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2012 State Tax Form

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2012 State Tax Form

2012 state tax form 2. 2012 state tax form   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. 2012 state tax form Surviving spouse. 2012 state tax form Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. 2012 state tax form Payments from a state fund for victims of crime. 2012 state tax form Home Affordable Modification Program (HAMP). 2012 state tax form Mortgage assistance payments. 2012 state tax form Payments to reduce cost of winter energy use. 2012 state tax form Nutrition Program for the Elderly. 2012 state tax form Reemployment Trade Adjustment Assistance (RTAA). 2012 state tax form Generally, income is taxable unless it is specifically exempt (not taxed) by law. 2012 state tax form Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. 2012 state tax form Under special provisions of the law, certain items are partially or fully exempt from tax. 2012 state tax form Provisions that are of special interest to older taxpayers are discussed in this chapter. 2012 state tax form Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. 2012 state tax form In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. 2012 state tax form You need not receive the compensation in cash for it to be taxable. 2012 state tax form Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. 2012 state tax form Volunteer work. 2012 state tax form   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. 2012 state tax form Retired Senior Volunteer Program (RSVP). 2012 state tax form Foster Grandparent Program. 2012 state tax form Senior Companion Program. 2012 state tax form Service Corps of Retired Executives (SCORE). 2012 state tax form Unemployment compensation. 2012 state tax form   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. 2012 state tax form More information. 2012 state tax form   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. 2012 state tax form Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. 2012 state tax form A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. 2012 state tax form A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. 2012 state tax form A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. 2012 state tax form More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. 2012 state tax form Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. 2012 state tax form Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. 2012 state tax form These are discussed in Publication 590. 2012 state tax form If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. 2012 state tax form If you do not file Form 8606 with your return, you may have to pay a $50 penalty. 2012 state tax form Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. 2012 state tax form Early distributions. 2012 state tax form   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. 2012 state tax form You must include early distributions of taxable amounts in your gross income. 2012 state tax form These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. 2012 state tax form For purposes of the additional 10% tax, an IRA is a qualified retirement plan. 2012 state tax form For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. 2012 state tax form After age 59½ and before age 70½. 2012 state tax form   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. 2012 state tax form Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. 2012 state tax form Required distributions. 2012 state tax form   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. 2012 state tax form See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. 2012 state tax form If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. 2012 state tax form For purposes of the 50% excise tax, an IRA is a qualified retirement plan. 2012 state tax form For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. 2012 state tax form See also Excess Accumulations (Insufficient Distributions) in Publication 590. 2012 state tax form Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. 2012 state tax form However, see Insurance Premiums for Retired Public Safety Officers , later. 2012 state tax form If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). 2012 state tax form This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. 2012 state tax form The rest of each payment is taxable. 2012 state tax form However, see Insurance Premiums for Retired Public Safety Officers , later. 2012 state tax form You figure the tax-free part of the payment using one of the following methods. 2012 state tax form Simplified Method. 2012 state tax form You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). 2012 state tax form You cannot use this method if your annuity is paid under a nonqualified plan. 2012 state tax form General Rule. 2012 state tax form You must use this method if your annuity is paid under a nonqualified plan. 2012 state tax form You generally cannot use this method if your annuity is paid under a qualified plan. 2012 state tax form Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. 2012 state tax form You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. 2012 state tax form Exclusion limit. 2012 state tax form   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. 2012 state tax form Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. 2012 state tax form This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. 2012 state tax form   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. 2012 state tax form If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. 2012 state tax form The total exclusion may be more than your cost. 2012 state tax form Cost. 2012 state tax form   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). 2012 state tax form Your total cost in the plan includes everything that you paid. 2012 state tax form It also includes amounts your employer contributed that were taxable to you when paid. 2012 state tax form However, see Foreign employment contributions , later. 2012 state tax form   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. 2012 state tax form   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. 2012 state tax form    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2012 state tax form , that you receive. 2012 state tax form Foreign employment contributions. 2012 state tax form   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. 2012 state tax form For details, see Foreign employment contributions in Publication 575. 2012 state tax form Withholding. 2012 state tax form   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. 2012 state tax form However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. 2012 state tax form (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. 2012 state tax form ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. 2012 state tax form   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. 2012 state tax form Simplified Method. 2012 state tax form   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. 2012 state tax form For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. 2012 state tax form For any other annuity, this number is the number of monthly annuity payments under the contract. 2012 state tax form Who must use the Simplified Method. 2012 state tax form   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). 2012 state tax form   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. 2012 state tax form If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. 2012 state tax form Guaranteed payments. 2012 state tax form   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. 2012 state tax form If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. 2012 state tax form Who cannot use the Simplified Method. 2012 state tax form   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). 2012 state tax form   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. 2012 state tax form If you did not have to use the General Rule, you could have chosen to use it. 2012 state tax form You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. 2012 state tax form   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. 2012 state tax form   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. 2012 state tax form Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. 2012 state tax form   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. 2012 state tax form How to use the Simplified Method. 2012 state tax form   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. 2012 state tax form Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. 2012 state tax form   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. 2012 state tax form How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. 2012 state tax form For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. 2012 state tax form    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. 2012 state tax form Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. 2012 state tax form Single-life annuity. 2012 state tax form   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. 2012 state tax form Enter on line 3 the number shown for your age on your annuity starting date. 2012 state tax form This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. 2012 state tax form Multiple-lives annuity. 2012 state tax form   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. 2012 state tax form Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. 2012 state tax form For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. 2012 state tax form For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. 2012 state tax form Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. 2012 state tax form   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. 2012 state tax form Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. 2012 state tax form This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. 2012 state tax form Fixed-period annuities. 2012 state tax form   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. 2012 state tax form Line 6. 2012 state tax form   The amount on line 6 should include all amounts that could have been recovered in prior years. 2012 state tax form If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. 2012 state tax form    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. 2012 state tax form Example. 2012 state tax form Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. 2012 state tax form Bill's annuity starting date is January 1, 2013. 2012 state tax form The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. 2012 state tax form Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. 2012 state tax form Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. 