Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Amend A 2011 Tax Return

2012 Ez Tax FormIrs 2011 Tax Return FormsHow Do I File My 2012 Taxes Online1040x Form 20131040 Ez Tax TableFiling 2012 Tax ReturnsH & R Block TaxFree Tax Filing Online State And FederalAmend 2012 Tax ReturnFiling 1040x InstructionsH&r Block Coupons 2012 Printable2010 Irs 1040ez FormFile Taxes For 2011 FreeHelp With 1040x First TimeAmending Tax Return TurbotaxFiling Taxes As A StudentIrs Amended Return FormBack TaxTurbo Tax AmendmentHow To Amend Tax ReturnTax Forms For 2010Freetaxusa 20072007 Tax ReturnFree Federal & State E-file2011 State Tax Form2012 Income Tax SoftwareIncome Tax Filing ExtensionFreefile TaxesStudent Filing Taxes 2013H&r Block Taxcut Free FileIrs Form 1040ez Tax TablesCan I File Amended Tax Return Online1040 Ez Form Online2012 Tax AmendmentFree Back Tax FilingEz 1040 E-fileFree 2010 Tax FilingFree 2013 Federal & State Tax Preparation On Line2012 Tax Return InstructionsHow Do I Get 2011 Tax Forms

Amend A 2011 Tax Return

Amend a 2011 tax return Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Amend a 2011 tax return Employee-owners. Amend a 2011 tax return Other rules. Amend a 2011 tax return Other rules. Amend a 2011 tax return Property Exchanged for StockNonqualified preferred stock. Amend a 2011 tax return Liabilities. Amend a 2011 tax return Election to reduce basis. Amend a 2011 tax return Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Amend a 2011 tax return S. Amend a 2011 tax return Real Property Interest Accounting MethodsSection 481(a) adjustment. Amend a 2011 tax return Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. Amend a 2011 tax return Business formed before 1997. Amend a 2011 tax return   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. Amend a 2011 tax return Business formed after 1996. Amend a 2011 tax return   The following businesses formed after 1996 are taxed as corporations. Amend a 2011 tax return A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. Amend a 2011 tax return A business formed under a state law that refers to it as a joint-stock company or joint-stock association. Amend a 2011 tax return An insurance company. Amend a 2011 tax return Certain banks. Amend a 2011 tax return A business wholly owned by a state or local government. Amend a 2011 tax return A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Amend a 2011 tax return Certain foreign businesses. Amend a 2011 tax return Any other business that elects to be taxed as a corporation. Amend a 2011 tax return For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. Amend a 2011 tax return For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. Amend a 2011 tax return S corporations. Amend a 2011 tax return   Some corporations may meet the qualifications for electing to be S corporations. Amend a 2011 tax return For information on S corporations, see the instructions for Form 1120S, U. Amend a 2011 tax return S. Amend a 2011 tax return Income Tax Return for an S Corporation. Amend a 2011 tax return Personal service corporations. Amend a 2011 tax return   A corporation is a personal service corporation if it meets all of the following requirements. Amend a 2011 tax return Its principal activity during the “testing period” is performing personal services (defined later). Amend a 2011 tax return Generally, the testing period for any tax year is the prior tax year. Amend a 2011 tax return If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. Amend a 2011 tax return Its employee-owners substantially perform the services in (1), above. Amend a 2011 tax return This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. Amend a 2011 tax return Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. Amend a 2011 tax return Personal services. Amend a 2011 tax return   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. Amend a 2011 tax return Employee-owners. Amend a 2011 tax return   A person is an employee-owner of a personal service corporation if both of the following apply. Amend a 2011 tax return He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. Amend a 2011 tax return He or she owns any stock in the corporation at any time during the testing period. Amend a 2011 tax return Other rules. Amend a 2011 tax return   For other rules that apply to personal service corporations see Accounting Periods, later. Amend a 2011 tax return Closely held corporations. Amend a 2011 tax return   A corporation is closely held if all of the following apply. Amend a 2011 tax return It is not a personal service corporation. Amend a 2011 tax return At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. Amend a 2011 tax return “Individual” includes certain trusts and private foundations. Amend a 2011 tax return Other rules. Amend a 2011 tax return   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. Amend a 2011 tax return Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. Amend a 2011 tax return This rule applies both to individuals and to groups who transfer property to a corporation. Amend a 2011 tax return It also applies whether the corporation is being formed or is already operating. Amend a 2011 tax return It does not apply in the following situations. Amend a 2011 tax return The corporation is an investment company. Amend a 2011 tax return You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. Amend a 2011 tax return The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. Amend a 2011 tax return Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. Amend a 2011 tax return For more information, see section 1. Amend a 2011 tax return 351-3 of the Regulations. Amend a 2011 tax return Control of a corporation. Amend a 2011 tax return   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. Amend a 2011 tax return Example 1. Amend a 2011 tax return You and Bill Jones buy property for $100,000. Amend a 2011 tax return You both organize a corporation when the property has a fair market value of $300,000. Amend a 2011 tax return You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Amend a 2011 tax return No gain is recognized by you, Bill, or the corporation. Amend a 2011 tax return Example 2. Amend a 2011 tax return You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. Amend a 2011 tax return This represents only 75% of each class of stock of the corporation. Amend a 2011 tax return The other 25% was already issued to someone else. Amend a 2011 tax return You and Bill recognize a taxable gain of $200,000 on the transaction. Amend a 2011 tax return Services rendered. Amend a 2011 tax return   The term property does not include services rendered or to be rendered to the issuing corporation. Amend a 2011 tax return The value of stock received for services is income to the recipient. Amend a 2011 tax return Example. Amend a 2011 tax return You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Amend a 2011 tax return Right after the exchange, you own 85% of the outstanding stock. Amend a 2011 tax return No gain is recognized on the exchange of property. Amend a 2011 tax return However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. Amend a 2011 tax return Property of relatively small value. Amend a 2011 tax return   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. Amend a 2011 tax return   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. Amend a 2011 tax return Stock received in disproportion to property transferred. Amend a 2011 tax return   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. Amend a 2011 tax return If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. Amend a 2011 tax return It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. Amend a 2011 tax return Money or other property received. Amend a 2011 tax return   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. Amend a 2011 tax return You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. Amend a 2011 tax return The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. Amend a 2011 tax return If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Amend a 2011 tax return See chapter 3 of Publication 544. Amend a 2011 tax return No loss is recognized. Amend a 2011 tax return Nonqualified preferred stock. Amend a 2011 tax return   Nonqualified preferred stock is treated as property other than stock. Amend a 2011 tax return Generally, it is preferred stock with any of the following features. Amend a 2011 tax return The holder has the right to require the issuer or a related person to redeem or buy the stock. Amend a 2011 tax return The issuer or a related person is required to redeem or buy the stock. Amend a 2011 tax return The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. Amend a 2011 tax return The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Amend a 2011 tax return For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Amend a 2011 tax return Liabilities. Amend a 2011 tax return   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Amend a 2011 tax return There are two exceptions to this treatment. Amend a 2011 tax return If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Amend a 2011 tax return However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Amend a 2011 tax return If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. Amend a 2011 tax return For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Amend a 2011 tax return Example. Amend a 2011 tax return You transfer property to a corporation for stock. Amend a 2011 tax return Immediately after the transfer, you control the corporation. Amend a 2011 tax return You also receive $10,000 in the exchange. Amend a 2011 tax return Your adjusted basis in the transferred property is $20,000. Amend a 2011 tax return The stock you receive has a fair market value (FMV) of $16,000. Amend a 2011 tax return The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. Amend a 2011 tax return Gain is realized as follows. Amend a 2011 tax return FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. Amend a 2011 tax return The recognized gain is limited to $10,000, the cash received. Amend a 2011 tax return Loss on exchange. Amend a 2011 tax return   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. Amend a 2011 tax return For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Amend a 2011 tax return Basis of stock or other property received. Amend a 2011 tax return   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Amend a 2011 tax return Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Amend a 2011 tax return Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. Amend a 2011 tax return Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. Amend a 2011 tax return    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. Amend a 2011 tax return This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. Amend a 2011 tax return The basis of any other property you receive is its fair market value on the date of the trade. Amend a 2011 tax return Basis of property transferred. Amend a 2011 tax return   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. Amend a 2011 tax return However, the increase for the gain recognized may be limited. Amend a 2011 tax return For more information, see section 362 of the Internal Revenue Code. Amend a 2011 tax return Election to reduce basis. Amend a 2011 tax return   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. Amend a 2011 tax return The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. Amend a 2011 tax return However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Amend a 2011 tax return R. Amend a 2011 tax return B. Amend a 2011 tax return 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Amend a 2011 tax return    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Amend a 2011 tax return Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Amend a 2011 tax return Paid-in capital. Amend a 2011 tax return   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Amend a 2011 tax return These contributions are not taxable to the corporation. Amend a 2011 tax return Basis. Amend a 2011 tax return   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. Amend a 2011 tax return However, the increase for the gain recognized may be limited. Amend a 2011 tax return For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Amend a 2011 