax return married filing jointly or  qualifying widow(er) $95,000 or less a full deduction. 2012 amended tax return more than $95,000 but less than $115,000 a partial deduction. 2012 amended tax return $115,000 or more no deduction. 2012 amended tax return married filing separately2 less than $10,000 a partial deduction. 2012 amended tax return $10,000 or more no deduction. 2012 amended tax return 1 Modified AGI (adjusted gross income). 2012 amended tax return See Modified adjusted gross income (AGI) , later. 2012 amended tax return  2 If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status). 2012 amended tax return Table 1-3. 2012 amended tax return Effect of Modified AGI1 on Deduction if You Are NOT Covered by a Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. 2012 amended tax return IF your filing status is . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your modified adjusted gross income (modified AGI) is . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return THEN you can take . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return single, head of household, or qualifying widow(er) any amount a full deduction. 2012 amended tax return married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction. 2012 amended tax return married filing jointly with a spouse who is covered by a plan at work $178,000 or less a full deduction. 2012 amended tax return more than $178,000 but less than $188,000 a partial deduction. 2012 amended tax return $188,000 or more no deduction. 2012 amended tax return married filing separately with a spouse who is covered by a plan at work2 less than $10,000 a partial deduction. 2012 amended tax return $10,000 or more no deduction. 2012 amended tax return 1 Modified AGI (adjusted gross income). 2012 amended tax return See Modified adjusted gross income (AGI) , later. 2012 amended tax return  2 You are entitled to the full deduction if you did not live with your spouse at any time during the year. 2012 amended tax return For 2014, if you are not covered by a retirement plan at work and you are married filing jointly with a spouse who is covered by a plan at work, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. 2012 amended tax return If your AGI is $191,000 or more, you cannot take a deduction for a contribution to a traditional IRA. 2012 amended tax return Deduction Phaseout The amount of any reduction in the limit on your IRA deduction (phaseout) depends on whether you or your spouse was covered by an employer retirement plan. 2012 amended tax return Covered by a retirement plan. 2012 amended tax return   If you are covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI, as shown in Table 1-2. 2012 amended tax return For 2014, if you are covered by a retirement plan at work, your IRA deduction will not be reduced (phased out) unless your modified AGI is: More than $60,000 but less than $70,000 for a single individual (or head of household), More than $96,000 but less than $116,000 for a married couple filing a joint return (or a qualifying widow(er)), or Less than $10,000 for a married individual filing a separate return. 2012 amended tax return If your spouse is covered. 2012 amended tax return   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 1-3. 2012 amended tax return Filing status. 2012 amended tax return   Your filing status depends primarily on your marital status. 2012 amended tax return For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. 2012 amended tax return If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information. 2012 amended tax return Lived apart from spouse. 2012 amended tax return   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. 2012 amended tax return Modified adjusted gross income (AGI). 2012 amended tax return   You can use Worksheet 1-1 to figure your modified AGI. 2012 amended tax return If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Both contributions for 2013 and distributions in 2013 , later. 2012 amended tax return    Do not assume that your modified AGI is the same as your compensation. 2012 amended tax return Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. 2012 amended tax return Form 1040. 2012 amended tax return   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. 2012 amended tax return IRA deduction. 2012 amended tax return Student loan interest deduction. 2012 amended tax return Tuition and fees deduction. 2012 amended tax return Domestic production activities deduction. 2012 amended tax return Foreign earned income exclusion. 2012 amended tax return Foreign housing exclusion or deduction. 2012 amended tax return Exclusion of qualified savings bond interest shown on Form 8815. 2012 amended tax return Exclusion of employer-provided adoption benefits shown on Form 8839. 2012 amended tax return This is your modified AGI. 2012 amended tax return Form 1040A. 2012 amended tax return   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. 2012 amended tax return IRA deduction. 2012 amended tax return Student loan interest deduction. 2012 amended tax return Tuition and fees deduction. 2012 amended tax return Exclusion of qualified savings bond interest shown on Form 8815. 2012 amended tax return This is your modified AGI. 2012 amended tax return Form 1040NR. 2012 amended tax return   If you file Form 1040NR, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. 2012 amended tax return IRA deduction. 2012 amended tax return Student loan interest deduction. 2012 amended tax return Domestic production activities deduction. 2012 amended tax return Exclusion of qualified savings bond interest shown on Form 8815. 2012 amended tax return Exclusion of employer-provided adoption benefits shown on Form 8839. 2012 amended tax return This is your modified AGI. 2012 amended tax return Income from IRA distributions. 2012 amended tax return   If you received distributions in 2013 from one or more traditional IRAs and your traditional IRAs include only deductible contributions, the distributions are fully taxable and are included in your modified AGI. 2012 amended tax return Both contributions for 2013 and distributions in 2013. 2012 amended tax return   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. 2012 amended tax return You received distributions in 2013 from one or more traditional IRAs, You made contributions to a traditional IRA for 2013, and Some of those contributions may be nondeductible contributions. 