2012 state tax form Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. 2012 state tax form See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. 2012 state tax form You can find a blank version of this worksheet in Publication 575. 2012 state tax form (The references in the illustrated worksheet are to sections in Publication 575). 2012 state tax form His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. 2012 state tax form Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). 2012 state tax form Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. 2012 state tax form The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. 2012 state tax form If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. 2012 state tax form This deduction is not subject to the 2%-of-adjusted-gross-income limit. 2012 state tax form Worksheet 2-A. 2012 state tax form Simplified Method Worksheet—Illustrated 1. 2012 state tax form Enter the total pension or annuity payments received this year. 2012 state tax form Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. 2012 state tax form $ 14,400 2. 2012 state tax form Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. 2012 state tax form 31,000   Note. 2012 state tax form If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). 2012 state tax form Otherwise, go to line 3. 2012 state tax form     3. 2012 state tax form Enter the appropriate number from Table 1 below. 2012 state tax form But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. 2012 state tax form 310 4. 2012 state tax form Divide line 2 by the number on line 3 4. 2012 state tax form 100 5. 2012 state tax form Multiply line 4 by the number of months for which this year's payments were made. 2012 state tax form If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. 2012 state tax form Otherwise, go to line 6 5. 2012 state tax form 1,200 6. 2012 state tax form Enter any amount previously recovered tax free in years after 1986. 2012 state tax form This is the amount shown on line 10 of your worksheet for last year 6. 2012 state tax form 0 7. 2012 state tax form Subtract line 6 from line 2 7. 2012 state tax form 31,000 8. 2012 state tax form Enter the smaller of line 5 or line 7 8. 2012 state tax form 1,200 9. 2012 state tax form Taxable amount for year. 2012 state tax form Subtract line 8 from line 1. 2012 state tax form Enter the result, but not less than zero. 2012 state tax form Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. 2012 state tax form Note. 2012 state tax form If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. 2012 state tax form If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. 2012 state tax form 9. 2012 state tax form $ 13,200 10. 2012 state tax form Was your annuity starting date before 1987? □ Yes. 2012 state tax form STOP. 2012 state tax form Do not complete the rest of this worksheet. 2012 state tax form  ☑ No. 2012 state tax form Add lines 6 and 8. 2012 state tax form This is the amount you have recovered tax free through 2013. 2012 state tax form You will need this number if you need to fill out this worksheet next year. 2012 state tax form 10. 2012 state tax form 1,200 11. 2012 state tax form Balance of cost to be recovered. 2012 state tax form Subtract line 10 from line 2. 2012 state tax form If zero, you will not have to complete this worksheet next year. 2012 state tax form The payments you receive next year will generally be fully taxable 11. 2012 state tax form $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. 2012 state tax form   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . 2012 state tax form . 2012 state tax form . 2012 state tax form   BEFORE November 19, 1996, enter on line 3 . 2012 state tax form . 2012 state tax form . 2012 state tax form AFTER November 18, 1996, enter on line 3 . 2012 state tax form . 2012 state tax form . 2012 state tax form   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . 2012 state tax form . 2012 state tax form . 2012 state tax form   THEN enter on line 3 . 2012 state tax form . 2012 state tax form . 2012 state tax form         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. 2012 state tax form   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. 2012 state tax form   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. 2012 state tax form The retiree's cost has already been recovered tax free. 2012 state tax form   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. 2012 state tax form The resulting tax-free amount will then remain fixed. 2012 state tax form Any increases in the survivor annuity are fully taxable. 2012 state tax form   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. 2012 state tax form See Simplified Method , earlier. 2012 state tax form How to report. 2012 state tax form   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. 2012 state tax form If your pension or annuity is fully taxable, enter it on line 16b. 2012 state tax form Do not make an entry on line 16a. 2012 state tax form   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. 2012 state tax form If your pension or annuity is fully taxable, enter it on line 12b. 2012 state tax form Do not make an entry on line 12a. 2012 state tax form   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. 2012 state tax form If your pension or annuity is fully taxable, enter it on line 17b. 2012 state tax form Do not make an entry on line 17a. 2012 state tax form Example. 2012 state tax form You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. 2012 state tax form You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). 2012 state tax form The entire $1,200 is taxable. 2012 state tax form You include $1,200 only on Form 1040, line 16b. 2012 state tax form Joint return. 2012 state tax form   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. 2012 state tax form Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. 2012 state tax form Form 1099-R. 2012 state tax form   You should receive a Form 1099-R for your pension or annuity. 2012 state tax form Form 1099-R shows your pension or annuity for the year and any income tax withheld. 2012 state tax form You should receive a Form W-2 if you receive distributions from certain nonqualified plans. 2012 state tax form You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. 2012 state tax form Generally, you should be sent these forms by January 31, 2014. 2012 state tax form Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. 2012 state tax form Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. 2012 state tax form For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. 2012 state tax form The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. 2012 state tax form See Tax on Early Distributions, later. 2012 state tax form Lump-sum distributions. 2012 state tax form   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. 2012 state tax form The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. 2012 state tax form The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. 2012 state tax form You may be able to use the 10-year tax option to figure tax on the ordinary income part. 2012 state tax form Form 1099-R. 2012 state tax form   If you receive a total distribution from a plan, you should receive a Form 1099-R. 2012 state tax form If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. 2012 state tax form The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. 2012 state tax form More information. 2012 state tax form   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. 2012 state tax form Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. 2012 state tax form The tax applies to the taxable part of the distribution. 2012 state tax form For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). 2012 state tax form  An IRA is also a qualified retirement plan for purposes of this tax. 2012 state tax form General exceptions to tax. 2012 state tax form   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. 2012 state tax form Additional exceptions. 2012 state tax form   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. 2012 state tax form See Publication 575 for details. 2012 state tax form Reporting tax. 2012 state tax form   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. 2012 state tax form 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. 2012 state tax form See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. 2012 state tax form Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. 2012 state tax form Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. 2012 state tax form However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. 2012 state tax form For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). 2012 state tax form  An IRA is also a qualified retirement plan for purposes of this tax. 2012 state tax form An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. 2012 state tax form 5% owners. 2012 state tax form   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. 2012 state tax form See Publication 575 for more information. 2012 state tax form Amount of tax. 2012 state tax form   If you do not receive the required minimum distribution, you are subject to an additional tax. 2012 state tax form The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. 2012 state tax form You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. 2012 state tax form Form 5329. 2012 state tax form   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. 2012 state tax form Additional information. 2012 state tax form   For more detailed information on the tax on excess accumulation, see Publication 575. 2012 state tax form Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. 2012 state tax form The premiums can be for coverage for you, your spouse, or dependent(s). 2012 state tax form The distribution must be made directly from the plan to the insurance provider. 2012 state tax form You can exclude from income the smaller of the amount of the insurance premiums or $3,000. 2012 state tax form You can only make this election for amounts that would otherwise be included in your income. 2012 state tax form The amount excluded from your income cannot be used to claim a medical expense deduction. 2012 state tax form An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. 2012 state tax form If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. 2012 state tax form The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. 2012 state tax form Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. 2012 state tax form Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. 2012 state tax form Enter “PSO” next to the appropriate line on which you report the taxable amount. 2012 state tax form Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. 