tax return   The basis of property contributed to capital by a person other than a shareholder is zero. Amend a 2011 tax return   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. Amend a 2011 tax return If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. Amend a 2011 tax return Depreciable property. Amend a 2011 tax return Amortizable property. Amend a 2011 tax return Property subject to cost depletion but not to percentage depletion. Amend a 2011 tax return All other remaining properties. Amend a 2011 tax return   Reduce the basis of property in each category to zero before going on to the next category. Amend a 2011 tax return   There may be more than one piece of property in each category. Amend a 2011 tax return Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. Amend a 2011 tax return The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Amend a 2011 tax return Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Amend a 2011 tax return A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Amend a 2011 tax return After the end of the year, the corporation must file an income tax return. Amend a 2011 tax return This section will help you determine when and how to pay and file corporate income taxes. Amend a 2011 tax return For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. Amend a 2011 tax return The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Amend a 2011 tax return For more information, visit www. Amend a 2011 tax return irs. Amend a 2011 tax return gov/newsroom/article/0,,id=108362. Amend a 2011 tax return 00. Amend a 2011 tax return Income Tax Return This section will help you determine when and how to report a corporation's income tax. Amend a 2011 tax return Who must file. Amend a 2011 tax return   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Amend a 2011 tax return Which form to file. Amend a 2011 tax return   A corporation generally must file Form 1120, U. Amend a 2011 tax return S. Amend a 2011 tax return Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Amend a 2011 tax return Certain organizations and entities must file special returns. Amend a 2011 tax return For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Amend a 2011 tax return Electronic filing. Amend a 2011 tax return   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. Amend a 2011 tax return Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. Amend a 2011 tax return However, in certain instances, these corporations can request a waiver. Amend a 2011 tax return For more information regarding electronic filing, visit www. Amend a 2011 tax return irs. Amend a 2011 tax return gov/efile. Amend a 2011 tax return When to file. Amend a 2011 tax return   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. Amend a 2011 tax return A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. Amend a 2011 tax return A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Amend a 2011 tax return Example 1. Amend a 2011 tax return A corporation's tax year ends December 31. Amend a 2011 tax return It must file its income tax return by March 15th. Amend a 2011 tax return Example 2. Amend a 2011 tax return A corporation's tax year ends June 30. Amend a 2011 tax return It must file its income tax return by September 15th. Amend a 2011 tax return   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. Amend a 2011 tax return Extension of time to file. Amend a 2011 tax return   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. Amend a 2011 tax return The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. Amend a 2011 tax return   Form 7004 does not extend the time for paying the tax due on the return. Amend a 2011 tax return Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. Amend a 2011 tax return The interest is figured from the original due date of the return to the date of payment. Amend a 2011 tax return   For more information, see the instructions for Form 7004. Amend a 2011 tax return How to pay your taxes. Amend a 2011 tax return   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. Amend a 2011 tax return Electronic Federal Tax Payment System (EFTPS). Amend a 2011 tax return   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). Amend a 2011 tax return For more information on EFTPS and enrollment, visit www. Amend a 2011 tax return eftps. Amend a 2011 tax return gov or call 1-800-555-4477. Amend a 2011 tax return Also see Publication 966, The Secure Way to Pay Your Federal Taxes. Amend a 2011 tax return Note. Amend a 2011 tax return Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Amend a 2011 tax return Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Amend a 2011 tax return Do not attach an explanation when the corporation's return is filed. Amend a 2011 tax return See the instructions for your income tax return. Amend a 2011 tax return Late filing of return. Amend a 2011 tax return    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. Amend a 2011 tax return If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. Amend a 2011 tax return The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. Amend a 2011 tax return The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. Amend a 2011 tax return Late payment of tax. Amend a 2011 tax return    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. Amend a 2011 tax return The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. Amend a 2011 tax return Trust fund recovery penalty. Amend a 2011 tax return   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Amend a 2011 tax return The penalty is the full amount of the unpaid trust fund tax. Amend a 2011 tax return This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. Amend a 2011 tax return   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. Amend a 2011 tax return   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. Amend a 2011 tax return A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. Amend a 2011 tax return   Willfully means voluntarily, consciously, and intentionally. Amend a 2011 tax return A responsible person acts willfully if the person knows the required actions are not taking place. Amend a 2011 tax return   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. Amend a 2011 tax return Other penalties. Amend a 2011 tax return   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. Amend a 2011 tax return See sections 6662, 6662A, and 6663 of the Internal Revenue Code. Amend a 2011 tax return Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. Amend a 2011 tax return If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. Amend a 2011 tax return This section will explain how to avoid this penalty. Amend a 2011 tax return When to pay estimated tax. Amend a 2011 tax return   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Amend a 2011 tax return Example 1. Amend a 2011 tax return Your corporation's tax year ends December 31. Amend a 2011 tax return Installment payments are due on April 15, June 15, September 15, and December 15. Amend a 2011 tax return Example 2. Amend a 2011 tax return Your corporation's tax year ends June 30. Amend a 2011 tax return Installment payments are due on October 15, December 15, March 15, and June 15. Amend a 2011 tax return   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. Amend a 2011 tax return How to figure each required installment. Amend a 2011 tax return   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Amend a 2011 tax return You will generally use one of the following two methods to figure each required installment. Amend a 2011 tax return You should use the method that yields the smallest installment payments. Amend a 2011 tax return Note. Amend a 2011 tax return In these discussions, “return” generally refers to the corporation's original return. Amend a 2011 tax return However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Amend a 2011 tax return Method 1. Amend a 2011 tax return   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Amend a 2011 tax return Method 2. Amend a 2011 tax return   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Amend a 2011 tax return   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). Amend a 2011 tax return Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Amend a 2011 tax return   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Amend a 2011 tax return Other methods. Amend a 2011 tax return   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. Amend a 2011 tax return The annualized income installment method. Amend a 2011 tax return The adjusted seasonal installment method. Amend a 2011 tax return Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. Amend a 2011 tax return Refiguring required installments. Amend a 2011 tax return   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. Amend a 2011 tax return An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Amend a 2011 tax return Underpayment penalty. Amend a 2011 tax return   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Amend a 2011 tax return The penalty is figured separately for each installment due date. Amend a 2011 tax return The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Amend a 2011 tax return This is true even if the corporation is due a refund when its return is filed. Amend a 2011 tax return Form 2220. Amend a 2011 tax return   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. Amend a 2011 tax return   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Amend a 2011 tax return The amount of the underpayment. Amend a 2011 tax return The period during which the underpayment was due and unpaid. Amend a 2011 tax return The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Amend a 2011 tax return   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. Amend a 2011 tax return However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. Amend a 2011 tax return The annualized income installment method was used to figure any required installment. Amend a 2011 tax return The adjusted seasonal installment method was used to figure any required installment. Amend a 2011 tax return The corporation is a large corporation figuring its first required installment based on the prior year's tax. Amend a 2011 tax return How to pay estimated tax. Amend a 2011 tax return   A corporation is generally required to use EFTPS to pay its taxes. Amend a 2011 tax return See Electronic Federal Tax Payment System (EFTPS), earlier. Amend a 2011 tax return Also see the Instructions for Form 1120-W. Amend a 2011 tax return Quick refund of overpayments. Amend a 2011 tax return   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Amend a 2011 tax return Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. Amend a 2011 tax return A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Amend a 2011 tax return Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Amend a 2011 tax return File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. Amend a 2011 tax return Do not file Form 4466 before the end of the corporation's tax year. Amend a 2011 tax return An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Amend a 2011 tax return The IRS will act on the form within 45 days from the date you file it. Amend a 2011 tax return U. Amend a 2011 tax return S. Amend a 2011 tax return Real Property Interest If a domestic corporation acquires a U. Amend a 2011 tax return S. Amend a 2011 tax return real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Amend a 2011 tax return The amount paid includes cash, the fair market value of other property, and any assumed liability. Amend a 2011 tax return If a domestic corporation distributes a U. Amend a 2011 tax return S. Amend a 2011 tax return real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Amend a 2011 tax return A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Amend a 2011 tax return For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. Amend a 2011 tax return S. Amend a 2011 tax return Withholding Tax Return for Dispositions by Foreign Persons of U. Amend a 2011 tax return S. Amend a 2011 tax return Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Amend a 2011 tax return S. Amend a 2011 tax return Real Property Interests. Amend a 2011 tax return Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Amend a 2011 tax return Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Amend a 2011 tax return In all cases, the method used must clearly show taxable income. Amend a 2011 tax return Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Amend a 2011 tax return Accrual method. Amend a 2011 tax return   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. Amend a 2011 tax return A corporation engaged in farming operations also must use the accrual method. Amend a 2011 tax return   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Amend a 2011 tax return However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. Amend a 2011 tax return   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. Amend a 2011 tax return   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. Amend a 2011 tax return   There are exceptions to the economic performance rule for certain items, including recurring expenses. Amend a 2011 tax return See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Amend a 2011 tax return Nonaccrual experience method. Amend a 2011 tax return   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. Amend a 2011 tax return   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. Amend a 2011 tax return Percentage of completion method. Amend a 2011 tax return   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. Amend a 2011 tax return Mark-to-market accounting method. Amend a 2011 tax return   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Amend a 2011 tax return Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Amend a 2011 tax return Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. Amend a 2011 tax return Any gain or loss must be taken into account in determining gross income. Amend a 2011 tax return The gain or loss taken into account is treated as ordinary gain or loss. Amend a 2011 tax return   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Amend a 2011 tax return Change in accounting method. Amend a 2011 tax return   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). Amend a 2011 tax return The corporation must file Form 3115, Application for Change in Accounting Method. Amend a 2011 tax return For more information, see Form 3115 and Publication 538. Amend a 2011 tax return Section 481(a) adjustment. Amend a 2011 tax return   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. Amend a 2011 tax return The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Amend a 2011 tax return However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. Amend a 2011 tax return The corporation must complete the appropriate lines of Form 3115 to make the election. Amend a 2011 tax return See the Instructions for Form 3115. Amend a 2011 tax return Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Amend a 2011 tax return A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Amend a 2011 tax return Generally, corporations can use either a calendar year or a fiscal year as its tax year. Amend a 2011 tax return Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Amend a 2011 tax return For more information, see Publication 538. Amend a 2011 tax return Personal service corporation. Amend a 2011 tax return   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. Amend a 2011 tax return See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. Amend a 2011 tax return Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Amend a 2011 tax return   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Amend a 2011 tax return See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Amend a 2011 tax return Change of tax year. Amend a 2011 tax return   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Amend a 2011 tax return However, under certain conditions, a corporation can change its tax year without getting the consent. Amend a 2011 tax return For more information, see Form 1128 and Publication 538. Amend a 2011 tax return Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Amend a 2011 tax return Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Amend a 2011 tax return Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. Amend a 2011 tax return The corporation should keep copies of all filed returns. Amend a 2011 tax return They help in preparing future and amended returns and in the calculation of earnings and profits. Amend a 2011 tax return Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Amend a 2011 tax return However, the following special provisions apply only to corporations. Amend a 2011 tax return Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Amend a 2011 tax return However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Amend a 2011 tax return Any costs not deducted can be amortized. Amend a 2011 tax return Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Amend a 2011 tax return Organizational costs are the direct costs of creating the corporation. Amend a 2011 tax return For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Amend a 2011 tax return Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Amend a 2011 tax return Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Amend a 2011 tax return Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Amend a 2011 tax return If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. Amend a 2011 tax return These rules also deny the deduction of losses on the sale or exchange of property between related persons. Amend a 2011 tax return Related persons. Amend a 2011 tax return   For purposes of this rule, the following persons are related to a corporation. Amend a 2011 tax return Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Amend a 2011 tax return An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Amend a 2011 tax return A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Amend a 2011 tax return An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Amend a 2011 tax return A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Amend a 2011 tax return Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. Amend a 2011 tax return Ownership of stock. Amend a 2011 tax return   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Amend a 2011 tax return Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. Amend a 2011 tax return An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Amend a 2011 tax return Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Amend a 2011 tax return Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. Amend a 2011 tax return To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Amend a 2011 tax return But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. Amend a 2011 tax return Reallocation of income and deductions. Amend a 2011 tax return   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. Amend a 2011 tax return Complete liquidations. Amend a 2011 tax return   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Amend a 2011 tax return More information. Amend a 2011 tax return   For more information about the related person rules, see Publication 544. Amend a 2011 tax return Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. Amend a 2011 tax return If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Amend a 2011 tax return Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Amend a 2011 tax return A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Amend a 2011 tax return A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Amend a 2011 tax return For more information regarding the election, see Form 8902. Amend a 2011 tax return Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. Amend a 2011 tax return The deduction is allowed for the year in which the property is placed in service. Amend a 2011 tax return A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. Amend a 2011 tax return For more information, see section 179C of the Internal Revenue Code and the related Regulations. Amend a 2011 tax return Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). Amend a 2011 tax return A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. Amend a 2011 tax return For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Amend a 2011 tax return Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. Amend a 2011 tax return In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Amend a 2011 tax return 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. Amend a 2011 tax return The deduction is limited to $1. Amend a 2011 tax return 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Amend a 2011 tax return Other rules and limitations apply. Amend a 2011 tax return The corporation must reduce the basis of any property by any deduction taken. Amend a 2011 tax return The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Amend a 2011 tax return For more information, see section 179D of the Internal Revenue Code. Amend a 2011 tax return Also see Notice 2006-52, 2006-26 I. Amend a 2011 tax return R. Amend a 2011 tax return B. Amend a 2011 tax return 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Amend a 2011 tax return R. Amend a 2011 tax return B. Amend a 2011 tax return 725, and any successor. Amend a 2011 tax return Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Amend a 2011 tax return These items are known as corporate preference items and they include the following. Amend a 2011 tax return Gain on the disposition of section 1250 property. Amend a 2011 tax return For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Amend a 2011 tax return Percentage depletion for iron ore and coal (including lignite). Amend a 2011 tax return For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Amend a 2011 tax return Amortization of pollution control facilities. Amend a 2011 tax return For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Amend a 2011 tax return Mineral exploration and development costs. Amend a 2011 tax return For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Amend a 2011 tax return For more information on corporate preference items, see section 291 of the Internal Revenue Code. Amend a 2011 tax return Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Amend a 2011 tax return This section discusses the general rules that apply. Amend a 2011 tax return The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Amend a 2011 tax return For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Amend a 2011 tax return Dividends from domestic corporations. Amend a 2011 tax return   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. Amend a 2011 tax return If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Amend a 2011 tax return Ownership. Amend a 2011 tax return   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. Amend a 2011 tax return Small business investment companies. Amend a 2011 tax return   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Amend a 2011 tax return Dividends from regulated investment companies. Amend a 2011 tax return   Regulated investment company dividends received are subject to certain limits. Amend a 2011 tax return Capital gain dividends received from a regulated investment company do not qualify for the deduction. Amend a 2011 tax return For more information, see section 854 of the Internal Revenue Code. Amend a 2011 tax return No deduction allowed for certain dividends. Amend a 2011 tax return   Corporations cannot take a deduction for dividends received from the following entities. Amend a 2011 tax return A real estate investment trust (REIT). Amend a 2011 tax return A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. Amend a 2011 tax return A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Amend a 2011 tax return Ex-dividend means the holder has no rights to the dividend. Amend a 2011 tax return A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. Amend a 2011 tax return Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Amend a 2011 tax return Dividends on deposits. Amend a 2011 tax return   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Amend a 2011 tax return They do not qualify for this deduction. Amend a 2011 tax return Limit on deduction for dividends. Amend a 2011 tax return   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). Amend a 2011 tax return Figuring the limit. Amend a 2011 tax return   In figuring the limit, determine taxable income without the following items. Amend a 2011 tax return The net operating loss deduction. Amend a 2011 tax return The domestic production activities deduction. Amend a 2011 tax return The deduction for dividends received. Amend a 2011 tax return Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Amend a 2011 tax return Any capital loss carryback to the tax year. Amend a 2011 tax return Effect of net operating loss. Amend a 2011 tax return   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. Amend a 2011 tax return To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Amend a 2011 tax return Example 1. Amend a 2011 tax return A corporation loses $25,000 from operations. Amend a 2011 tax return It receives $100,000 in dividends from a 20%-owned corporation. Amend a 2011 tax return Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Amend a 2011 tax return If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Amend a 2011 tax return Therefore, the 80% of taxable income limit does not apply. Amend a 2011 tax return The corporation can deduct the full $80,000. Amend a 2011 tax return Example 2. Amend a 2011 tax return Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Amend a 2011 tax return Its taxable income is $85,000 before the deduction for dividends received. Amend a 2011 tax return After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Amend a 2011 tax return Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). Amend a 2011 tax return Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. Amend a 2011 tax return The nontaxed part is any dividends-received deduction allowable for the dividends. Amend a 2011 tax return Extraordinary dividend. Amend a 2011 tax return   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Amend a 2011 tax return The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Amend a 2011 tax return Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Amend a 2011 tax return Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. Amend a 2011 tax return Disqualified preferred stock. Amend a 2011 tax return   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Amend a 2011 tax return   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Amend a 2011 tax return The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Amend a 2011 tax return The issue price of the stock exceeds its liquidation rights or stated redemption price. Amend a 2011 tax return The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. Amend a 2011 tax return   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. Amend a 2011 tax return More information. Amend a 2011 tax return   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Amend a 2011 tax return Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. Amend a 2011 tax return A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Amend a 2011 tax return A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. Amend a 2011 tax return Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Amend a 2011 tax return Foregone interest. Amend a 2011 tax return   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Amend a 2011 tax return See Below-market loans, in chapter 4 of Publication 535 for more information. Amend a 2011 tax return Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Amend a 2011 tax return The contribution is deductible if made to, or for the use of, a qualified organization. Amend a 2011 tax return For more information on qualified organizations, see Publication 526, Charitable Contributions. Amend a 2011 tax return Also see, Exempt Organizations Select Check (EO Select Check) at www. Amend a 2011 tax return irs. Amend a 2011 tax return gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Amend a 2011 tax return Note. Amend a 2011 tax return You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Amend a 2011 tax return Cash method corporation. Amend a 2011 tax return   A corporation using the cash method of accounting deducts contributions in the tax year paid. Amend a 2011 tax return Accrual method corporation. Amend a 2011 tax return   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. Amend a 2011 tax return Make the choice by reporting the contribution on the corporation's return for the tax year. Amend a 2011 tax return A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Amend a 2011 tax return The declaration must include the date the resolution was adopted. Amend a 2011 tax return Limitations on deduction. Amend a 2011 tax return   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Amend a 2011 tax return Figure taxable income for this purpose without the following. Amend a 2011 tax return The deduction for charitable contributions. Amend a 2011 tax return The dividends-received deduction. Amend a 2011 tax return The deduction allowed under section 249 of the Internal Revenue Code. Amend a 2011 tax return The domestic production activities deduction. Amend a 2011 tax return Any net operating loss carryback to the tax year. Amend a 2011 tax return Any capital loss carryback to the tax year. Amend a 2011 tax return Farmers and ranchers. Amend a 2011 tax return    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. Amend a 2011 tax return Carryover of excess contributions. Amend a 2011 tax return   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. Amend a 2011 tax return You lose any excess not used within that period. Amend a 2011 tax return For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. Amend a 2011 tax return Any excess not used in 2015 is lost. Amend a 2011 tax return Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). Amend a 2011 tax return You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Amend a 2011 tax return Cash contributions. Amend a 2011 tax return   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Amend a 2011 tax return The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Amend a 2011 tax return Keep the record of the contribution with the other corporate records. Amend a 2011 tax return Do not attach the records to the corporation's return. Amend a 2011 tax return For more information on cash contributions, see Publication 526. Amend a 2011 tax return Gifts of $250 or more. Amend a 2011 tax return   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Amend a 2011 tax return The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. Amend a 2011 tax return The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Amend a 2011 tax return Keep the acknowledgement with other corporate records. Amend a 2011 tax return Do not attach the acknowledgement to the return. Amend a 2011 tax return Contributions of property other than cash. Amend a 2011 tax return   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. Amend a 2011 tax return In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. Amend a 2011 tax return   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. Amend a 2011 tax return For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. Amend a 2011 tax return   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Amend a 2011 tax return A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. Amend a 2011 tax return The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. Amend a 2011 tax return   See Form 8283 for more information. Amend a 2011 tax return Qualified conservation contributions. Amend a 2011 tax return   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. Amend a 2011 tax return For more information, see section 170(h) of the Internal Revenue Code. Amend a 2011 tax return Contributions of used vehicles. Amend a 2011 tax return   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Amend a 2011 tax return The deduction is limited, and other special rules apply. Amend a 2011 tax return For more information, see Publication 526. Amend a 2011 tax return Reduction for contributions of certain property. Amend a 2011 tax return   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. Amend a 2011 tax return   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. Amend a 2011 tax return Larger deduction. Amend a 2011 tax return   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. Amend a 2011 tax return This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Amend a 2011 tax return Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. Amend a 2011 tax return The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. Amend a 2011 tax return Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. Amend a 2011 tax return Contributions to organizations conducting lobbying activities. Amend a 2011 tax return   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. Amend a 2011 tax return More information. Amend a 2011 tax return   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. Amend a 2011 tax return Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Amend a 2011 tax return In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Amend a 2011 tax return Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Amend a 2011 tax return A capital loss is carried to other years in the following order. Amend a 2011 tax return 3 years prior to the loss year. Amend a 2011 tax return 2 years prior to the loss year. Amend a 2011 tax return 1 year prior to the loss year. Amend a 2011 tax return Any loss remaining is carried forward for 5 years. Amend a 2011 tax return When you carry a net capital loss to another tax year, treat it as a short-term loss. Amend a 2011 tax return It does not retain its original identity as long term or short term. Amend a 2011 tax return Example. Amend a 2011 tax return A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Amend a 2011 tax return The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Amend a 2011 tax return The corporation treats this $6,000 as a short-term loss when carried back or forward. Amend a 2011 tax return The corporation carries the $6,000 short-term loss back 3 years. Amend a 2011 tax return In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. Amend a 2011 tax return It subtracts the $6,000 short-term loss first from the net short-term gain. Amend a 2011 tax return This results in a net capital gain for year 1 of $7,000. Amend a 2011 tax return This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. Amend a 2011 tax return S corporation status. Amend a 2011 tax return   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Amend a 2011 tax return Rules for carryover and carryback. Amend a 2011 tax return   When carrying a capital loss from one year to another, the following rules apply. Amend a 2011 tax return When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Amend a 2011 tax return In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Amend a 2011 tax return If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Amend a 2011 tax return You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. Amend a 2011 tax return Refunds. Amend a 2011 tax return   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Amend a 2011 tax return If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. Amend a 2011 tax return S. Amend a 2011 tax return Corporation Income Tax Return, to apply for a refund. Amend a 2011 tax return Form 1139. Amend a 2011 tax return    A corporation can get a refund faster by using Form 1139. Amend a 2011 tax return It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. Amend a 2011 tax return Form 1120X. Amend a 2011 tax return   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Amend a 2011 tax return The corporation must file the Form 1120X within 3 years of the due date, includin
Print - Click this link to Print this page

IRS Report on Avoiding Troubled Tax-Advantaged Bonds

The Internal Revenue Service office of Tax Exempt Bonds (TEB) released the report, Avoiding Troubled Tax-Advantaged Bonds. This report produced by the TEB Compliance Practice Research Team seeks to provide aid to issuers of tax-advantaged bonds municipal bonds. It identifies some considerations for issuers of such bonds and is TEB’s initial step toward producing public resource products that assist issuers in avoiding troubled transactions. For more than a decade, TEB observed some of the worst problems in the municipal industry and then witnessed the efforts taken (by leaders in state and local government, the professional communities that support them, and various regulatory bodies) to address them. Many of these complex compliance issues facing issuers of tax-advantaged municipal debt still exist.  

Publishing Avoiding Troubled Tax-Advantaged Bonds is a part of TEB’s continuing effort to provide practical steps and products that may be helpful to issuers of tax-advantaged municipal bonds. As such, we welcome comments and feedback from the tax-advantaged municipal bond community that provide further tools and clarification for issuers. Please submit your comments and feedback to TaxExemptBondQuestions@irs.gov inserting “Avoiding Troubled Tax-Advantaged Bonds Question” on the Subject: line.

The report covers three phases of the life cycle of bonds, each with various considerations, of which an issuer should be aware. These three identified phases are 1) the transaction development phase, 2) the transaction execution phase, and 3) the post-issuance phase. Watch for the TEB presentation of phase one “Transaction Development,” in an upcoming Webinar scheduled for this fall.

TEB hopes that the tax-exempt bond community will use this information to create related products beneficial to their members. These products will provide additional tools that facilitate issuer adoption of practices and procedures that avoid abusive or questionable transactions.

 

 

Page Last Reviewed or Updated: 26-Mar-2014

The Amend A 2011 Tax Return

Amend a 2011 tax return 5. Amend a 2011 tax return   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. Amend a 2011 tax return Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. Amend a 2011 tax return Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. Amend a 2011 tax return Deduction for employees. Amend a 2011 tax return If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. Amend a 2011 tax return Business-use requirement. Amend a 2011 tax return If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. Amend a 2011 tax return In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. Amend a 2011 tax return You may also have to recapture (include in income) any excess depreciation claimed in previous years. Amend a 2011 tax return A similar inclusion amount applies to certain leased property. Amend a 2011 tax return Passenger automobile limits and rules. Amend a 2011 tax return Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. Amend a 2011 tax return You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. Amend a 2011 tax return This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. Amend a 2011 tax return It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. Amend a 2011 tax return Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Amend a 2011 tax return What Is Listed Property? Listed property is any of the following. Amend a 2011 tax return Passenger automobiles (as defined later). Amend a 2011 tax return Any other property used for transportation, unless it is an excepted vehicle. Amend a 2011 tax return Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). Amend a 2011 tax return Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. Amend a 2011 tax return A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. Amend a 2011 tax return Improvements to listed property. Amend a 2011 tax return   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. Amend a 2011 tax return The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. Amend a 2011 tax return For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. Amend a 2011 tax return Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). Amend a 2011 tax return It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. Amend a 2011 tax return The following vehicles are not considered passenger automobiles for these purposes. Amend a 2011 tax return An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. Amend a 2011 tax return A vehicle used directly in the trade or business of transporting persons or property for pay or hire. Amend a 2011 tax return A truck or van that is a qualified nonpersonal use vehicle. Amend a 2011 tax return Qualified nonpersonal use vehicles. Amend a 2011 tax return   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Amend a 2011 tax return They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. Amend a 2011 tax return They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Amend a 2011 tax return For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. Amend a 2011 tax return Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. Amend a 2011 tax return Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. Amend a 2011 tax return Excepted vehicles. Amend a 2011 tax return   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). Amend a 2011 tax return Clearly marked police and fire vehicles. Amend a 2011 tax return Unmarked vehicles used by law enforcement officers if the use is officially authorized. Amend a 2011 tax return Ambulances used as such and hearses used as such. Amend a 2011 tax return Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. Amend a 2011 tax return Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. Amend a 2011 tax return Combines, cranes and derricks, and forklifts. Amend a 2011 tax return Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. Amend a 2011 tax return Qualified moving vans. Amend a 2011 tax return Qualified specialized utility repair trucks. Amend a 2011 tax return School buses used in transporting students and employees of schools. Amend a 2011 tax return Other buses with a capacity of at least 20 passengers that are used as passenger buses. Amend a 2011 tax return Tractors and other special purpose farm vehicles. Amend a 2011 tax return Clearly marked police and fire vehicle. Amend a 2011 tax return   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. Amend a 2011 tax return It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. Amend a 2011 tax return It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. Amend a 2011 tax return It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. Amend a 2011 tax return It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. Amend a 2011 tax return A marking on a license plate is not a clear marking for these purposes. Amend a 2011 tax return Qualified moving van. Amend a 2011 tax return   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. Amend a 2011 tax return No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. Amend a 2011 tax return Personal use for travel to and from a move site happens no more than five times a month on average. Amend a 2011 tax return Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. Amend a 2011 tax return Qualified specialized utility repair truck. Amend a 2011 tax return   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. Amend a 2011 tax return The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. Amend a 2011 tax return Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. Amend a 2011 tax return The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. Amend a 2011 tax return Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. Amend a 2011 tax return It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Amend a 2011 tax return Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Amend a 2011 tax return The following are neither computers nor related peripheral equipment. Amend a 2011 tax return Any equipment that is an integral part of other property that is not a computer. Amend a 2011 tax return Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. Amend a 2011 tax return Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. Amend a 2011 tax return Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. Amend a 2011 tax return The use of your property in performing services as an employee is a business use only if both the following requirements are met. Amend a 2011 tax return The use is for your employer's convenience. Amend a 2011 tax return The use is required as a condition of your employment. Amend a 2011 tax return If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. Amend a 2011 tax return Employer's convenience. Amend a 2011 tax return   Whether the use of listed property is for your employer's convenience must be determined from all the facts. Amend a 2011 tax return The use is for your employer's convenience if it is for a substantial business reason of the employer. Amend a 2011 tax return The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. Amend a 2011 tax return Condition of employment. Amend a 2011 tax return   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. Amend a 2011 tax return The use of property must be required for you to perform your duties properly. Amend a 2011 tax return Your employer does not have to require explicitly that you use the property. Amend a 2011 tax return However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. Amend a 2011 tax return Example 1. Amend a 2011 tax return Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. Amend a 2011 tax return She owns and uses a motorcycle to deliver packages to downtown offices. Amend a 2011 tax return We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Amend a 2011 tax return Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Amend a 2011 tax return Example 2. Amend a 2011 tax return Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Amend a 2011 tax return He must travel to these sites on a regular basis. Amend a 2011 tax return Uplift does not furnish an automobile or explicitly require him to use his own automobile. Amend a 2011 tax return However, it pays him for any costs he incurs in traveling to the various sites. Amend a 2011 tax return The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Amend a 2011 tax return Example 3. Amend a 2011 tax return Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. Amend a 2011 tax return The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. Amend a 2011 tax return Example 4. Amend a 2011 tax return Marilyn Lee is a pilot for Y Company, a small charter airline. Amend a 2011 tax return Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Amend a 2011 tax return Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Amend a 2011 tax return Marilyn owns her own airplane. Amend a 2011 tax return The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. Amend a 2011 tax return Example 5. Amend a 2011 tax return David Rule is employed as an engineer with Zip, an engineering contracting firm. Amend a 2011 tax return He occasionally takes work home at night rather than work late in the office. Amend a 2011 tax return He owns and uses a home computer which is virtually identical to the office model. Amend a 2011 tax return His use of the computer is neither for the convenience of his employer nor required as a condition of employment. Amend a 2011 tax return What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. Amend a 2011 tax return To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. Amend a 2011 tax return If this requirement is not met, the following rules apply. Amend a 