2012 amended tax return (See Nondeductible Contributions and Worksheet 1-2, later. 2012 amended tax return ) If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. 2012 amended tax return To do this, you can use Worksheet 1-5, later. 2012 amended tax return   If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later. 2012 amended tax return How To Figure Your Reduced IRA Deduction If you or your spouse is covered by an employer retirement plan and you did not receive any social security benefits, you can figure your reduced IRA deduction by using Worksheet 1-2. 2012 amended tax return Figuring Your Reduced IRA Deduction for 2013. 2012 amended tax return The Instructions for Form 1040, Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication. 2012 amended tax return If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients , earlier. 2012 amended tax return Note. 2012 amended tax return If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. 2012 amended tax return Worksheet 1-1. 2012 amended tax return Figuring Your Modified AGI Use this worksheet to figure your modified AGI for traditional IRA purposes. 2012 amended tax return 1. 2012 amended tax return Enter your adjusted gross income (AGI) from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37, figured without taking into account the amount from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 1. 2012 amended tax return   2. 2012 amended tax return Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 2. 2012 amended tax return   3. 2012 amended tax return Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. 2012 amended tax return   4. 2012 amended tax return Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 4. 2012 amended tax return   5. 2012 amended tax return Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. 2012 amended tax return   6. 2012 amended tax return Enter any foreign housing deduction from Form 2555, line 50 6. 2012 amended tax return   7. 2012 amended tax return Enter any excludable savings bond interest from Form 8815, line 14 7. 2012 amended tax return   8. 2012 amended tax return Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. 2012 amended tax return   9. 2012 amended tax return Add lines 1 through 8. 2012 amended tax return This is your Modified AGI for traditional IRA purposes 9. 2012 amended tax return   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. 2012 amended tax return If you file Form 1040A, enter your IRA deduction on line 17 of that form. 2012 amended tax return If you file Form 1040NR, enter your IRA deduction on line 32 of that form. 2012 amended tax return You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ. 2012 amended tax return Self-employed. 2012 amended tax return   If you are self-employed (a sole proprietor or partner) and have a SIMPLE IRA, enter your deduction for allowable plan contributions on Form 1040, line 28. 2012 amended tax return If you file Form 1040NR, enter your deduction on line 28 of that form. 2012 amended tax return Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. 2012 amended tax return The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. 2012 amended tax return Example. 2012 amended tax return Tony is 29 years old and single. 2012 amended tax return In 2013, he was covered by a retirement plan at work. 2012 amended tax return His salary is $62,000. 2012 amended tax return His modified AGI is $70,000. 2012 amended tax return Tony makes a $5,500 IRA contribution for 2013. 2012 amended tax return Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. 2012 amended tax return He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. 2012 amended tax return Repayment of reservist distributions. 2012 amended tax return   Nondeductible contributions may include repayments of qualified reservist distributions. 2012 amended tax return For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier. 2012 amended tax return Form 8606. 2012 amended tax return   To designate contributions as nondeductible, you must file Form 8606. 2012 amended tax return (See the filled-in Forms 8606 in this chapter. 2012 amended tax return )   You do not have to designate a contribution as nondeductible until you file your tax return. 2012 amended tax return When you file, you can even designate otherwise deductible contributions as nondeductible contributions. 2012 amended tax return   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. 2012 amended tax return    A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. 2012 amended tax return In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. 2012 amended tax return See Form 8606 under Distributions Fully or Partly Taxable, later. 2012 amended tax return Failure to report nondeductible contributions. 2012 amended tax return   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. 2012 amended tax return All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. 2012 amended tax return Penalty for overstatement. 2012 amended tax return   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. 2012 amended tax return Penalty for failure to file Form 8606. 2012 amended tax return   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. 2012 amended tax return Tax on earnings on nondeductible contributions. 2012 amended tax return   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. 2012 amended tax return Cost basis. 2012 amended tax return   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. 2012 amended tax return Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. 2012 amended tax return    Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. 2012 amended tax return See Are Distributions Taxable, later, for more information. 2012 amended tax return Recordkeeping. 2012 amended tax return There is a recordkeeping worksheet, Appendix A. 2012 amended tax return Summary Record of Traditional IRA(s) for 2013 , that you can use to keep a record of deductible and nondeductible IRA contributions. 2012 amended tax return Examples — Worksheet for Reduced IRA Deduction for 2013 The following examples illustrate the use of Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013. 2012 amended tax return Example 1. 2012 amended tax return For 2013, Tom and Betty file a joint return on Form 1040. 