2012 state tax form These categories are treated differently for income tax purposes. 2012 state tax form Social security equivalent benefits. 2012 state tax form   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. 2012 state tax form This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. 2012 state tax form (See Social Security and Equivalent Railroad Retirement Benefits , later. 2012 state tax form ) Non-social security equivalent benefits. 2012 state tax form   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). 2012 state tax form It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. 2012 state tax form This category of benefits is treated as an amount received from a qualified employee plan. 2012 state tax form This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. 2012 state tax form Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. 2012 state tax form More information. 2012 state tax form   For more information about railroad retirement benefits, see Publication 575. 2012 state tax form Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. 2012 state tax form But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. 2012 state tax form For more information, including information about veterans' benefits and insurance, see Publication 525. 2012 state tax form Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. 2012 state tax form Social security benefits include monthly retirement, survivor, and disability benefits. 2012 state tax form They do not include supplemental security income (SSI) payments, which are not taxable. 2012 state tax form Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. 2012 state tax form They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. 2012 state tax form If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. 2012 state tax form Are Any of Your Benefits Taxable? Note. 2012 state tax form When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. 2012 state tax form  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. 2012 state tax form When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. 2012 state tax form S. 2012 state tax form savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. 2012 state tax form Figuring total income. 2012 state tax form   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. 2012 state tax form If that total amount is more than your base amount, part of your benefits may be taxable. 2012 state tax form If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. 2012 state tax form Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. 2012 state tax form If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. 2012 state tax form If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. 2012 state tax form Worksheet 2-B. 2012 state tax form A Quick Way To Check if Your Benefits May Be Taxable A. 2012 state tax form Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. 2012 state tax form Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. 2012 state tax form (If you received more than one form, combine the amounts from box 5  and enter the total. 2012 state tax form ) A. 2012 state tax form     Note. 2012 state tax form If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. 2012 state tax form     B. 2012 state tax form Enter one-half of the amount on line A B. 2012 state tax form   C. 2012 state tax form Enter your taxable pensions, wages, interest, dividends, and other taxable income C. 2012 state tax form   D. 2012 state tax form Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. 2012 state tax form S. 2012 state tax form savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. 2012 state tax form   E. 2012 state tax form Add lines B, C, and D and enter the total E. 2012 state tax form   F. 2012 state tax form If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. 2012 state tax form   G. 2012 state tax form Is the amount on line F less than or equal to the amount on line E? □ No. 2012 state tax form None of your benefits are taxable this year. 2012 state tax form  □ Yes. 2012 state tax form Some of your benefits may be taxable. 2012 state tax form To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. 2012 state tax form     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. 2012 state tax form Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. 2012 state tax form It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. 2012 state tax form If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. 2012 state tax form Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. 2012 state tax form Your repayments are shown in box 4. 2012 state tax form The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). 2012 state tax form Use the amount in box 5 to figure whether any of your benefits are taxable. 2012 state tax form Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. 2012 state tax form If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. 2012 state tax form If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. 2012 state tax form For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. 2012 state tax form How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. 2012 state tax form Generally, the higher that total amount, the greater the taxable part of your benefits. 2012 state tax form Maximum taxable part. 2012 state tax form   The taxable part of your benefits usually cannot be more than 50%. 2012 state tax form However, up to 85% of your benefits can be taxable if either of the following situations applies to you. 2012 state tax form The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). 2012 state tax form You are married filing separately and lived with your spouse at any time during 2013. 2012 state tax form   If you are a nonresident alien, 85% of your benefits are taxable. 2012 state tax form However, this income is exempt under some tax treaties. 2012 state tax form Which worksheet to use. 2012 state tax form   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. 2012 state tax form However, you will need to use a different worksheet(s) if any of the following situations applies to you. 2012 state tax form You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. 2012 state tax form In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. 2012 state tax form Situation (1) does not apply and you take one or more of the following exclusions. 2012 state tax form Interest from qualified U. 2012 state tax form S. 2012 state tax form savings bonds (Form 8815). 2012 state tax form Employer-provided adoption benefits (Form 8839). 2012 state tax form Foreign earned income or housing (Form 2555 or Form 2555-EZ). 2012 state tax form Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. 2012 state tax form In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. 2012 state tax form You received a lump-sum payment for an earlier year. 2012 state tax form In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. 2012 state tax form See Lump-Sum Election , later. 2012 state tax form How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. 2012 state tax form You cannot use Form 1040EZ. 2012 state tax form Reporting on Form 1040. 2012 state tax form   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. 2012 state tax form If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. 2012 state tax form Reporting on Form 1040A. 2012 state tax form   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. 2012 state tax form If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. 2012 state tax form Reporting on Form 1040NR. 2012 state tax form   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. 2012 state tax form Benefits not taxable. 2012 state tax form   If you are filing Form 1040EZ, do not report any benefits on your tax return. 2012 state tax form If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. 2012 state tax form Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. 2012 state tax form If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. 2012 state tax form Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. 2012 state tax form This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. 2012 state tax form No part of the lump-sum death benefit is subject to tax. 2012 state tax form For more information about the lump-sum death benefit, visit the Social Security Administration website at www. 2012 state tax form SSA. 2012 state tax form gov, and use keyword: death benefit. 2012 state tax form Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. 2012 state tax form However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. 2012 state tax form You can elect this method if it lowers your taxable benefits. 2012 state tax form See Publication 915 for more information. 2012 state tax form Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. 2012 state tax form If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. 2012 state tax form If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. 2012 state tax form If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. 2012 state tax form S. 2012 state tax form Railroad Retirement Board field office. 2012 state tax form Joint return. 2012 state tax form   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. 2012 state tax form You do this to get your net benefits when figuring if your combined benefits are taxable. 2012 state tax form Repayment of benefits received in an earlier year. 2012 state tax form   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. 2012 state tax form   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. 2012 state tax form Claim it on Schedule A (Form 1040), line 23. 2012 state tax form   If this deduction is more than $3,000, you have to follow some special instructions. 2012 state tax form See Publication 915 for those instructions. 2012 state tax form Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. 2012 state tax form If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. 2012 state tax form However, certain payments may not be taxable to you. 2012 state tax form Some of these payments are discussed later in this section. 2012 state tax form Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. 2012 state tax form Cost paid by you. 2012 state tax form   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. 2012 state tax form If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. 2012 state tax form Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. 2012 state tax form You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. 2012 state tax form Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. 2012 state tax form If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. 2012 state tax form See Credit for the Elderly or the Disabled, later. 2012 state tax form For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. 2012 state tax form Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. 2012 state tax form Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. 2012 state tax form For more information on pensions and annuities, see Publication 575. 2012 state tax form Retirement and profit-sharing plans. 2012 state tax form   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. 2012 state tax form The payments must be reported as a pension or annuity. 2012 state tax form Accrued leave payment. 2012 state tax form   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. 2012 state tax form The payment is not a disability payment. 2012 state tax form Include it in your income in the tax year you receive it. 2012 state tax form Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. 2012 state tax form Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. 2012 state tax form However, the amount you can exclude may be limited. 2012 state tax form Long-term care insurance contracts are discussed in more detail in Publication 525. 2012 state tax form Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. 2012 state tax form The exemption also applies to your survivors. 2012 state tax form The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. 2012 state tax form If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 2012 state tax form For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. 2012 state tax form Return to work. 2012 state tax form   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. 2012 state tax form Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. 2012 state tax form Federal Employees' Compensation Act (FECA). 2012 state tax form   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. 2012 state tax form However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. 2012 state tax form Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. 2012 state tax form Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. 2012 state tax form    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 2012 state tax form For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. 2012 state tax form Other compensation. 2012 state tax form   Many other amounts you receive as compensation for sickness or injury are not taxable. 2012 state tax form These include the following amounts. 2012 state tax form Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. 2012 state tax form Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. 2012 state tax form Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). 2012 state tax form This compensation must be based only on the injury and not on the period of your absence from work. 2012 state tax form These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. 2012 state tax form Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. 2012 state tax form This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. 2012 state tax form Proceeds not received in installments. 2012 state tax form   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. 2012 state tax form If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. 2012 state tax form Proceeds received in installments. 2012 state tax form   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. 2012 state tax form   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. 2012 state tax form Include anything over this excluded part in your income as interest. 2012 state tax form Installments for life. 2012 state tax form   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. 2012 state tax form If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. 2012 state tax form Surviving spouse. 2012 state tax form   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. 2012 state tax form If you remarry, you can continue to take the exclusion. 2012 state tax form Surrender of policy for cash. 2012 state tax form   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. 2012 state tax form In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. 2012 state tax form You should receive a Form 1099-R showing the total proceeds and the taxable part. 2012 state tax form Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. 2012 state tax form Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. 2012 state tax form Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. 2012 state tax form To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. 2012 state tax form Include in your income the part of the lump-sum payment that is more than your cost. 2012 state tax form Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. 2012 state tax form The tax treatment of an annuity is explained in Publication 575. 2012 state tax form For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. 2012 state tax form This election must be made within 60 days after the lump-sum payment first becomes payable to you. 2012 state tax form Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. 2012 state tax form However, see Exception , later. 2012 state tax form For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. 2012 state tax form Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. 2012 state tax form In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. 2012 state tax form Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. 2012 state tax form To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. 2012 state tax form Terminally or chronically ill defined. 2012 state tax form   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. 2012 state tax form A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. 2012 state tax form The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. 2012 state tax form The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. 2012 state tax form Exception. 2012 state tax form   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. 2012 state tax form Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. 2012 state tax form Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. 2012 state tax form You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. 2012 state tax form Main home. 2012 state tax form   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. 2012 state tax form Repaying the first-time homebuyer credit because you sold your home. 2012 state tax form   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. 2012 state tax form For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. 2012 state tax form   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. 2012 state tax form If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. 2012 state tax form If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. 2012 state tax form   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. 2012 state tax form Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. 2012 state tax form You meet the ownership test. 2012 state tax form You meet the use test. 2012 state tax form During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. 2012 state tax form You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . 2012 state tax form Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. 2012 state tax form This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). 2012 state tax form Exception to ownership and use tests. 2012 state tax form   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. 2012 state tax form Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. 2012 state tax form The maximum amount you can exclude will be reduced. 2012 state tax form See Publication 523, Selling Your Home, for more information. 2012 state tax form Exception to use test for individuals with a disability. 2012 state tax form   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. 2012 state tax form Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. 2012 state tax form   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. 2012 state tax form Exception to ownership test for property acquired in a like-kind exchange. 2012 state tax form   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. 2012 state tax form This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. 2012 state tax form A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. 2012 state tax form See Publication 523 for more information. 2012 state tax form Period of nonqualified use. 2012 state tax form   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. 2012 state tax form Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. 2012 state tax form See Publication 523 for more information. 2012 state tax form Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. 2012 state tax form However, see Special rules for joint returns , next. 2012 state tax form Special rules for joint returns. 2012 state tax form   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 2012 state tax form You are married and file a joint return for the year. 2012 state tax form Either you or your spouse meets the ownership test. 2012 state tax form Both you and your spouse meet the use test. 2012 state tax form During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. 2012 state tax form Sale of home by surviving spouse. 2012 state tax form   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. 2012 state tax form   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. 2012 state tax form The sale or exchange took place no more than 2 years after the date of death of your spouse. 2012 state tax form You have not remarried. 2012 state tax form You and your spouse met the use test at the time of your spouse's death. 2012 state tax form You or your spouse met the ownership test at the time of your spouse's death. 2012 state tax form Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. 2012 state tax form Home transferred from spouse. 2012 state tax form   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. 2012 state tax form Use of home after divorce. 2012 state tax form   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. 2012 state tax form Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. 2012 state tax form However, you must meet the ownership and use tests. 2012 state tax form See Publication 523 for more information. 2012 state tax form Depreciation after May 6, 1997. 2012 state tax form   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. 2012 state tax form See Publication 523 for more information. 2012 state tax form Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. 2012 state tax form If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. 2012 state tax form Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. 2012 state tax form If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. 2012 state tax form See Publication 523 for more information. 2012 state tax form Reverse Mortgages A revers
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Letter 2272C Frequently Asked Questions (FAQs)

What is the letter telling me?

This letter is a response to your oral or written request to pay your balance due in installments. It explains why the IRS cannot establish the agreement.

What do I have to do?

Provide the IRS the requested information or provide an explanation on why you cannot.

How much time do I have?

The letter provides you a specific amount of time you have to gather the requested information and return it to us. However, responding quickly will resolve your account issue sooner.

What happens if I don't take any action?

The law allows IRS to proceed with enforcement action which could result in a levy on your bank account or wages, or liens on personal property.

Who should I contact?

The letter provides a specific contact telephone number. The person who answers the phone will assist you.

What if I don't agree or have already taken corrective action?

If your Installment Agreement is rejected, the letter will provide you information on how to Appeal the Rejection. If you have provided the information we requested within the last 45 days, you may want to call the number on the letter to verify your case is being re-considered.

Page Last Reviewed or Updated: 30-Jan-2014

The 2012 State Tax Form

2012 state tax form 8. 2012 state tax form   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. 2012 state tax form Cash method. 2012 state tax form Car and Truck ExpensesOffice in the home. 2012 state tax form Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. 2012 state tax form InsuranceHow to figure the deduction. 2012 state tax form Interest Legal and Professional FeesTax preparation fees. 2012 state tax form Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. 2012 state tax form Taxi, commuter bus, and limousine. 2012 state tax form Baggage and shipping. 2012 state tax form Car or truck. 2012 state tax form Meals and lodging. 2012 state tax form Cleaning. 2012 state tax form Telephone. 2012 state tax form Tips. 2012 state tax form More information. 2012 state tax form Business Use of Your HomeExceptions to exclusive use. 2012 state tax form Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. 2012 state tax form These costs are known as business expenses. 2012 state tax form These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. 2012 state tax form To be deductible, a business expense must be both ordinary and necessary. 2012 state tax form An ordinary expense is one that is common and accepted in your field of business. 2012 state tax form A necessary expense is one that is helpful and appropriate for your business. 2012 state tax form An expense does not have to be indispensable to be considered necessary. 2012 state tax form For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. 2012 state tax form If you have an expense that is partly for business and partly personal, separate the personal part from the business part. 2012 state tax form The personal part is not deductible. 2012 state tax form Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. 2012 state tax form Bad Debts If someone owes you money you cannot collect, you have a bad debt. 2012 state tax form There are two kinds of bad debts, business bad debts and nonbusiness bad debts. 2012 state tax form A business bad debt is generally one that comes from operating your trade or business. 2012 state tax form You may be able to deduct business bad debts as an expense on your business tax return. 2012 state tax form Business bad debt. 2012 state tax form   A business bad debt is a loss from the worthlessness of a debt that was either of the following. 2012 state tax form Created or acquired in your business. 2012 state tax form Closely related to your business when it became partly or totally worthless. 2012 state tax form A debt is closely related to your business if your primary motive for incurring the debt is a business reason. 2012 state tax form   Business bad debts are mainly the result of credit sales to customers. 2012 state tax form They can also be the result of loans to suppliers, clients, employees, or distributors. 2012 state tax form Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. 2012 state tax form If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. 2012 state tax form    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. 2012 state tax form Accrual method. 2012 state tax form   If you use an accrual method of accounting, you normally report income as you earn it. 2012 state tax form You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. 2012 state tax form Cash method. 2012 state tax form   If you use the cash method of accounting, you normally report income when you receive payment. 2012 state tax form You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. 2012 state tax form More information. 2012 state tax form   For more information about business bad debts, see chapter 10 in Publication 535. 2012 state tax form Nonbusiness bad debts. 2012 state tax form   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). 2012 state tax form For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. 2012 state tax form Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. 2012 state tax form You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. 2012 state tax form You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. 2012 state tax form See Form 8936 and Form 8910 for more information. 2012 state tax form Local transportation expenses. 2012 state tax form   Local transportation expenses include the ordinary and necessary costs of all the following. 2012 state tax form Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. 2012 state tax form Tax home is defined later. 2012 state tax form Visiting clients or customers. 2012 state tax form Going to a business meeting away from your regular workplace. 2012 state tax form Getting from your home to a temporary workplace when you have one or more regular places of work. 2012 state tax form These temporary workplaces can be either within the area of your tax home or outside that area. 2012 state tax form Local business transportation does not include expenses you have while traveling away from home overnight. 2012 state tax form Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. 2012 state tax form However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. 2012 state tax form   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 2012 state tax form It includes the entire city or general area in which your business or work is located. 2012 state tax form Example. 2012 state tax form You operate a printing business out of rented office space. 2012 state tax form You use your van to deliver completed jobs to your customers. 2012 state tax form You can deduct the cost of round-trip transportation between your customers and your print shop. 2012 state tax form    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. 2012 state tax form These costs are personal commuting expenses. 2012 state tax form Office in the home. 2012 state tax form   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. 2012 state tax form For more information, see Business Use of Your Home, later. 2012 state tax form Example. 2012 state tax form You are a graphics designer. 2012 state tax form You operate your business out of your home. 2012 state tax form Your home qualifies as your principal place of business. 2012 state tax form You occasionally have to drive to your clients to deliver your completed work. 2012 state tax form You can deduct the cost of the round-trip transportation between your home and your clients. 2012 state tax form Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. 2012 state tax form Standard mileage rate. 2012 state tax form Actual expenses. 2012 state tax form Standard mileage rate. 2012 state tax form   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. 2012 state tax form For 2013, the standard mileage rate is 56. 2012 state tax form 5 cents per mile. 2012 state tax form    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. 2012 state tax form Choosing the standard mileage rate. 2012 state tax form   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. 2012 state tax form In later years, you can choose to use either the standard mileage rate or actual expenses. 2012 state tax form   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). 2012 state tax form Standard mileage rate not allowed. 2012 state tax form   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. 2012 state tax form Parking fees and tolls. 2012 state tax form   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 2012 state tax form (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 2012 state tax form ) Actual expenses. 2012 state tax form   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. 2012 state tax form    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. 2012 state tax form   Actual car expenses include the costs of the following items. 2012 state tax form Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. 2012 state tax form You can divide your expenses based on the miles driven for each purpose. 2012 state tax form Example. 2012 state tax form You are the sole proprietor of a flower shop. 2012 state tax form You drove your van 20,000 miles during the year. 2012 state tax form 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). 2012 state tax form You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. 2012 state tax form More information. 2012 state tax form   For more information about the rules for claiming car and truck expenses, see Publication 463. 2012 state tax form Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. 2012 state tax form The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 2012 state tax form For details, see chapter 11 in Publication 535. 2012 state tax form That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 2012 state tax form Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. 2012 state tax form You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. 2012 state tax form This method of deducting the cost of business property is called depreciation. 2012 state tax form The discussion here is brief. 2012 state tax form You will find more information about depreciation in Publication 946. 2012 state tax form What property can be depreciated?   You can depreciate property if it meets all the following requirements. 2012 state tax form It must be property you own. 2012 state tax form It must be used in business or held to produce income. 2012 state tax form You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. 2012 state tax form It must have a useful life that extends substantially beyond the year it is placed in service. 2012 state tax form It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2012 state tax form You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. 2012 state tax form It must not be excepted property. 2012 state tax form This includes property placed in service and disposed of in the same year. 2012 state tax form Repairs. 2012 state tax form    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. 2012 state tax form You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. 2012 state tax form Depreciation method. 2012 state tax form   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). 2012 state tax form MACRS is discussed in detail in Publication 946. 2012 state tax form Section 179 deduction. 2012 state tax form   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. 2012 state tax form This deduction is known as the “section 179 deduction. 2012 state tax form ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). 2012 state tax form See IRC 179(e). 2012 state tax form   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. 2012 state tax form The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). 2012 state tax form Special rules apply to trucks and vans. 2012 state tax form For more information, see Publication 946. 2012 state tax form It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. 2012 state tax form    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. 2012 state tax form For more information, see the Instructions for Form 4562 or Publication 946. 2012 state tax form Listed property. 2012 state tax form   You must follow special rules and recordkeeping requirements when depreciating listed property. 2012 state tax form Listed property is any of the following. 2012 state tax form Most passenger automobiles. 2012 state tax form Most other property used for transportation. 2012 state tax form Any property of a type generally used for entertainment, recreation, or amusement. 2012 state tax form Certain computers and related peripheral equipment. 2012 state tax form   For more information about listed property, see Publication 946. 2012 state tax form Form 4562. 2012 state tax form   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. 2012 state tax form Depreciation on property placed in service during the current tax year. 2012 state tax form A section 179 deduction. 2012 state tax form Depreciation on any listed property (regardless of when it was placed in service). 2012 state tax form    If you have to use Form 4562, you must file Schedule C. 2012 state tax form You cannot use Schedule C-EZ. 2012 state tax form   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. 2012 state tax form The pay may be in cash, property, or services. 2012 state tax form To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. 2012 state tax form In addition, the pay must meet both the following tests. 2012 state tax form The pay must be reasonable. 2012 state tax form The pay must be for services performed. 2012 state tax form Chapter 2 in Publication 535 explains and defines these requirements. 2012 state tax form You cannot deduct your own salary or any personal withdrawals you make from your business. 2012 state tax form As a sole proprietor, you are not an employee of the business. 2012 state tax form If you had employees during the year, you must use Schedule C. 2012 state tax form You cannot use Schedule C-EZ. 2012 state tax form Kinds of pay. 2012 state tax form   Some of the ways you may provide pay to your employees are listed below. 2012 state tax form For an explanation of each of these items, see chapter 2 in Publication 535. 2012 state tax form Awards. 2012 state tax form Bonuses. 2012 state tax form Education expenses. 2012 state tax form Fringe benefits (discussed later). 2012 state tax form Loans or advances you do not expect the employee to repay if they are for personal services actually performed. 2012 state tax form Property you transfer to an employee as payment for services. 2012 state tax form Reimbursements for employee business expenses. 2012 state tax form Sick pay. 2012 state tax form Vacation pay. 2012 state tax form Fringe benefits. 2012 state tax form   A fringe benefit is a form of pay for the performance of services. 2012 state tax form The following are examples of fringe benefits. 2012 state tax form Benefits under qualified employee benefit programs. 2012 state tax form Meals and lodging. 2012 state tax form The use of a car. 2012 state tax form Flights on airplanes. 2012 state tax form Discounts on property or services. 2012 state tax form Memberships in country clubs or other social clubs. 2012 state tax form Tickets to entertainment or sporting events. 2012 state tax form   Employee benefit programs include the following. 2012 state tax form Accident and health plans. 2012 state tax form Adoption assistance. 2012 state tax form Cafeteria plans. 2012 state tax form Dependent care assistance. 2012 state tax form Educational assistance. 2012 state tax form Group-term life insurance coverage. 2012 state tax form Welfare benefit funds. 2012 state tax form   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. 2012 state tax form For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. 2012 state tax form If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. 2012 state tax form    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. 2012 state tax form For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 2012 state tax form Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. 2012 state tax form Fire, theft, flood, or similar insurance. 2012 state tax form Credit insurance that covers losses from business bad debts. 2012 state tax form Group hospitalization and medical insurance for employees, including long-term care insurance. 2012 state tax form Liability insurance. 2012 state tax form Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. 2012 state tax form Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. 2012 state tax form Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. 2012 state tax form Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. 2012 state tax form Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. 2012 state tax form If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. 2012 state tax form If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. 2012 state tax form Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. 2012 state tax form Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. 2012 state tax form Nondeductible premiums. 2012 state tax form   You cannot deduct premiums on the following kinds of insurance. 2012 state tax form Self-insurance reserve funds. 2012 state tax form You cannot deduct amounts credited to a reserve set up for self-insurance. 2012 state tax form This applies even if you cannot get business insurance coverage for certain business risks. 2012 state tax form However, your actual losses may be deductible. 2012 state tax form For more information, see Publication 547, Casualties, Disasters, and Thefts. 2012 state tax form Loss of earnings. 2012 state tax form You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. 2012 state tax form However, see item (8) in the previous list. 2012 state tax form Certain life insurance and annuities. 2012 state tax form For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. 2012 state tax form You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. 2012 state tax form A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. 2012 state tax form For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. 2012 state tax form The disallowance applies without regard to whom the policy covers. 2012 state tax form Insurance to secure a loan. 2012 state tax form If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. 2012 state tax form Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. 2012 state tax form In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 2012 state tax form Self-employed health insurance deduction. 2012 state tax form   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. 2012 state tax form How to figure the deduction. 2012 state tax form   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. 2012 state tax form However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. 2012 state tax form You have more than one source of income subject to self-employment tax. 2012 state tax form You file Form 2555 or Form 2555-EZ (relating to foreign earned income). 2012 state tax form You are using amounts paid for qualified long-term care insurance to figure the deduction. 2012 state tax form Prepayment. 2012 state tax form   You cannot deduct expenses in advance, even if you pay them in advance. 2012 state tax form 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 state tax form Example. 2012 state tax form In 2013, you signed a 3-year insurance contract. 2012 state tax form Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. 2012 state tax form You can deduct in 2014 and 2015 the premium allocable to those years. 2012 state tax form More information. 2012 state tax form   For more information about deducting insurance, see chapter 6 in Publication 535. 2012 state tax form Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. 2012 state tax form Interest relates to your business if you use the proceeds of the loan for a business expense. 2012 state tax form It does not matter what type of property secures the loan. 2012 state tax form You can deduct interest on a debt only if you meet all of the following requirements. 2012 state tax form You are legally liable for that debt. 2012 state tax form Both you and the lender intend that the debt be repaid. 2012 state tax form You and the lender have a true debtor-creditor relationship. 2012 state tax form You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. 2012 state tax form If a loan is part business and part personal, you must divide the interest between the personal part and the business part. 2012 state tax form Example. 2012 state tax form In 2013, you paid $600 interest on a car loan. 2012 state tax form During 2013, you used the car 60% for business and 40% for personal purposes. 2012 state tax form You are claiming actual expenses on the car. 2012 state tax form You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. 2012 state tax form The remaining interest of $240 is a nondeductible personal expense. 2012 state tax form More information. 2012 state tax form   For more information about deducting interest, see chapter 4 in Publication 535. 2012 state tax form That chapter explains the following items. 2012 state tax form Interest you can deduct. 2012 state tax form Interest you cannot deduct. 2012 state tax form How to allocate interest between personal and business use. 2012 state tax form When to deduct interest. 2012 state tax form The rules for a below-market interest rate loan. 2012 state tax form (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 2012 state tax form ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. 2012 state tax form However, you usually cannot deduct legal fees you pay to acquire business assets. 2012 state tax form Add them to the basis of the property. 2012 state tax form If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. 2012 state tax form The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. 2012 state tax form For more information, see Publication 529, Miscellaneous Deductions. 2012 state tax form Tax preparation fees. 2012 state tax form   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. 2012 state tax form You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 2012 state tax form   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. 2012 state tax form Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. 2012 state tax form SEP (Simplified Employee Pension) plans. 2012 state tax form SIMPLE (Savings Incentive Match Plan for Employees) plans. 2012 state tax form Qualified plans (including Keogh or H. 2012 state tax form R. 2012 state tax form 10 plans). 2012 state tax form SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. 2012 state tax form You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. 2012 state tax form If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. 2012 state tax form You can also deduct trustees' fees if contributions to the plan do not cover them. 2012 state tax form Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. 2012 state tax form You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. 2012 state tax form Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. 2012 state tax form These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. 2012 state tax form For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 2012 state tax form Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. 2012 state tax form Rent Expense Rent is any amount you pay for the use of property you do not own. 2012 state tax form In general, you can deduct rent as a business expense only if the rent is for property you use in your business. 2012 state tax form If you have or will receive equity in or title to the property, you cannot deduct the rent. 2012 state tax form Unreasonable rent. 2012 state tax form   You cannot take a rental deduction for unreasonable rents. 2012 state tax form Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 2012 state tax form Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. 2012 state tax form Rent is not unreasonable just because it is figured as a percentage of gross receipts. 2012 state tax form   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. 2012 state tax form For a list of the other related persons, see section 267 of the Internal Revenue Code. 2012 state tax form Rent on your home. 2012 state tax form   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. 2012 state tax form You must meet the requirements for business use of your home. 2012 state tax form For more information, see Business Use of Your Home , later. 2012 state tax form Rent paid in advance. 2012 state tax form   Generally, rent paid in your business is deductible in the year paid or accrued. 2012 state tax form If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. 2012 state tax form You can deduct the rest of your payment only over the period to which it applies. 2012 state tax form More information. 2012 state tax form   For more information about rent, see chapter 3 in Publication 535. 2012 state tax form Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. 2012 state tax form Income taxes. 2012 state tax form   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. 2012 state tax form You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. 2012 state tax form Do not deduct federal income tax. 2012 state tax form Employment taxes. 2012 state tax form   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. 2012 state tax form Employment taxes are discussed briefly in chapter 1. 2012 state tax form You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. 2012 state tax form Deduct these payments as taxes. 2012 state tax form Self-employment tax. 2012 state tax form   You can deduct one-half of your self-employment tax on line 27 of Form 1040. 2012 state tax form Self-employment tax is discussed in chapters 1 and 10. 2012 state tax form Personal property tax. 2012 state tax form   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. 2012 state tax form   You can also deduct registration fees for the right to use property within a state or local area. 2012 state tax form Example. 2012 state tax form May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. 2012 state tax form They had to pay $25 for their annual state license tags and $20 for their city registration sticker. 2012 state tax form They also paid $235 in city personal property tax on the car, for a total of $280. 2012 state tax form They are claiming their actual car expenses. 2012 state tax form Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. 2012 state tax form Real estate taxes. 2012 state tax form   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. 2012 state tax form Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. 2012 state tax form The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. 2012 state tax form   For more information about real estate taxes, see chapter 5 in Publication 535. 2012 state tax form That chapter explains special rules for deducting the following items. 2012 state tax form Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. 2012 state tax form Real estate taxes when you buy or sell property during the year. 2012 state tax form Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. 2012 state tax form Sales tax. 2012 state tax form   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. 2012 state tax form If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. 2012 state tax form If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. 2012 state tax form If the property is depreciable, add the sales tax to the basis for depreciation. 2012 state tax form For information on the basis of property, see Publication 551, Basis of Assets. 2012 state tax form    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. 2012 state tax form Do not include these taxes in gross receipts or sales. 2012 state tax form Excise taxes. 2012 state tax form   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. 2012 state tax form Excise taxes are discussed briefly in chapter 1. 2012 state tax form Fuel taxes. 2012 state tax form   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. 2012 state tax form Do not deduct these taxes as a separate item. 2012 state tax form   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. 2012 state tax form For more information, see Publication 510, Excise Taxes. 2012 state tax form Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. 2012 state tax form Table 8-1. 2012 state tax form When Are Entertainment Expenses Deductible? (Note. 2012 state tax form The following is a summary of the rules for deducting entertainment expenses. 2012 state tax form For more details about these rules, see Publication 463. 2012 state tax form ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. 2012 state tax form Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. 2012 state tax form An ordinary expense is one that is common and accepted in your field of business, trade, or profession. 2012 state tax form A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. 2012 state tax form Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. 2012 state tax form   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. 2012 state tax form Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. 2012 state tax form You cannot deduct expenses that are lavish or extravagant under the circumstances. 2012 state tax form You generally can deduct only 50% of your unreimbursed entertainment expenses. 2012 state tax form Travel expenses. 2012 state tax form   These are the ordinary and necessary expenses of traveling away from home for your business. 2012 state tax form You are traveling away from home if both the following conditions are met. 2012 state tax form Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. 2012 state tax form You need to get sleep or rest to meet the demands of your work while away from home. 2012 state tax form Generally, your tax home is your regular place of business, regardless of where you maintain your family home. 2012 state tax form It includes the entire city or general area in which your business is located. 2012 state tax form See Publication 463 for more information. 2012 state tax form   The following is a brief discussion of the expenses you can deduct. 2012 state tax form Transportation. 2012 state tax form   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. 2012 state tax form Taxi, commuter bus, and limousine. 2012 state tax form   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. 2012 state tax form Baggage and shipping. 2012 state tax form   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. 2012 state tax form Car or truck. 2012 state tax form   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. 2012 state tax form You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. 2012 state tax form If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 2012 state tax form Meals and lodging. 2012 state tax form   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. 2012 state tax form In most cases, you can deduct only 50% of your meal expenses. 2012 state tax form Cleaning. 2012 state tax form   You can deduct the costs of dry cleaning and laundry while on your business trip. 2012 state tax form Telephone. 2012 state tax form   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. 2012 state tax form Tips. 2012 state tax form   You can deduct the tips you pay for any expense in this list. 2012 state tax form More information. 2012 state tax form   For more information about travel expenses, see Publication 463. 2012 state tax form Entertainment expenses. 2012 state tax form   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. 2012 state tax form In most cases, you can deduct only 50% of these expenses. 2012 state tax form   The following are examples of entertainment expenses. 2012 state tax form Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. 2012 state tax form Providing meals, a hotel suite, or a car to business customers or their families. 2012 state tax form To be deductible, the expenses must meet the rules listed in Table 8-1. 2012 state tax form For details about these rules, see Publication 463. 2012 state tax form Reimbursing your employees for expenses. 2012 state tax form   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. 2012 state tax form The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. 2012 state tax form For details, see chapter 11 in Publication 535. 2012 state tax form That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. 2012 state tax form Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. 2012 state tax form Even then, your deduction may be limited. 2012 state tax form To qualify to claim expenses for business use of your home, you must meet the following tests. 2012 state tax form Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. 2012 state tax form Exclusive use. 2012 state tax form   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. 2012 state tax form The area used for business can be a room or other separately identifiable space. 2012 state tax form The space does not need to be marked off by a permanent partition. 2012 state tax form   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. 2012 state tax form Example. 2012 state tax form You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. 2012 state tax form Your family also uses the den for recreation. 2012 state tax form The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. 2012 state tax form Exceptions to exclusive use. 2012 state tax form   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. 2012 state tax form For the storage of inventory or product samples. 2012 state tax form As a daycare facility. 2012 state tax form For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). 2012 state tax form Regular use. 2012 state tax form   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. 2012 state tax form You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. 2012 state tax form Principal place of business. 2012 state tax form   You can have more than one business location, including your home, for a single trade or business. 2012 state tax form To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. 2012 state tax form To determine your principal place of business, you must consider all the facts and circumstances. 2012 state tax form   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. 2012 state tax form You use it exclusively and regularly for administrative or management activities of your business. 2012 state tax form You have no other fixed location where you conduct substantial administrative or management activities of your business. 2012 state tax form   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. 2012 state tax form The relative importance of the activities performed at each location. 2012 state tax form If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. 2012 state tax form   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. 2012 state tax form However, for other ways to qualify to deduct home office expenses, see Publication 587. 2012 state tax form Deduction limit. 2012 state tax form   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. 2012 state tax form If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. 2012 state tax form   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. 2012 state tax form The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). 2012 state tax form The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. 2012 state tax form Do not include in (2) above your deduction for one-half of your self-employment tax. 2012 state tax form   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. 2012 state tax form New simplified method. 2012 state tax form    The IRS now provides a simplified method to determine your expenses for business use of your home. 2012 state tax form The simplified method is an alternative to calculating and substantiating actual expenses. 2012 state tax form In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. 2012 state tax form The area you use to figure your deduction is limited to 300 square feet. 2012 state tax form For more information, see the Instructions for Schedule C. 2012 state tax form More information. 2012 state tax form   For more information on deducting expenses for the business use of your home, see Publication 587. 2012 state tax form Other Expenses You Can Deduct You may also be able to deduct the following expenses. 2012 state tax form See Publication 535 to find out whether you can deduct them. 2012 state tax form Advertising. 2012 state tax form Bank fees. 2012 state tax form Donations to business organizations. 2012 state tax form Education expenses. 2012 state tax form Energy efficient commercial buildings deduction expenses. 2012 state tax form Impairment-related expenses. 2012 state tax form Interview expense allowances. 2012 state tax form Licenses and regulatory fees. 2012 state tax form Moving machinery. 2012 state tax form Outplacement services. 2012 state tax form Penalties and fines you pay for late performance or nonperformance of a contract. 2012 state tax form Repairs that keep your property in a normal efficient operating condition. 2012 state tax form Repayments of income. 2012 state tax form Subscriptions to trade or professional publications. 2012 state tax form Supplies and materials. 2012 state tax form Utilities. 2012 state tax form Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. 2012 state tax form For more information, see Publication 535. 2012 state tax form Bribes and kickbacks. 2012 state tax form Charitable contributions. 2012 state tax form Demolition expenses or losses. 2012 state tax form Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. 2012 state tax form Lobbying expenses. 2012 state tax form Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. 2012 state tax form Personal, living, and family expenses. 2012 state tax form Political contributions. 2012 state tax form Repairs that add to the value of your property or significantly increase its life. 2012 state tax form Prev  Up  Next   Home   More Online Publications