2011 tax return Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. Amend a 2011 tax return Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. Amend a 2011 tax return Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. Amend a 2011 tax return This rule applies each year of the recovery period. Amend a 2011 tax return Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. Amend a 2011 tax return A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. Amend a 2011 tax return Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. Amend a 2011 tax return It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Amend a 2011 tax return Exception for leased property. Amend a 2011 tax return   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Amend a 2011 tax return   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. Amend a 2011 tax return This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Amend a 2011 tax return Occasional or incidental leasing activity is insufficient. Amend a 2011 tax return For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. Amend a 2011 tax return An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Amend a 2011 tax return How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. Amend a 2011 tax return For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Amend a 2011 tax return You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. Amend a 2011 tax return For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). Amend a 2011 tax return For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. Amend a 2011 tax return Entertainment use. Amend a 2011 tax return   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. Amend a 2011 tax return Commuting use. Amend a 2011 tax return   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. Amend a 2011 tax return For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. Amend a 2011 tax return This is also true for a business meeting held in a car while commuting to work. Amend a 2011 tax return Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. Amend a 2011 tax return The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. Amend a 2011 tax return Use of your automobile by another person. Amend a 2011 tax return   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. Amend a 2011 tax return That use is directly connected with your business. Amend a 2011 tax return You properly report the value of the use as income to the other person and withhold tax on the income where required. Amend a 2011 tax return You are paid a fair market rent. Amend a 2011 tax return Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). Amend a 2011 tax return Employee deductions. Amend a 2011 tax return   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. Amend a 2011 tax return See Can Employees Claim a Deduction , earlier. Amend a 2011 tax return Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. Amend a 2011 tax return However, it does not include the following uses. Amend a 2011 tax return The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). Amend a 2011 tax return The use of property as pay for the services of a 5% owner or related person. Amend a 2011 tax return The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. Amend a 2011 tax return Property does not stop being used predominantly for qualified business use because of a transfer at death. Amend a 2011 tax return Exception for leasing or compensatory use of aircraft. Amend a 2011 tax return   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. Amend a 2011 tax return 5% owner. Amend a 2011 tax return   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. Amend a 2011 tax return   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. Amend a 2011 tax return More than 5% of the outstanding stock of the corporation. Amend a 2011 tax return Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Amend a 2011 tax return Related persons. Amend a 2011 tax return   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . Amend a 2011 tax return For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Amend a 2011 tax return Examples. Amend a 2011 tax return   The following examples illustrate whether the use of business property is qualified business use. Amend a 2011 tax return Example 1. Amend a 2011 tax return John Maple is the sole proprietor of a plumbing contracting business. Amend a 2011 tax return John employs his brother, Richard, in the business. Amend a 2011 tax return As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. Amend a 2011 tax return The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. Amend a 2011 tax return The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. Amend a 2011 tax return Example 2. Amend a 2011 tax return John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. Amend a 2011 tax return He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. Amend a 2011 tax return This use of company automobiles by employees is not a qualified business use. Amend a 2011 tax return Example 3. Amend a 2011 tax return James Company Inc. Amend a 2011 tax return owns several automobiles that its employees use for business purposes. Amend a 2011 tax return The employees also are allowed to take the automobiles home at night. Amend a 2011 tax return The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. Amend a 2011 tax return This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. Amend a 2011 tax return Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. Amend a 2011 tax return However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. Amend a 2011 tax return Example 1. Amend a 2011 tax return Sarah Bradley uses a home computer 50% of the time to manage her investments. Amend a 2011 tax return She also uses the computer 40% of the time in her part-time consumer research business. Amend a 2011 tax return Sarah's home computer is listed property because it is not used at a regular business establishment. Amend a 2011 tax return She does not use the computer predominantly for qualified business use. Amend a 2011 tax return Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. Amend a 2011 tax return She must depreciate it using the straight line method over the ADS recovery period. Amend a 2011 tax return Her combined business/investment use for determining her depreciation deduction is 90%. Amend a 2011 tax return Example 2. Amend a 2011 tax return If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. Amend a 2011 tax return She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. Amend a 2011 tax return Her combined business/investment use for determining her depreciation deduction is 90%. Amend a 2011 tax return Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. Amend a 2011 tax return You also increase the adjusted basis of your property by the same amount. Amend a 2011 tax return Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. Amend a 2011 tax return To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. Amend a 2011 tax return Example. Amend a 2011 tax return In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. Amend a 2011 tax return She used it only for qualified business use for 2009 through 2012. Amend a 2011 tax return Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. Amend a 2011 tax return She began depreciating it using the 200% DB method over a 5-year GDS recovery period. Amend a 2011 tax return The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. Amend a 2011 tax return During 2013, she used the truck 50% for business and 50% for personal purposes. Amend a 2011 tax return She includes $4,018 excess depreciation in her gross income for 2013. Amend a 2011 tax return The excess depreciation is determined as follows. Amend a 2011 tax return Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. Amend a 2011 tax return (Depreciation is from Table A-1. Amend a 2011 tax return ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. Amend a 2011 tax return The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. Amend a 2011 tax return Where to figure and report recapture. Amend a 2011 tax return   Use Form 4797, Part IV, to figure the recapture amount. Amend a 2011 tax return Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. Amend a 2011 tax return For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. Amend a 2011 tax return If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. Amend a 2011 tax return Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Amend a 2011 tax return Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). Amend a 2011 tax return For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. Amend a 2011 tax return The inclusion amount is the sum of Amount A and Amount B, described next. Amend a 2011 tax return However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. Amend a 2011 tax return Amount A. Amend a 2011 tax return   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . Amend a 2011 tax return   The fair market value of the property is the value on the first day of the lease term. Amend a 2011 tax return If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. Amend a 2011 tax return Amount B. Amend a 2011 tax return   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . Amend a 2011 tax return Maximum inclusion amount. Amend a 2011 tax return   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. Amend a 2011 tax return Inclusion amount worksheet. Amend a 2011 tax return   The following worksheet is provided to help you figure the inclusion amount for leased listed property. Amend a 2011 tax return Inclusion Amount Worksheet for Leased Listed Property 1. Amend a 2011 tax return Fair market value   2. Amend a 2011 tax return Business/investment use for first year business use is 50% or less   3. Amend a 2011 tax return Multiply line 1 by line 2. Amend a 2011 tax return   4. Amend a 2011 tax return Rate (%) from Table A-19   5. Amend a 2011 tax return Multiply line 3 by line 4. Amend a 2011 tax return This is Amount A. Amend a 2011 tax return   6. Amend a 2011 tax return Fair market value   7. Amend a 2011 tax return Average business/investment use for years property leased before the first year business use is 50% or less . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return . Amend a 2011 tax return   8. Amend a 2011 tax return Multiply line 6 by line 7   9. Amend a 2011 tax return Rate (%) from Table A-20   10. Amend a 2011 tax return Multiply line 8 by line 9. Amend a 2011 tax return This is Amount B. Amend a 2011 tax return   11. Amend a 2011 tax return Add line 5 and line 10. Amend a 2011 tax return This is your inclusion amount. Amend a 2011 tax return Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Amend a 2011 tax return )         Example. Amend a 2011 tax return On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. Amend a 2011 tax return The lease is for a period of 5 years. Amend a 2011 tax return Larry does not use the computer at a regular business establishment, so it is listed property. Amend a 2011 tax return His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. Amend a 2011 tax return He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. Amend a 2011 tax return The computer has a 5-year recovery period under both GDS and ADS. Amend a 2011 tax return 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. Amend a 2011 tax return 8%. Amend a 2011 tax return The applicable percentage from Table A-20 is 22. Amend a 2011 tax return 0%. Amend a 2011 tax return Larry's deductible rent for the computer for 2013 is $800. Amend a 2011 tax return Larry uses the Inclusion amount worksheet. Amend a 2011 tax return to figure the amount he must include in income for 2013. Amend a 2011 tax return His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). Amend a 2011 tax return Inclusion Amount Worksheet for Leased Listed Property 1. Amend a 2011 tax return Fair market value $3,000   2. Amend a 2011 tax return Business/investment use for first year business use is 50% or less 40 % 3. Amend a 2011 tax return Multiply line 1 by line 2. Amend a 2011 tax return 1,200   4. Amend a 2011 tax return Rate (%) from Table A-19 −19. Amend a 2011 tax return 8 % 5. Amend a 2011 tax return Multiply line 3 by line 4. Amend a 2011 tax return This is Amount A. Amend a 2011 tax return −238   6. Amend a 2011 tax return Fair market value 3,000   7. Amend a 2011 tax return Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. Amend a 2011 tax return Multiply line 6 by line 7 2,100   9. Amend a 2011 tax return Rate (%) from Table A-20 22. Amend a 2011 tax return 0 % 10. Amend a 2011 tax return Multiply line 8 by line 9. Amend a 2011 tax return This is Amount B. Amend a 2011 tax return 462   11. Amend a 2011 tax return Add line 5 and line 10. Amend a 2011 tax return This is your inclusion amount. Amend a 2011 tax return Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Amend a 2011 tax return ) $224           Lease beginning in the last 9 months of your tax year. Amend a 2011 tax return    The inclusion amount is subject to a special rule if all the following apply. Amend a 2011 tax return The lease term begins within 9 months before the close of your tax year. Amend a 2011 tax return You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. Amend a 2011 tax return The lease term continues into your next tax year. Amend a 2011 tax return Under this special rule, add the inclusion amount to income in the next tax year. Amend a 2011 tax return Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. Amend a 2011 tax return Skip lines 6 through 9 of the worksheet and enter zero on line 10. Amend a 2011 tax return Example 1. Amend a 2011 tax return On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. Amend a 2011 tax return The property is 5-year property with a fair market value of $10,000. Amend a 2011 tax return Her property has a recovery period of 5 years under ADS. Amend a 2011 tax return The lease is for 5 years. Amend a 2011 tax return Her business use of the property was 50% in 2012 and 90% in 2013. Amend a 2011 tax return She paid rent of $3,600 for 2012, of which $3,240 is deductible. Amend a 2011 tax return She must include $147 in income in 2013. Amend a 2011 tax return The $147 is the sum of Amount A and Amount B. Amend a 2011 tax return Amount A is $147 ($10,000 × 70% × 2. Amend a 2011 tax return 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . Amend a 2011 tax return Amount B is zero. Amend a 2011 tax return Lease for less than one year. Amend a 2011 tax return   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. Amend a 2011 tax return The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. Amend a 2011 tax return The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). Amend a 2011 tax return   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. Amend a 2011 tax return If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. Amend a 2011 tax return Example 2. Amend a 2011 tax return On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. Amend a 2011 tax return This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. Amend a 2011 tax return The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. Amend a 2011 tax return He must include $71 in income in 2013. Amend a 2011 tax return The $71 is the sum of Amount A and Amount B. Amend a 2011 tax return Amount A is $71 ($15,000 × 45% × 2. Amend a 2011 tax return 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. Amend a 2011 tax return Amount B is zero. Amend a 2011 tax return Where to report inclusion amount. Amend a 2011 tax return   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. Amend a 2011 tax return For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. Amend a 2011 tax return If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. Amend a 2011 tax return Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. Amend a 2011 tax return This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. Amend a 2011 tax return Exception for leased cars. Amend a 2011 tax return   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. Amend a 2011 tax return For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . Amend a 2011 tax return Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. Amend a 2011 tax return They are based on the date you placed the automobile in service. Amend a 2011 tax return Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. Amend a 2011 tax return Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Amend a 2011 tax return 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. Amend a 2011 tax return 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. Amend a 2011 tax return 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. Amend a 2011 tax return 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. Amend a 2011 tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Amend a 2011 tax return 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Amend a 2011 tax return If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. Amend a 2011 tax return If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. Amend a 2011 tax return The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. Amend a 2011 tax return Example. Amend a 2011 tax return On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. Amend a 2011 tax return She used the car only in her business. Amend a 2011 tax return She files her tax return based on the calendar year. Amend a 2011 tax return She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Amend a 2011 tax return Under MACRS, a car is 5-year property. Amend a 2011 tax return Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Amend a 2011 tax return Virginia multiplies the $14,500 unadjusted basis of her car by 0. Amend a 2011 tax return 20 to get her MACRS depreciation of $2,900 for 2013. Amend a 2011 tax return This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. Amend a 2011 tax return She can deduct the full $2,900. Amend a 2011 tax return Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. Amend a 2011 tax return The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Amend a 2011 tax return Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. Amend a 2011 tax return Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. Amend a 2011 tax return 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. Amend a 2011 tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Amend a 2011 tax return 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Amend a 2011 tax return Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. Amend a 2011 tax return The maximum deduction amounts for trucks and vans are shown in the following table. Amend a 2011 tax return Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. Amend a 2011 tax return 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. Amend a 2011 tax return 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Amend a 2011 tax return 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. Amend a 2011 tax return 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. Amend a 2011 tax return 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. Amend a 2011 tax return 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. Amend a 2011 tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Amend a 2011 tax return 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Amend a 2011 tax return Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. Amend a 2011 tax return Then use the information from this worksheet to prepare Form 4562. Amend a 2011 tax return Depreciation Worksheet for Passenger Automobiles   Part I   1. Amend a 2011 tax return MACRS system (GDS or ADS)     2. Amend a 2011 tax return Property class     3. Amend a 2011 tax return Date placed in service     4. Amend a 2011 tax return Recovery period     5. Amend a 2011 tax return Method and convention     6. Amend a 2011 tax return Depreciation rate (from tables)     7. Amend a 2011 tax return Maximum depreciation deduction for this year from the appropriate table       8. Amend a 2011 tax return Business/investment-use percentage       9. Amend a 2011 tax return Multiply line 7 by line 8. Amend a 2011 tax return This is your adjusted maximum depreciation deduction       10. Amend a 2011 tax return Section 179 deduction claimed this year (not more than line 9). Amend a 2011 tax return Enter -0- if this is not the year you placed the car in service. Amend a 2011 tax return         Note. Amend a 2011 tax return  1) If line 10 is equal to line 9, stop here. Amend a 2011 tax return Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. Amend a 2011 tax return  2) If line 10 is less than line 9, complete Part II. Amend a 2011 tax return   Part II   11. Amend a 2011 tax return Subtract line 10 from line 9. Amend a 2011 tax return This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. Amend a 2011 tax return Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. Amend a 2011 tax return Multiply line 12 by line 8. Amend a 2011 tax return This is your business/investment cost       14. Amend a 2011 tax return Section 179 deduction claimed in the year you placed the car in service       15. Amend a 2011 tax return Subtract line 14 from line 13. Amend a 2011 tax return This is your tentative basis for depreciation       16. Amend a 2011 tax return Multiply line 15 by . Amend a 2011 tax return 50 if the 50% special depreciation allowance applies. Amend a 2011 tax return This is your special depreciation allowance. Amend a 2011 tax return Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. Amend a 2011 tax return Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. Amend a 2011 tax return  2) If line 16 is less than line 11, complete Part III. Amend a 2011 tax return   Part III   17. Amend a 2011 tax return Subtract line 16 from 11. Amend a 2011 tax return This is the limit on the amount you can deduct for MACRS depreciation       18. Amend a 2011 tax return Subtract line 16 from line 15. Amend a 2011 tax return This is your basis for depreciation. Amend a 2011 tax return       19. Amend a 2011 tax return Multiply line 18 by line 6. Amend a 2011 tax return This is your tentative MACRS depreciation deduction. Amend a 2011 tax return       20. Amend a 2011 tax return Enter the lesser of line 17 or line 19. Amend a 2011 tax return This is your MACRS depreciation deduction. Amend a 2011 tax return     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. Amend a 2011 tax return 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. Amend a 2011 tax return             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. Amend a 2011 tax return If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. Amend a 2011 tax return You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. Amend a 2011 tax return The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. Amend a 2011 tax return See Maximum Depreciation Deduction , earlier. Amend a 2011 tax return Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. Amend a 2011 tax return You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. Amend a 2011 tax return There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. Amend a 2011 tax return Example. Amend a 2011 tax return In May 2007, you bought and placed in service a car costing $31,500. Amend a 2011 tax return The car was 5-year property under GDS (MACRS). Amend a 2011 tax return You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Amend a 2011 tax return You used the car exclusively for business during the recovery period (2007 through 2012). Amend a 2011 tax return You figured your depreciation as shown below. Amend a 2011 tax return Year Percentage Amount Limit   Allowed 2007 20. Amend a 2011 tax return 0% $6,300 $2,960   $2,960 2008 32. Amend a 2011 tax return 0 10,080 4,800   4,800 2009 19. Amend a 2011 tax return 2 6,048 2,850   2,850 2010 11. Amend a 2011 tax return 52 3,629 1,675   1,675 2011 11. Amend a 2011 tax return 52 3,629 1,675   1,675 2012 5. Amend a 2011 tax return 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). Amend a 2011 tax return If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. Amend a 2011 tax return If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. Amend a 2011 tax return However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. Amend a 2011 tax return For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. Amend a 2011 tax return Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. Amend a 2011 tax return Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. Amend a 2011 tax return This excess basis is the additional cash paid for the new automobile in the trade-in. Amend a 2011 tax return The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Amend a 2011 tax return Special rules apply in determining the passenger automobile limits. Amend a 2011 tax return These rules and examples are discussed in section 1. Amend a 2011 tax return 168(i)-6(d)(3) of the regulations. Amend a 2011 tax return Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. Amend a 2011 tax return For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. Amend a 2011 tax return 168(i)-6(i) and 1. Amend a 2011 tax return 168(i)-6(j) of the regulations. Amend a 2011 tax return What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. Amend a 2011 tax return For listed property, you must keep records for as long as any recapture can still occur. Amend a 2011 tax return Recapture can occur in any tax year of the recovery period. Amend a 2011 tax return Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Amend a 2011 tax return You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. Amend a 2011 tax return However, your records should back up your receipts in an orderly manner. Amend a 2011 tax return Elements of expenditure or use. Amend a 2011 tax return   Your records or other documentary evidence must support all the following. Amend a 2011 tax return The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. Amend a 2011 tax return The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. Amend a 2011 tax return The date of the expenditure or use. Amend a 2011 tax return The business or investment purpose for the expenditure or use. Amend a 2011 tax return   Written documents of your expenditure or use are generally better evidence than oral statements alone. Amend a 2011 tax return You do not have to keep a daily log. Amend a 2011 tax return However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. Amend a 2011 tax return Timeliness. Amend a 2011 tax return   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. Amend a 2011 tax return An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. Amend a 2011 tax return   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. Amend a 2011 tax return Business purpose supported. Amend a 2011 tax return   Generally, an adequate record of business purpose must be in the form of a written statement. Amend a 2011 tax return However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. Amend a 2011 tax return A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Amend a 2011 tax return For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Amend a 2011 tax return Business use supported. Amend a 2011 tax return   An adequate record contains enough information on each element of every business or investment use. Amend a 2011 tax return The amount of detail required to support the use depends on the facts and circumstances. Amend a 2011 tax return For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Amend a 2011 tax return   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. Amend a 2011 tax return Separate or combined expenditures or uses. Amend a 2011 tax return   Each use by you normally is considered a separate use. Amend a 2011 tax return However, you can combine repeated uses as a single item. Amend a 2011 tax return   Record each expenditure as a separate item. Amend a 2011 tax return Do not combine it with other expenditures. Amend a 2011 tax return If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. Amend a 2011 tax return If you combine these expenses, you do not need to support the business purpose of each expense. Amend a 2011 tax return Instead, you can divide the expenses based on the total business use of the listed property. Amend a 2011 tax return   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. Amend a 2011 tax return For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. Amend a 2011 tax return You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Amend a 2011 tax return Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Amend a 2011 tax return Confidential information. Amend a 2011 tax return   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. Amend a 2011 tax return You must keep it elsewhere and make it available as support to the IRS director for your area on request. Amend a 2011 tax return Substantial compliance. Amend a 2011 tax return   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. Amend a 2011 tax return   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. Amend a 2011 tax return By your own oral or written statement containing detailed information as to the element. Amend a 2011 tax return By other evidence sufficient to establish the element. Amend a 2011 tax return   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Amend a 2011 tax return If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Amend a 2011 tax return Sampling. Amend a 2011 tax return   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. Amend a 2011 tax return Example 1. Amend a 2011 tax return Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. Amend a 2011 tax return She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. Amend a 2011 tax return There is no other business use of the automobile, but she and family members also use it for personal purposes. Amend a 2011 tax return She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Amend a 2011 tax return Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. Amend a 2011 tax return If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Amend a 2011 tax return Example 2. Amend a 2011 tax return Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. Amend a 2011 tax return Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. Amend a 2011 tax return The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Amend a 2011 tax return Example 3. Amend a 2011 tax return Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. Amend a 2011 tax return For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. Amend a 2011 tax return During these weeks, his business use of the automobile does not follow a consistent pattern. Amend a 2011 tax return During the fourth week of each month, he delivers all business orders taken during the previous month. Amend a 2011 tax return The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. Amend a 2011 tax return The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. Amend a 2011 tax return Loss of records. Amend a 2011 tax return   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Amend a 2011 tax return How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. Amend a 2011 tax return Any deduction for a vehicle. Amend a 2011 tax return A depreciation deduction for any other listed property. Amend a 2011 tax return If you claim any deduction for a vehicle, you also must provide the information requested in Section B. Amend a 2011 tax return If you provide the vehicle for your employee's use, the employee must give you this information. Amend a 2011 tax return If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. Amend a 2011 tax return Vehicles used by your employees. Amend a 2011 tax return   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. Amend a 2011 tax return You maintain a written policy statement that prohibits one of the following uses of the vehicles. Amend a 2011 tax return All personal use including commuting. Amend a 2011 tax return Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. Amend a 2011 tax return You treat all use of the vehicles by your employees as personal use. Amend a 2011 tax return You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. Amend a 2011 tax return For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. Amend a 2011 tax return Exceptions. Amend a 2011 tax return   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. Amend a 2011 tax return Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. Amend a 2011 tax return Prev  Up  Next   Home   More Online Publications