2012 amended tax return They are both 39 years old. 2012 amended tax return They are both employed and Tom is covered by his employer's retirement plan. 2012 amended tax return Tom's salary is $59,000 and Betty's is $32,555. 2012 amended tax return They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. 2012 amended tax return Because their modified AGI is between $95,000 and $115,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . 2012 amended tax return For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. 2012 amended tax return Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them. 2012 amended tax return Tom can take a deduction of only $5,080. 2012 amended tax return He can choose to treat the $5,080 as either deductible or nondeductible contributions. 2012 amended tax return He can either leave the $420 ($5,500 − $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. 2012 amended tax return He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA. 2012 amended tax return Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. 2012 amended tax return Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated. 2012 amended tax return Betty figures her IRA deduction as follows. 2012 amended tax return Betty can treat all or part of her contributions as either deductible or nondeductible. 2012 amended tax return This is because her $5,500 contribution for 2013 is not subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . 2012 amended tax return She does not need to use Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, because their modified AGI is not within the phaseout range that applies. 2012 amended tax return Betty decides to treat her $5,500 IRA contributions as deductible. 2012 amended tax return The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580. 2012 amended tax return Example 2. 2012 amended tax return For 2013, Ed and Sue file a joint return on Form 1040. 2012 amended tax return They are both 39 years old. 2012 amended tax return Ed is covered by his employer's retirement plan. 2012 amended tax return Ed's salary is $45,000. 2012 amended tax return Sue had no compensation for the year and did not contribute to an IRA. 2012 amended tax return Sue is not covered by an employer plan. 2012 amended tax return Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). 2012 amended tax return Their combined modified AGI, which includes $2,000 interest and dividend income and a large capital gain from the sale of stock, is $180,555. 2012 amended tax return Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. 2012 amended tax return He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014. 2012 amended tax return Sue figures her IRA deduction as shown on Worksheet 1-2. 2012 amended tax return Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated. 2012 amended tax return Worksheet 1-2. 2012 amended tax return Figuring Your Reduced IRA Deduction for 2013 (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. 2012 amended tax return ) Note. 2012 amended tax return If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. 2012 amended tax return IF you . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your  filing status is . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your modified AGI is over . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return THEN enter on  line 1 below . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. 2012 amended tax return Enter applicable amount from table above 1. 2012 amended tax return   2. 2012 amended tax return Enter your modified AGI (that of both spouses, if married filing jointly) 2. 2012 amended tax return     Note. 2012 amended tax return If line 2 is equal to or more than the amount on line 1, stop here. 2012 amended tax return  Your IRA contributions are not deductible. 2012 amended tax return See Nondeductible Contributions , earlier. 2012 amended tax return     3. 2012 amended tax return Subtract line 2 from line 1. 2012 amended tax return If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. 2012 amended tax return You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. 2012 amended tax return   4. 2012 amended tax return Multiply line 3 by the percentage below that applies to you. 2012 amended tax return If the result is not a multiple of $10, round it to the next highest multiple of $10. 2012 amended tax return (For example, $611. 2012 amended tax return 40 is rounded to $620. 2012 amended tax return ) However, if the result is less than $200, enter $200. 2012 amended tax return         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. 2012 amended tax return 5% (. 2012 amended tax return 275) (by 32. 2012 amended tax return 5% (. 2012 amended tax return 325) if you are age 50 or older). 2012 amended tax return All others, multiply line 3 by 55% (. 2012 amended tax return 55) (by 65% (. 2012 amended tax return 65) if you are age 50 or older). 2012 amended tax return 4. 2012 amended tax return   5. 2012 amended tax return Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). 2012 amended tax return If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. 2012 amended tax return If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. 2012 amended tax return   6. 2012 amended tax return Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). 2012 amended tax return If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. 2012 amended tax return 6. 2012 amended tax return   7. 2012 amended tax return IRA deduction. 2012 amended tax return Compare lines 4, 5, and 6. 2012 amended tax return Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. 2012 amended tax return If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. 2012 amended tax return   8. 2012 amended tax return Nondeductible contribution. 2012 amended tax return Subtract line 7 from line 5 or 6, whichever is smaller. 2012 amended tax return  Enter the result here and on line 1 of your Form 8606 8. 2012 amended tax return   Worksheet 1-2. 2012 amended tax return Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. 2012 amended tax return ) Note. 2012 amended tax return If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. 2012 amended tax return IF you . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your  filing status is . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your modified AGI is over . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return THEN enter on  line 1 below . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. 2012 amended tax return Enter applicable amount from table above 1. 2012 amended tax return 115,000 2. 2012 amended tax return Enter your modified AGI (that of both spouses, if married filing jointly) 2. 2012 amended tax return 96,555   Note. 2012 amended tax return If line 2 is equal to or more than the amount on line 1, stop here. 2012 amended tax return  Your IRA contributions are not deductible. 2012 amended tax return See Nondeductible Contributions , earlier. 2012 amended tax return     3. 2012 amended tax return Subtract line 2 from line 1. 2012 amended tax return If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. 2012 amended tax return You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. 2012 amended tax return 18,445 4. 2012 amended tax return Multiply line 3 by the percentage below that applies to you. 2012 amended tax return If the result is not a multiple of $10, round it to the next highest multiple of $10. 2012 amended tax return (For example, $611. 2012 amended tax return 40 is rounded to $620. 2012 amended tax return ) However, if the result is less than $200, enter $200. 2012 amended tax return         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. 2012 amended tax return 5% (. 2012 amended tax return 275) (by 32. 2012 amended tax return 5% (. 2012 amended tax return 325) if you are age 50 or older). 2012 amended tax return All others, multiply line 3 by 55% (. 2012 amended tax return 55) (by 65% (. 2012 amended tax return 65) if you are age 50 or older). 2012 amended tax return 4. 2012 amended tax return 5,080 5. 2012 amended tax return Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). 2012 amended tax return If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. 2012 amended tax return If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. 2012 amended tax return 59,000 6. 2012 amended tax return Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). 2012 amended tax return If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. 2012 amended tax return 6. 2012 amended tax return 5,500 7. 2012 amended tax return IRA deduction. 2012 amended tax return Compare lines 4, 5, and 6. 2012 amended tax return Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. 2012 amended tax return If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. 2012 amended tax return 5,080 8. 2012 amended tax return Nondeductible contribution. 2012 amended tax return Subtract line 7 from line 5 or 6, whichever is smaller. 2012 amended tax return  Enter the result here and on line 1 of your Form 8606 8. 2012 amended tax return 420 Worksheet 1-2. 2012 amended tax return Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. 2012 amended tax return ) Note. 2012 amended tax return If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. 2012 amended tax return IF you . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your  filing status is . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return AND your modified AGI is over . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return THEN enter on  line 1 below . 2012 amended tax return . 2012 amended tax return . 2012 amended tax return       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. 2012 amended tax return Enter applicable amount from table above 1. 2012 amended tax return 188,000 2. 2012 amended tax return Enter your modified AGI (that of both spouses, if married filing jointly) 2. 2012 amended tax return 180,555   Note. 2012 amended tax return If line 2 is equal to or more than the amount on line 1, stop here. 2012 amended tax return  Your IRA contributions are not deductible. 2012 amended tax return See Nondeductible Contributions , earlier. 2012 amended tax return     3. 2012 amended tax return Subtract line 2 from line 1. 2012 amended tax return If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. 2012 amended tax return You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. 2012 amended tax return 7,445 4. 2012 amended tax return Multiply line 3 by the percentage below that applies to you. 2012 amended tax return If the result is not a multiple of $10, round it to the next highest multiple of $10. 2012 amended tax return (For example, $611. 2012 amended tax return 40 is rounded to $620. 2012 amended tax return ) However, if the result is less than $200, enter $200. 2012 amended tax return         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. 2012 amended tax return 5% (. 2012 amended tax return 275) (by 32. 2012 amended tax return 5% (. 2012 amended tax return 325) if you are age 50 or older). 2012 amended tax return All others, multiply line 3 by 55% (. 2012 amended tax return 55) (by 65% (. 2012 amended tax return 65) if you are age 50 or older). 2012 amended tax return 4. 2012 amended tax return 4,100 5. 2012 amended tax return Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). 2012 amended tax return If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. 2012 amended tax return If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. 2012 amended tax return 39,500 6. 2012 amended tax return Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). 2012 amended tax return If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. 2012 amended tax return 6. 2012 amended tax return 5,500 7. 2012 amended tax return IRA deduction. 2012 amended tax return Compare lines 4, 5, and 6. 2012 amended tax return Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. 2012 amended tax return If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. 2012 amended tax return 4,100 8. 2012 amended tax return Nondeductible contribution. 2012 amended tax return Subtract line 7 from line 5 or 6, whichever is smaller. 2012 amended tax return  Enter the result here and on line 1 of your Form 8606 8. 2012 amended tax return 1,400 What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. 2012 amended tax return A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. 2012 amended tax return Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. 2012 amended tax return Inherited from spouse. 2012 amended tax return   If you inherit a traditional IRA from your spouse, you generally have the following three choices. 2012 amended tax return You can: Treat it as your own IRA by designating yourself as the account owner. 2012 amended tax return Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (s