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File Amended Tax Return 2011

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File Amended Tax Return 2011

File amended tax return 2011 14. File amended tax return 2011   Sale of Property Table of Contents Reminder Introduction Useful Items - You may want to see: Sales and TradesWhat Is a Sale or Trade? How To Figure Gain or Loss Nontaxable Trades Transfers Between Spouses Related Party Transactions Capital Gains and LossesCapital or Ordinary Gain or Loss Capital Assets and Noncapital Assets Holding Period Nonbusiness Bad Debts Wash Sales Rollover of Gain From Publicly Traded Securities Reminder Foreign income. File amended tax return 2011  If you are a U. File amended tax return 2011 S. File amended tax return 2011 citizen who sells property located outside the United States, you must report all gains and losses from the sale of that property on your tax return unless it is exempt by U. File amended tax return 2011 S. File amended tax return 2011 law. File amended tax return 2011 This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. File amended tax return 2011 Introduction This chapter discusses the tax consequences of selling or trading investment property. File amended tax return 2011 It explains the following. File amended tax return 2011 What a sale or trade is. File amended tax return 2011 Figuring gain or loss. File amended tax return 2011 Nontaxable trades. File amended tax return 2011 Related party transactions. File amended tax return 2011 Capital gains or losses. File amended tax return 2011 Capital assets and noncapital assets. File amended tax return 2011 Holding period. File amended tax return 2011 Rollover of gain from publicly traded securities. File amended tax return 2011 Other property transactions. File amended tax return 2011   Certain transfers of property are not discussed here. File amended tax return 2011 They are discussed in other IRS publications. File amended tax return 2011 These include the following. File amended tax return 2011 Sales of a main home, covered in chapter 15. File amended tax return 2011 Installment sales, covered in Publication 537, Installment Sales. File amended tax return 2011 Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. File amended tax return 2011 Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. File amended tax return 2011    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. File amended tax return 2011 Publication 550 includes information about the rules covering nonbusiness bad debts, straddles, section 1256 contracts, puts and calls, commodity futures, short sales, and wash sales. File amended tax return 2011 It also discusses investment-related expenses. File amended tax return 2011 Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 8949 Sales and Other Dispositions of Capital Assets 8824 Like-Kind Exchanges Sales and Trades If you sold property such as stocks, bonds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. File amended tax return 2011 Generally, you should receive the statement by February 15 of the next year. File amended tax return 2011 It will show the gross proceeds from the sale. File amended tax return 2011 If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. File amended tax return 2011 Generally, a covered security is a security you acquired after 2010, with certain exceptions. File amended tax return 2011 See the Instructions for Form 8949. File amended tax return 2011 The IRS will also get a copy of Form 1099-B from the broker. File amended tax return 2011 Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. File amended tax return 2011 What Is a Sale or Trade? This section explains what is a sale or trade. File amended tax return 2011 It also explains certain transactions and events that are treated as sales or trades. File amended tax return 2011 A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. File amended tax return 2011 A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. File amended tax return 2011 Sale and purchase. File amended tax return 2011   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. File amended tax return 2011 The sale and purchase are two separate transactions. File amended tax return 2011 But see Like-kind exchanges under Nontaxable Trades, later. File amended tax return 2011 Redemption of stock. File amended tax return 2011   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. File amended tax return 2011 Dividend versus sale or trade. File amended tax return 2011   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. File amended tax return 2011 Both direct and indirect ownership of stock will be considered. File amended tax return 2011 The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend (see chapter 8), There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. File amended tax return 2011 Redemption or retirement of bonds. File amended tax return 2011   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. File amended tax return 2011   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. File amended tax return 2011 For details, see Regulations section 1. File amended tax return 2011 1001-3. File amended tax return 2011 Surrender of stock. File amended tax return 2011   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. File amended tax return 2011 The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. File amended tax return 2011 Worthless securities. File amended tax return 2011    Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. File amended tax return 2011 This affects whether your capital loss is long term or short term. File amended tax return 2011 See Holding Period , later. File amended tax return 2011   Worthless securities also include securities that you abandon after March 12, 2008. File amended tax return 2011 To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. File amended tax return 2011 All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. File amended tax return 2011    If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. File amended tax return 2011 Do not deduct them in the year the stock became worthless. File amended tax return 2011 How to report loss. File amended tax return 2011    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. File amended tax return 2011 In column (a), enter “Worthless. File amended tax return 2011 ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. File amended tax return 2011 See Form 8949 and the Instructions for Form 8949. File amended tax return 2011 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. File amended tax return 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. File amended tax return 2011 Filing a claim for refund. File amended tax return 2011   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. File amended tax return 2011 You must use Form 1040X, Amended U. File amended tax return 2011 S. File amended tax return 2011 Individual Income Tax Return, to amend your return for the year the security became worthless. File amended tax return 2011 You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. File amended tax return 2011 For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. File amended tax return 2011 How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. File amended tax return 2011 Gain. File amended tax return 2011   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. File amended tax return 2011 Loss. File amended tax return 2011   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. File amended tax return 2011 Adjusted basis. File amended tax return 2011   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. File amended tax return 2011 See chapter 13 for more information about determining the adjusted basis of property. File amended tax return 2011 Amount realized. File amended tax return 2011   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). File amended tax return 2011 Amount realized includes the money you receive plus the fair market value of any property or services you receive. File amended tax return 2011 If you received a note or other debt instrument for the property, see How To Figure Gain or Loss in chapter 4 of Publication 550 to figure the amount realized. File amended tax return 2011 If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. File amended tax return 2011 For more information, see Publication 537. File amended tax return 2011 Fair market value. File amended tax return 2011   Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. File amended tax return 2011 Example. File amended tax return 2011 You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. File amended tax return 2011 Your gain is $3,000 ($10,000 − $7,000). File amended tax return 2011 Debt paid off. File amended tax return 2011    A debt against the property, or against you, that is paid off as a part of the transaction, or that is assumed by the buyer, must be included in the amount realized. File amended tax return 2011 This is true even if neither you nor the buyer is personally liable for the debt. File amended tax return 2011 For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. File amended tax return 2011 Example. File amended tax return 2011 You sell stock that you had pledged as security for a bank loan of $8,000. File amended tax return 2011 Your basis in the stock is $6,000. File amended tax return 2011 The buyer pays off your bank loan and pays you $20,000 in cash. File amended tax return 2011 The amount realized is $28,000 ($20,000 + $8,000). File amended tax return 2011 Your gain is $22,000 ($28,000 − $6,000). File amended tax return 2011 Payment of cash. File amended tax return 2011   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. File amended tax return 2011 Determine your gain or loss by subtracting the cash you pay plus the adjusted basis of the property you trade in from the amount you realize. File amended tax return 2011 If the result is a positive number, it is a gain. File amended tax return 2011 If the result is a negative number, it is a loss. File amended tax return 2011 No gain or loss. File amended tax return 2011   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. File amended tax return 2011 In this case, you may have neither a gain nor a loss. File amended tax return 2011 See Basis Other Than Cost in chapter 13. File amended tax return 2011 Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. File amended tax return 2011 For more information on nontaxable trades, see chapter 1 of Publication 544. File amended tax return 2011 Like-kind exchanges. File amended tax return 2011   If you trade business or investment property for other business or investment property of a like kind, you do not pay tax on any gain or deduct any loss until you sell or dispose of the property you receive. File amended tax return 2011 To be nontaxable, a trade must meet all six of the following conditions. File amended tax return 2011 The property must be business or investment property. File amended tax return 2011 You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. File amended tax return 2011 Neither property may be property used for personal purposes, such as your home or family car. File amended tax return 2011 The property must not be held primarily for sale. File amended tax return 2011 The property you trade and the property you receive must not be property you sell to customers, such as merchandise. File amended tax return 2011 The property must not be stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest, including partnership interests. File amended tax return 2011 However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. File amended tax return 2011 Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. File amended tax return 2011 There must be a trade of like property. File amended tax return 2011 The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. File amended tax return 2011 The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. File amended tax return 2011 The trade of a piece of machinery for a store building is not a trade of like property. File amended tax return 2011 Real property located in the United States and real property located outside the United States are not like property. File amended tax return 2011 Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. File amended tax return 2011 The property to be received must be identified in writing within 45 days after the date you transfer the property given up in the trade. File amended tax return 2011 The property to be received must be received by the earlier of: The 180th day after the date on which you transfer the property given up in the trade, or The due date, including extensions, for your tax return for the year in which the transfer of the property given up occurs. File amended tax return 2011    If you trade property with a related party in a like-kind exchange, a special rule may apply. File amended tax return 2011 See Related Party Transactions , later in this chapter. File amended tax return 2011 Also, see chapter 1 of Publication 544 for more information on exchanges of business property and special rules for exchanges using qualified intermediaries or involving multiple properties. File amended tax return 2011 Partly nontaxable exchange. File amended tax return 2011   If you receive money or unlike property in addition to like property, and the above six conditions are met, you have a partly nontaxable trade. File amended tax return 2011 You are taxed on any gain you realize, but only up to the amount of the money and the fair market value of the unlike property you receive. File amended tax return 2011 You cannot deduct a loss. File amended tax return 2011 Like property and unlike property transferred. File amended tax return 2011   If you give up unlike property in addition to the like property, you must recognize gain or loss on the unlike property you give up. File amended tax return 2011 The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. File amended tax return 2011 Like property and money transferred. File amended tax return 2011   If all of the above conditions (1) – (6) are met, you have a nontaxable trade even if you pay money in addition to the like property. File amended tax return 2011 Basis of property received. File amended tax return 2011   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. File amended tax return 2011 How to report. File amended tax return 2011   You must report the trade of like property on Form 8824. File amended tax return 2011 If you figure a recognized gain or loss on Form 8824, report it on Schedule D (Form 1040), or on Form 4797, Sales of Business Property, whichever applies. File amended tax return 2011 See the instructions for Line 22 in the Instructions for Form 8824. File amended tax return 2011   For information on using Form 4797, see chapter 4 of Publication 544. File amended tax return 2011 Corporate stocks. File amended tax return 2011   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. File amended tax return 2011 Corporate reorganizations. File amended tax return 2011   In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. File amended tax return 2011 If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss. File amended tax return 2011 Stock for stock of the same corporation. File amended tax return 2011   You can exchange common stock for common stock or preferred stock for preferred stock in the same corporation without having a recognized gain or loss. File amended tax return 2011 This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. File amended tax return 2011 Convertible stocks and bonds. File amended tax return 2011   You generally will not have a recognized gain or loss if you convert bonds into stock or preferred stock into common stock of the same corporation according to a conversion privilege in the terms of the bond or the preferred stock certificate. File amended tax return 2011 Property for stock of a controlled corporation. File amended tax return 2011   If you transfer property to a corporation solely in exchange for stock in that corporation, and immediately after the trade you are in control of the corporation, you ordinarily will not recognize a gain or loss. File amended tax return 2011 This rule applies both to individuals and to groups who transfer property to a corporation. File amended tax return 2011 It does not apply if the corporation is an investment company. File amended tax return 2011   For this purpose, 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 of the corporation. File amended tax return 2011   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. File amended tax return 2011 For details, see Regulations section 1. File amended tax return 2011 351-3. File amended tax return 2011 Additional information. File amended tax return 2011   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. File amended tax return 2011 Insurance policies and annuities. File amended tax return 2011   You will not have a recognized gain or loss if the insured or annuitant is the same under both contracts and you trade: A life insurance contract for another life insurance contract or for an endowment or annuity contract or for a qualified long-term care insurance contract, An endowment contract for another endowment contract that provides for regular payments beginning at a date no later than the beginning date under the old contract or for an annuity contract or for a qualified long-term insurance contract, An annuity contract for annuity contract or for a qualified long-term care insurance contract, or A qualified long-term care insurance contract for a qualified long-term care insurance contract. File amended tax return 2011   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. File amended tax return 2011 For transfers completed before October 24, 2011, see Revenue Ruling 2003-76 in Internal Revenue Bulletin 2003-33 and Revenue Procedure 2008-24 in Internal Revenue Bulletin 2008-13. File amended tax return 2011 Revenue Ruling 2003-76 is available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2003-33_IRB/ar11. File amended tax return 2011 html. File amended tax return 2011 Revenue Procedure 2008-24 is available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2008-13_IRB/ar13. File amended tax return 2011 html. File amended tax return 2011 For transfers completed on or after October 24, 2011, see Revenue Ruling 2003-76, above, and Revenue Procedure 2011-38, in Internal Revenue Bulletin 2011-30. File amended tax return 2011 Revenue Procedure 2011-38 is available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2011-30_IRB/ar09. File amended tax return 2011 html. File amended tax return 2011   For tax years beginning after December 31, 2010, amounts received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, are treated as a separate contract and are considered partial annuities. File amended tax return 2011 A portion of an annuity, endowment, or life insurance contract may be annuitized, provided that the annuitization period is for 10 years or more or for the lives of one or more individuals. File amended tax return 2011 The investment in the contract is allocated between the part of the contract from which amounts are received as an annuity and the part of the contract from which amounts are not received as an annuity. File amended tax return 2011   Exchanges of contracts not included in this list, such as an annuity contract for an endowment contract, or an annuity or endowment contract for a life insurance contract, are taxable. File amended tax return 2011 Demutualization of life insurance companies. File amended tax return 2011   If you received stock in exchange for your equity interest as a policyholder or an annuitant, you generally will not have a recognized gain or loss. File amended tax return 2011 See Demutualization of Life Insurance Companies in Publication 550. File amended tax return 2011 U. File amended tax return 2011 S. File amended tax return 2011 Treasury notes or bonds. File amended tax return 2011   You can trade certain issues of U. File amended tax return 2011 S. File amended tax return 2011 Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. File amended tax return 2011 See Savings bonds traded in chapter 1 of Publication 550 for more information. File amended tax return 2011 Transfers Between Spouses Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or if incident to a divorce, a former spouse. File amended tax return 2011 This nonrecognition rule does not apply in the following situations. File amended tax return 2011 The recipient spouse or former spouse is a nonresident alien. File amended tax return 2011 Property is transferred in trust and liability exceeds basis. File amended tax return 2011 Gain must be recognized to the extent the amount of the liabilities assumed by the trust, plus any liabilities on the property, exceed the adjusted basis of the property. File amended tax return 2011 For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. File amended tax return 2011 Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is treated by the recipient as a gift and is not considered a sale or exchange. File amended tax return 2011 The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. File amended tax return 2011 This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its fair market value at the time of transfer or any consideration paid by the recipient. File amended tax return 2011 This rule applies for purposes of determining loss as well as gain. File amended tax return 2011 Any gain recognized on a transfer in trust increases the basis. File amended tax return 2011 A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ends, or if the transfer is related to the ending of the marriage. File amended tax return 2011 Related Party Transactions Special rules apply to the sale or trade of property between related parties. File amended tax return 2011 Gain on sale or trade of depreciable property. File amended tax return 2011   Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. File amended tax return 2011 See chapter 3 of Publication 544 for more information. File amended tax return 2011 Like-kind exchanges. File amended tax return 2011   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. File amended tax return 2011 See Like-kind exchanges , earlier, under Nontaxable Trades. File amended tax return 2011   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. File amended tax return 2011 However, if either you or the related party disposes of the like property within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs. File amended tax return 2011 See Related Party Transactions in chapter 4 of Publication 550 for exceptions. File amended tax return 2011 Losses on sales or trades of property. File amended tax return 2011   You cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties. File amended tax return 2011 Members of your family. File amended tax return 2011 This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. File amended tax return 2011 ), and lineal descendants (children, grandchildren, etc. File amended tax return 2011 ). File amended tax return 2011 A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. File amended tax return 2011 A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. File amended tax return 2011 (See Constructive ownership of stock , later. File amended tax return 2011 ) A tax-exempt charitable or educational organization directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. File amended tax return 2011   In addition, a loss on the sale or trade of property is not deductible if the transaction is directly or indirectly between the following related parties. File amended tax return 2011 A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. File amended tax return 2011 Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. File amended tax return 2011 A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust. File amended tax return 2011 A corporation and 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 interest, or the profits interest, in the partnership. File amended tax return 2011 Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. File amended tax return 2011 Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. File amended tax return 2011 An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). File amended tax return 2011 Two corporations that are members of the same controlled group. File amended tax return 2011 (Under certain conditions, however, these losses are not disallowed but must be deferred. File amended tax return 2011 ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. File amended tax return 2011 Multiple property sales or trades. File amended tax return 2011   If you sell or trade to a related party a number of blocks of stock or pieces of property in a lump sum, you must figure the gain or loss separately for each block of stock or piece of property. File amended tax return 2011 The gain on each item may be taxable. File amended tax return 2011 However, you cannot deduct the loss on any item. File amended tax return 2011 Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. File amended tax return 2011 Indirect transactions. File amended tax return 2011   You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. File amended tax return 2011 This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. File amended tax return 2011 Constructive ownership of stock. File amended tax return 2011   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. File amended tax return 2011 Rule 1. File amended tax return 2011   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. File amended tax return 2011 Rule 2. File amended tax return 2011   An individual is considered to own the stock directly or indirectly owned by or for his or her family. File amended tax return 2011 Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. File amended tax return 2011 Rule 3. File amended tax return 2011   An individual owning, other than by applying rule 2, any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. File amended tax return 2011 Rule 4. File amended tax return 2011   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. File amended tax return 2011 But stock constructively owned by an individual under rule 2 or rule 3 is not treated as owned by that individual for again applying either rule 2 or rule 3 to make another person the constructive owner of the stock. File amended tax return 2011 Property received from a related party. File amended tax return 2011    If you sell or trade at a gain property you acquired from a related party, you recognize the gain only to the extent it is more than the loss previously disallowed to the related party. File amended tax return 2011 This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. File amended tax return 2011 This rule does not apply if the related party's loss was disallowed because of the wash sale rules described in chapter 4 of Publication 550 under Wash Sales. File amended tax return 2011   If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party. File amended tax return 2011 Example 1. File amended tax return 2011 Your brother sells you stock for $7,600. File amended tax return 2011 His cost basis is $10,000. File amended tax return 2011 Your brother cannot deduct the loss of $2,400. File amended tax return 2011 Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. File amended tax return 2011 Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). File amended tax return 2011 Example 2. File amended tax return 2011 If, in Example 1, you sold the stock for $6,900 instead of $10,500, your recognized loss is only $700 (your $7,600 basis minus $6,900). File amended tax return 2011 You cannot deduct the loss that was not allowed to your brother. File amended tax return 2011 Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. File amended tax return 2011 Character of gain or loss. File amended tax return 2011   You need to classify your gains and losses as either ordinary or capital gains or losses. File amended tax return 2011 You then need to classify your capital gains and losses as either short term or long term. File amended tax return 2011 If you have long-term gains and losses, you must identify your 28% rate gains and losses. File amended tax return 2011 If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. File amended tax return 2011   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. File amended tax return 2011 Reporting capital gains and losses is explained in chapter 16. File amended tax return 2011 Capital or Ordinary Gain or Loss If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. File amended tax return 2011 Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. File amended tax return 2011 A sale or trade of a noncapital asset generally results in ordinary gain or loss. File amended tax return 2011 Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. File amended tax return 2011 In some situations, part of your gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. File amended tax return 2011 Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. File amended tax return 2011 Some examples are: Stocks or bonds held in your personal account, A house owned and used by you and your family, Household furnishings, A car used for pleasure or commuting, Coin or stamp collections, Gems and jewelry, and Gold, silver, or any other metal. File amended tax return 2011 Any property you own is a capital asset, except the following noncapital assets. File amended tax return 2011 Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. File amended tax return 2011 For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. File amended tax return 2011 Depreciable property used in your trade or business, even if fully depreciated. File amended tax return 2011 Real property used in your trade or business. File amended tax return 2011 A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property that is: Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. File amended tax return 2011 For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. File amended tax return 2011 Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1). File amended tax return 2011 U. File amended tax return 2011 S. File amended tax return 2011 Government publications that you received from the government free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications free or for less than the normal sales price. File amended tax return 2011 Certain commodities derivative financial instruments held by commodities derivatives dealers. File amended tax return 2011 Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. File amended tax return 2011 Supplies of a type you regularly use or consume in the ordinary course of your trade or business. File amended tax return 2011 Investment Property Investment property is a capital asset. File amended tax return 2011 Any gain or loss from its sale or trade is generally a capital gain or loss. File amended tax return 2011 Gold, silver, stamps, coins, gems, etc. File amended tax return 2011   These are capital assets except when they are held for sale by a dealer. File amended tax return 2011 Any gain or loss you have from their sale or trade generally is a capital gain or loss. File amended tax return 2011 Stocks, stock rights, and bonds. File amended tax return 2011   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. File amended tax return 2011 However, if you own small business stock, see Losses on Section 1244 (Small Business) Stock , later, and Losses on Small Business Investment Company Stock, in chapter 4 of Publication 550. File amended tax return 2011 Personal Use Property Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. File amended tax return 2011 However, you cannot deduct a loss from selling personal use property. File amended tax return 2011 Capital Asset Treatment for Self-Created Musical Works You can elect to treat musical compositions and copyrights in musical works as capital assets when you sell or exchange them if: Your personal efforts created the property, or You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. File amended tax return 2011 You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. File amended tax return 2011 You must make the election on or before the due date (including extensions) of the income tax return for the tax year of the sale or exchange. File amended tax return 2011 You must make the election on Form 8949 by treating the sale or exchange as the sale or exchange of a capital asset, according to Form 8949, Schedule D (Form 1040), and their separate instructions. File amended tax return 2011 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. File amended tax return 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. File amended tax return 2011 You can revoke the election if you have IRS approval. File amended tax return 2011 To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. File amended tax return 2011 See, for example, Rev. File amended tax return 2011 Proc. File amended tax return 2011 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. File amended tax return 2011 Proc. File amended tax return 2011 2013–32, available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2013-01_IRB/ar06. File amended tax return 2011 html. File amended tax return 2011 Alternatively, you are granted an automatic 6-month extension from the due date of your income tax return (excluding extensions) to revoke the election, provided you timely file your income tax return, and within this 6-month extension period, you file Form 1040X that treats the sale or exchange as the sale or exchange of property that is not a capital asset. File amended tax return 2011 Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, except as explained in the following discussions. File amended tax return 2011 Short-term government obligations. File amended tax return 2011   Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. File amended tax return 2011 This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. File amended tax return 2011 Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. File amended tax return 2011   However, do not treat these gains as income to the extent you previously included the discount in income. File amended tax return 2011 See Discount on Short-Term Obligations in chapter 1 of Publication 550. File amended tax return 2011 Short-term nongovernment obligations. File amended tax return 2011   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). File amended tax return 2011 This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. File amended tax return 2011   However, to the extent you previously included the discount in income, you do not have to include it in income again. File amended tax return 2011 See Discount on Short-Term Obligations in chapter 1 of Publication 550. File amended tax return 2011 Tax-exempt state and local government bonds. File amended tax return 2011   If these bonds were originally issued at a discount before September 4, 1982, or you acquired them before March 2, 1984, treat your part of OID as tax-exempt interest. File amended tax return 2011 To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. File amended tax return 2011   If the bonds were issued after September 3, 1982, and acquired after March 1, 1984, increase the adjusted basis by your part of OID to figure gain or loss. File amended tax return 2011 For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. File amended tax return 2011   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. File amended tax return 2011 If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. File amended tax return 2011 If you bought the bonds after April 30, 1993, the gain is ordinary income. File amended tax return 2011   You figure the market discount by subtracting the price you paid for the bond from the sum of the original issue price of the bond and the amount of accumulated OID from the date of issue that represented interest to any earlier holders. File amended tax return 2011 For more information, see Market Discount Bonds in chapter 1 of Publication 550. File amended tax return 2011    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. File amended tax return 2011 Redeemed before maturity. File amended tax return 2011   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. File amended tax return 2011   If a state or local bond issued after June 8, 1980, is redeemed before it matures, the part of OID earned while you hold the bond is not taxable to you. File amended tax return 2011 However, you must report the unearned part of OID as a capital gain. File amended tax return 2011 Example. File amended tax return 2011 On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. File amended tax return 2011 The face amount of the bond was $1,000. File amended tax return 2011 The $200 discount was OID. File amended tax return 2011 At the time the bond was issued, the issuer had no intention of redeeming it before it matured. File amended tax return 2011 The bond was callable at its face amount beginning 10 years after the issue date. File amended tax return 2011 The issuer redeemed the bond at the end of 11 years (July 2, 2013) for its face amount of $1,000 plus accrued annual interest of $60. File amended tax return 2011 The OID earned during the time you held the bond, $73, is not taxable. File amended tax return 2011 The $60 accrued annual interest also is not taxable. File amended tax return 2011 However, you must report the unearned part of OID ($127) as a capital gain. File amended tax return 2011 Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). File amended tax return 2011   If you sell, trade, or redeem for a gain one of these debt instruments, the part of your gain that is not more than your ratable share of the OID at the time of the sale or redemption is ordinary income. File amended tax return 2011 The rest of the gain is capital gain. File amended tax return 2011 If, however, there was an intention to call the debt instrument before maturity, all of your gain that is not more than the entire OID is treated as ordinary income at the time of the sale. File amended tax return 2011 This treatment of taxable gain also applies to corporate instruments issued after May 27, 1969, under a written commitment that was binding on May 27, 1969, and at all times thereafter. File amended tax return 2011 Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). File amended tax return 2011   If you hold one of these debt instruments, you must include a part of OID in your gross income each year you own the instrument. File amended tax return 2011 Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. File amended tax return 2011 See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. File amended tax return 2011   If you sell or trade the debt instrument before maturity, your gain is a capital gain. File amended tax return 2011 However, if at the time the instrument was originally issued there was an intention to call it before its maturity, your gain generally is ordinary income to the extent of the entire OID reduced by any amounts of OID previously includible in your income. File amended tax return 2011 In this case, the rest of the gain is capital gain. File amended tax return 2011 Market discount bonds. File amended tax return 2011   If the debt instrument has market discount and you chose to include the discount in income as it accrued, increase your basis in the debt instrument by the accrued discount to figure capital gain or loss on its disposition. File amended tax return 2011 If you did not choose to include the discount in income as it accrued, you must report gain as ordinary interest income up to the instrument's accrued market discount. File amended tax return 2011 The rest of the gain is capital gain. File amended tax return 2011 See Market Discount Bonds in chapter 1 of Publication 550. File amended tax return 2011   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. File amended tax return 2011 See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. File amended tax return 2011 Retirement of debt instrument. File amended tax return 2011   Any amount you receive on the retirement of a debt instrument is treated in the same way as if you had sold or traded that instrument. File amended tax return 2011 Notes of individuals. File amended tax return 2011   If you hold an obligation of an individual issued with OID after March 1, 1984, you generally must include the OID in your income currently, and your gain or loss on its sale or retirement is generally capital gain or loss. File amended tax return 2011 An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. File amended tax return 2011 The lender is not in the business of lending money. File amended tax return 2011 The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. File amended tax return 2011 Avoiding federal tax is not one of the principal purposes of the loan. File amended tax return 2011   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. File amended tax return 2011 When you sell or redeem the obligation, the part of your gain that is not more than your accrued share of OID at that time is ordinary income. File amended tax return 2011 The rest of the gain, if any, is capital gain. File amended tax return 2011 Any loss on the sale or redemption is capital loss. File amended tax return 2011 Deposit in Insolvent or Bankrupt Financial Institution If you lose money you have on deposit in a bank, credit union, or other financial institution that becomes insolvent or bankrupt, you may be able to deduct your loss in one of three ways. File amended tax return 2011 Ordinary loss. File amended tax return 2011 Casualty loss. File amended tax return 2011 Nonbusiness bad debt (short-term capital loss). File amended tax return 2011  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. File amended tax return 2011 Sale of Annuity The part of any gain on the sale of an annuity contract before its maturity date that is based on interest accumulated on the contract is ordinary income. File amended tax return 2011 Losses on Section 1244 (Small Business) Stock You can deduct as an ordinary loss, rather than as a capital loss, your loss on the sale, trade, or worthlessness of section 1244 stock. File amended tax return 2011 Report the loss on Form 4797, line 10. File amended tax return 2011 Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. File amended tax return 2011 Report the gain on Form 8949. File amended tax return 2011 See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. File amended tax return 2011 For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. File amended tax return 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. File amended tax return 2011 Holding Period If you sold or traded investment property, you must determine your holding period for the property. File amended tax return 2011 Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. File amended tax return 2011 Long-term or short-term. File amended tax return 2011   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. File amended tax return 2011 If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. File amended tax return 2011   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. File amended tax return 2011 The day you disposed of the property is part of your holding period. File amended tax return 2011 Example. File amended tax return 2011 If you bought investment property on February 6, 2012, and sold it on February 6, 2013, your holding period is not more than 1 year and you have a short-term capital gain or loss. File amended tax return 2011 If you sold it on February 7, 2013, your holding period is more than 1 year and you will have a long-term capital gain or loss. File amended tax return 2011 Securities traded on established market. File amended tax return 2011   For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them. File amended tax return 2011    Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made. File amended tax return 2011 Example. File amended tax return 2011 You are a cash method, calendar year taxpayer. File amended tax return 2011 You sold stock at a gain on December 30, 2013. File amended tax return 2011 According to the rules of the stock exchange, the sale was closed by delivery of the stock 4 trading days after the sale, on January 6, 2014. File amended tax return 2011 You received payment of the sales price on that same day. File amended tax return 2011 Report your gain on your 2013 return, even though you received the payment in 2014. File amended tax return 2011 The gain is long term or short term depending on whether you held the stock more than 1 year. File amended tax return 2011 Your holding period ended on December 30. File amended tax return 2011 If you had sold the stock at a loss, you would also report it on your 2013 return. File amended tax return 2011 U. File amended tax return 2011 S. File amended tax return 2011 Treasury notes and bonds. File amended tax return 2011   The holding period of U. File amended tax return 2011 S. File amended tax return 2011 Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. File amended tax return 2011 The holding period of U. File amended tax return 2011 S. File amended tax return 2011 Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. File amended tax return 2011 Automatic investment service. File amended tax return 2011   In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. File amended tax return 2011 Your holding period starts on the day after the bank's purchase date. File amended tax return 2011 If a share was bought over more than one purchase date, your holding period for that share is a split holding period. File amended tax return 2011 A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds. File amended tax return 2011 Nontaxable trades. File amended tax return 2011   If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property. File amended tax return 2011 Property received as a gift. File amended tax return 2011   If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started. File amended tax return 2011   If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift. File amended tax return 2011 Inherited property. File amended tax return 2011   Generally, if you inherited investment property, your capital gain or loss on any later disposition of that property is long-term capital gain or loss. File amended tax return 2011 This is true regardless of how long you actually held the property. File amended tax return 2011 However, if you inherited property from someone who died in 2010, see the information below. File amended tax return 2011 Inherited property from someone who died in 2010. File amended tax return 2011   If you inherit investment property from a decedent who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your holding period. File amended tax return 2011 Real property bought. File amended tax return 2011   To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. File amended tax return 2011 However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. File amended tax return 2011 The holding period cannot start until there is an actual contract of sale. File amended tax return 2011 The holding period of the seller cannot end before that time. File amended tax return 2011 Real property repossessed. File amended tax return 2011   If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale and the period after the repossession. File amended tax return 2011 Your holding period does not include the time between the original sale and the repossession. File amended tax return 2011 That is, it does not include the period during which the first buyer held the property. File amended tax return 2011 Stock dividends. File amended tax return 2011   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. File amended tax return 2011   The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. File amended tax return 2011 This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. File amended tax return 2011 Nontaxable stock rights. File amended tax return 2011   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. File amended tax return 2011 The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. File amended tax return 2011 Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. File amended tax return 2011 You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. File amended tax return 2011 Generally, nonbusiness bad debts are bad debts that did not come from operating your trade or business, and are deductible as short-term capital losses. File amended tax return 2011 To be deductible, nonbusiness bad debts must be totally worthless. File amended tax return 2011 You cannot deduct a partly worthless nonbusiness debt. File amended tax return 2011 Genuine debt required. File amended tax return 2011   A debt must be genuine for you to deduct a loss. File amended tax return 2011 A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. File amended tax return 2011 Basis in bad debt required. File amended tax return 2011    To deduct a bad debt, you must have a basis in it—that is, you must have already included the amount in your income or loaned out your cash. File amended tax return 2011 For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. File amended tax return 2011 If you are a cash method taxpayer (as most individuals are), you generally cannot take a bad debt deduction for unpaid salaries, wages, rents, fees, interest, dividends, and similar items. File amended tax return 2011 When deductible. File amended tax return 2011   You can take a bad debt deduction only in the year the debt becomes worthless. File amended tax return 2011 You do not have to wait until a debt is due to determine whether it is worthless. File amended tax return 2011 A debt becomes worthless when there is no longer any chance that the amount owed will be paid. File amended tax return 2011   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. File amended tax return 2011 You must only show that you have taken reasonable steps to collect the debt. File amended tax return 2011 Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. File amended tax return 2011 How to report bad debts. File amended tax return 2011    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. File amended tax return 2011    Make sure you report your bad debt(s) (and any other short-term transactions for which you did not receive a Form 1099-B) on Form 8949, Part I, with box C checked. File amended tax return 2011    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. File amended tax return 2011 See also Schedule D (Form 1040), Form 8949, and their separate instructions. File amended tax return 2011   For each bad debt, attach a statement to your return that contains: A description of the debt, including the amount, and the date it became due, The name of the debtor, and any business or family relationship between you and the debtor, The efforts you made to collect the debt, and Why you decided the debt was worthless. File amended tax return 2011 For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. File amended tax return 2011 Filing a claim for refund. File amended tax return 2011    If you do not deduct a bad debt on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the bad debt. File amended tax return 2011 To do this, use Form 1040X to amend your return for the year the debt became worthless. File amended tax return 2011 You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. File amended tax return 2011 For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. File amended tax return 2011 Additional information. File amended tax return 2011   For more information, see Nonbusiness Bad Debts in Publication 550. File amended tax return 2011 For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. File amended tax return 2011 Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. File amended tax return 2011 A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. File amended tax return 2011 If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). File amended tax return 2011 The result is your basis in the new stock or securities. File amended tax return 2011 This adjustment postpones the loss deduction until the disposition of the new stock or securities. File amended tax return 2011 Your holding period for the new stock or securities includes the holding period of the stock or securities sold. File amended tax return 2011 For more information, see Wash Sales, in chapter 4 of Publication 550. File amended tax return 2011 Rollover of Gain From Publicly Traded Securities You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. File amended tax return 2011 This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain. File amended tax return 2011 You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. File amended tax return 2011 This postpones your gain until the year you dispose of the replacement property. File amended tax return 2011 You qualify to make this choice if you meet all the following tests. File amended tax return 2011 You sell publicly traded securities at a gain. File amended tax return 2011 Publicly traded securities are securities traded on an established securities market. File amended tax return 2011 Your gain from the sale is a capital gain. File amended tax return 2011 During the 60-day period beginning on the date of the sale, you buy replacement property. File amended tax return 2011 This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). File amended tax return 2011 This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993. File amended tax return 2011 Amount of gain recognized. File amended tax return 2011   If you make the choice described in this section, you must recognize gain only up to the following amount. File amended tax return 2011 The amount realized on the sale, minus The cost of any common stock or partnership interest in an SSBIC that you bought during the 60-day period beginning on the date of sale (and did not previously take into account on an earlier sale of publicly traded securities). File amended tax return 2011  If this amount is less than the amount of your gain, you can postpone the rest of your gain, subject to the limit described next. File amended tax return 2011 If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. File amended tax return 2011 Limit on gain postponed. File amended tax return 2011   The amount of gain you can postpone each year is limited to the smaller of: $50,000 ($25,000 if you are married and file a separate return), or $500,000 ($250,000 if you are married and file a separate return), minus the amount of gain you postponed for all earlier years. File amended tax return 2011 Basis of replacement property. File amended tax return 2011   You must subtract the amount of postponed gain from the basis of your replacement property. File amended tax return 2011 How to report and postpone gain. File amended tax return 2011    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. File amended tax return 2011 Prev  Up  Next   Home   More Online Publications
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The File Amended Tax Return 2011

File amended tax return 2011 4. File amended tax return 2011   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. File amended tax return 2011 Loan secured by benefits. File amended tax return 2011 Waiver of survivor benefits. File amended tax return 2011 Waiver of 30-day waiting period before annuity starting date. File amended tax return 2011 Involuntary cash-out of benefits not more than dollar limit. File amended tax return 2011 Exception for certain loans. File amended tax return 2011 Exception for QDRO. File amended tax return 2011 SIMPLE and safe harbor 401(k) plan exception. File amended tax return 2011 Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. File amended tax return 2011 Installment percentage. File amended tax return 2011 Extended period for making contributions. File amended tax return 2011 ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. File amended tax return 2011 Caution: Form 5500-EZ not required. File amended tax return 2011 Form 5500. File amended tax return 2011 Electronic filing of Forms 5500 and 5500-SF. File amended tax return 2011 Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. File amended tax return 2011 dol. File amended tax return 2011 gov/ebsa/pdf/2013-5500. File amended tax return 2011 pdf www. File amended tax return 2011 dol. File amended tax return 2011 gov/ebsa/pdf/2013-5500-SF. File amended tax return 2011 pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. File amended tax return 2011 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. File amended tax return 2011 1040 U. File amended tax return 2011 S. File amended tax return 2011 Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. File amended tax return 2011 For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. File amended tax return 2011 For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. File amended tax return 2011 R. File amended tax return 2011 10 plans. File amended tax return 2011 A sole proprietor or a partnership can set up one of these plans. File amended tax return 2011 A common-law employee or a partner cannot set up one of these plans. File amended tax return 2011 The plans described here can also be set up and maintained by employers that are corporations. File amended tax return 2011 All the rules discussed here apply to corporations except where specifically limited to the self-employed. File amended tax return 2011 The plan must be for the exclusive benefit of employees or their beneficiaries. File amended tax return 2011 These qualified plans can include coverage for a self-employed individual. File amended tax return 2011 As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. File amended tax return 2011 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. File amended tax return 2011 Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. File amended tax return 2011 You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. File amended tax return 2011 Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. File amended tax return 2011 It provides benefits to a participant largely based on the amount contributed to that participant's account. File amended tax return 2011 Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. File amended tax return 2011 A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. File amended tax return 2011 Profit-sharing plan. File amended tax return 2011   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). File amended tax return 2011 A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. File amended tax return 2011 An employer may even make no contribution to the plan for a given year. File amended tax return 2011   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. File amended tax return 2011   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). File amended tax return 2011 Money purchase pension plan. File amended tax return 2011   Contributions to a money purchase pension plan are fixed and are not based on your business profits. File amended tax return 2011 For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. File amended tax return 2011 This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. File amended tax return 2011 Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. File amended tax return 2011 Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. File amended tax return 2011 Actuarial assumptions and computations are required to figure these contributions. File amended tax return 2011 Generally, you will need continuing professional help to have a defined benefit plan. File amended tax return 2011 Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. File amended tax return 2011 Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. File amended tax return 2011 The following is a brief overview of important qualification rules that generally have not yet been discussed. File amended tax return 2011 It is not intended to be all-inclusive. File amended tax return 2011 See Setting Up a Qualified Plan , later. File amended tax return 2011 Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. File amended tax return 2011 A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. File amended tax return 2011 Plan assets must not be diverted. File amended tax return 2011   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. File amended tax return 2011 As a general rule, the assets cannot be diverted to the employer. File amended tax return 2011 Minimum coverage requirement must be met. File amended tax return 2011   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. File amended tax return 2011 50 employees, or The greater of: 40% of all employees, or Two employees. File amended tax return 2011 If there is only one employee, the plan must benefit that employee. File amended tax return 2011 Contributions or benefits must not discriminate. File amended tax return 2011   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. File amended tax return 2011 Contributions and benefits must not be more than certain limits. File amended tax return 2011   Your plan must not provide for contributions or benefits that are more than certain limits. File amended tax return 2011 The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. File amended tax return 2011 These limits are discussed later in this chapter under Contributions. File amended tax return 2011 Minimum vesting standard must be met. File amended tax return 2011   Your plan must satisfy certain requirements regarding when benefits vest. File amended tax return 2011 A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. File amended tax return 2011 A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. File amended tax return 2011 Special rules apply to forfeited benefit amounts. File amended tax return 2011 In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. File amended tax return 2011   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. File amended tax return 2011 Forfeitures must be used instead to reduce employer contributions. File amended tax return 2011 Participation. File amended tax return 2011   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. File amended tax return 2011 Has reached age 21. File amended tax return 2011 Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). File amended tax return 2011 A plan cannot exclude an employee because he or she has reached a specified age. File amended tax return 2011 Leased employee. File amended tax return 2011   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. File amended tax return 2011 These rules include those in all the following areas. File amended tax return 2011 Nondiscrimination in coverage, contributions, and benefits. File amended tax return 2011 Minimum age and service requirements. File amended tax return 2011 Vesting. File amended tax return 2011 Limits on contributions and benefits. File amended tax return 2011 Top-heavy plan requirements. File amended tax return 2011 Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. File amended tax return 2011 Benefit payment must begin when required. File amended tax return 2011   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. File amended tax return 2011 The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. File amended tax return 2011 The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. File amended tax return 2011 The plan year in which the participant separates from service. File amended tax return 2011 Early retirement. File amended tax return 2011   Your plan can provide for payment of retirement benefits before the normal retirement age. File amended tax return 2011 If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. File amended tax return 2011 Satisfies the service requirement for the early retirement benefit. File amended tax return 2011 Separates from service with a nonforfeitable right to an accrued benefit. File amended tax return 2011 The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. File amended tax return 2011 Required minimum distributions. File amended tax return 2011   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. File amended tax return 2011 See Required Distributions , under Distributions, later. File amended tax return 2011 Survivor benefits. File amended tax return 2011   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. File amended tax return 2011 A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. File amended tax return 2011 A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. File amended tax return 2011   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. File amended tax return 2011 The participant does not choose benefits in the form of a life annuity. File amended tax return 2011 The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. File amended tax return 2011 The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. File amended tax return 2011 Loan secured by benefits. File amended tax return 2011   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. File amended tax return 2011 Waiver of survivor benefits. File amended tax return 2011   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. File amended tax return 2011 The plan also must allow the participant to withdraw the waiver. File amended tax return 2011 The spouse's consent must be witnessed by a plan representative or notary public. File amended tax return 2011 Waiver of 30-day waiting period before annuity starting date. File amended tax return 2011    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. File amended tax return 2011   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. File amended tax return 2011 Involuntary cash-out of benefits not more than dollar limit. File amended tax return 2011   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. File amended tax return 2011   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. File amended tax return 2011 If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. File amended tax return 2011   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. File amended tax return 2011   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. File amended tax return 2011 A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. File amended tax return 2011 See Section 402(f) Notice under Distributions, later, for more details. File amended tax return 2011 Consolidation, merger, or transfer of assets or liabilities. File amended tax return 2011   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. File amended tax return 2011 (if the plan had then terminated). File amended tax return 2011 Benefits must not be assigned or alienated. File amended tax return 2011   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. File amended tax return 2011 Exception for certain loans. File amended tax return 2011   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. File amended tax return 2011 A disqualified person is defined later in this chapter under Prohibited Transactions. File amended tax return 2011 Exception for QDRO. File amended tax return 2011   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. File amended tax return 2011   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. File amended tax return 2011 Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. File amended tax return 2011 No benefit reduction for social security increases. File amended tax return 2011   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. File amended tax return 2011 This rule also applies to plans supplementing the benefits provided by other federal or state laws. File amended tax return 2011 Elective deferrals must be limited. File amended tax return 2011   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. File amended tax return 2011 See Limit on Elective Deferrals later in this chapter. File amended tax return 2011 Top-heavy plan requirements. File amended tax return 2011   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. File amended tax return 2011   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. File amended tax return 2011 Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. File amended tax return 2011   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. File amended tax return 2011 These qualification requirements for top-heavy plans are explained in section 416 and its regulations. File amended tax return 2011 SIMPLE and safe harbor 401(k) plan exception. File amended tax return 2011   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. File amended tax return 2011 QACAs (discussed later) also are not subject to top-heavy requirements. File amended tax return 2011 Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. File amended tax return 2011 First you adopt a written plan. File amended tax return 2011 Then you invest the plan assets. File amended tax return 2011 You, the employer, are responsible for setting up and maintaining the plan. File amended tax return 2011 If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. File amended tax return 2011 If you have employees, see Participation, under Qualification Rules, earlier. File amended tax return 2011 Set-up deadline. File amended tax return 2011   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). File amended tax return 2011 Credit for startup costs. File amended tax return 2011   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. File amended tax return 2011 For more information, see Credit for startup costs under Reminders, earlier. File amended tax return 2011 Adopting a Written Plan You must adopt a written plan. File amended tax return 2011 The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. File amended tax return 2011 Or it can be an individually designed plan. File amended tax return 2011 Written plan requirement. File amended tax return 2011   To qualify, the plan you set up must be in writing and must be communicated to your employees. File amended tax return 2011 The plan's provisions must be stated in the plan. File amended tax return 2011 It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. File amended tax return 2011 Master or prototype plans. File amended tax return 2011   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. File amended tax return 2011 Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). File amended tax return 2011 Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. File amended tax return 2011 Under a prototype plan, a separate trust or custodial account is established for each employer. File amended tax return 2011 Plan providers. File amended tax return 2011   The following organizations generally can provide IRS-approved master or prototype plans. File amended tax return 2011 Banks (including some savings and loan associations and federally insured credit unions). File amended tax return 2011 Trade or professional organizations. File amended tax return 2011 Insurance companies. File amended tax return 2011 Mutual funds. File amended tax return 2011 Individually designed plan. File amended tax return 2011   If you prefer, you can set up an individually designed plan to meet specific needs. File amended tax return 2011 Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. File amended tax return 2011 You may need professional help for this. File amended tax return 2011 See Rev. File amended tax return 2011 Proc. File amended tax return 2011 2014-6, 2014-1 I. File amended tax return 2011 R. File amended tax return 2011 B. File amended tax return 2011 198, available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2014-1_IRB/ar10. File amended tax return 2011 html, as annually updated, that may help you decide whether to apply for approval. File amended tax return 2011 Internal Revenue Bulletins are available on the IRS website at IRS. File amended tax return 2011 gov They are also available at most IRS offices and at certain libraries. File amended tax return 2011 User fee. File amended tax return 2011   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. File amended tax return 2011 At least one of them must be a non-highly compensated employee participating in the plan. File amended tax return 2011 The fee does not apply to requests made by the later of the following dates. File amended tax return 2011 The end of the 5th plan year the plan is in effect. File amended tax return 2011 The end of any remedial amendment period for the plan that begins within the first 5 plan years. File amended tax return 2011 The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. File amended tax return 2011   For more information about whether the user fee applies, see Rev. File amended tax return 2011 Proc. File amended tax return 2011 2014-8, 2014-1 I. File amended tax return 2011 R. File amended tax return 2011 B. File amended tax return 2011 242, available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2014-1_IRB/ar12. File amended tax return 2011 html, as may be annually updated; Notice 2003-49, 2003-32 I. File amended tax return 2011 R. File amended tax return 2011 B. File amended tax return 2011 294, available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2003-32_IRB/ar13. File amended tax return 2011 html; and Notice 2011-86, 2011-45 I. File amended tax return 2011 R. File amended tax return 2011 B. File amended tax return 2011 698, available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2011-45_IRB/ar11. File amended tax return 2011 html. File amended tax return 2011 Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. File amended tax return 2011 You can establish a trust or custodial account to invest the funds. File amended tax return 2011 You, the trust, or the custodial account can buy an annuity contract from an insurance company. File amended tax return 2011 Life insurance can be included only if it is incidental to the retirement benefits. File amended tax return 2011 You set up a trust by a legal instrument (written document). File amended tax return 2011 You may need professional help to do this. File amended tax return 2011 You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. File amended tax return 2011 You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. File amended tax return 2011 If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. File amended tax return 2011 Other plan requirements. File amended tax return 2011   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. File amended tax return 2011 Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. File amended tax return 2011 Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. File amended tax return 2011 For information on this funding requirement, see section 412 and its regulations. File amended tax return 2011 Quarterly installments of required contributions. File amended tax return 2011   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. File amended tax return 2011 If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. File amended tax return 2011 Due dates. File amended tax return 2011   The due dates for the installments are 15 days after the end of each quarter. File amended tax return 2011 For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). File amended tax return 2011 Installment percentage. File amended tax return 2011   Each quarterly installment must be 25% of the required annual payment. File amended tax return 2011 Extended period for making contributions. File amended tax return 2011   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. File amended tax return 2011 Contributions A qualified plan is generally funded by your contributions. File amended tax return 2011 However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. File amended tax return 2011 See Employee Contributions and Elective Deferrals later. File amended tax return 2011 Contributions deadline. File amended tax return 2011   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. File amended tax return 2011 Self-employed individual. File amended tax return 2011   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. File amended tax return 2011 Your net earnings must be from your personal services, not from your investments. File amended tax return 2011 If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. File amended tax return 2011 Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. File amended tax return 2011 There are also limits on the amount you can deduct. File amended tax return 2011 See Deduction Limits , later. File amended tax return 2011 Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. File amended tax return 2011 The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. File amended tax return 2011 Defined benefit plan. File amended tax return 2011   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. File amended tax return 2011 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. File amended tax return 2011 $205,000 ($210,000 for 2014). File amended tax return 2011 Defined contribution plan. File amended tax return 2011   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. File amended tax return 2011 100% of the participant's compensation. File amended tax return 2011 $51,000 ($52,000 for 2014). File amended tax return 2011   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. File amended tax return 2011 Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. File amended tax return 2011 Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. File amended tax return 2011 Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. File amended tax return 2011 See Regulations sections 1. File amended tax return 2011 401(k)-2 and 1. File amended tax return 2011 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). File amended tax return 2011 When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. File amended tax return 2011 But you can apply them to the previous year if all the following requirements are met. File amended tax return 2011 You make them by the due date of your tax return for the previous year (plus extensions). File amended tax return 2011 The plan was established by the end of the previous year. File amended tax return 2011 The plan treats the contributions as though it had received them on the last day of the previous year. File amended tax return 2011 You do either of the following. File amended tax return 2011 You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. File amended tax return 2011 You deduct the contributions on your tax return for the previous year. File amended tax return 2011 A partnership shows contributions for partners on Form 1065. File amended tax return 2011 Employer's promissory note. File amended tax return 2011   Your promissory note made out to the plan is not a payment that qualifies for the deduction. File amended tax return 2011 Also, issuing this note is a prohibited transaction subject to tax. File amended tax return 2011 See Prohibited Transactions , later. File amended tax return 2011 Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. File amended tax return 2011 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. File amended tax return 2011 Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. File amended tax return 2011 Defined contribution plans. File amended tax return 2011   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. File amended tax return 2011 If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. File amended tax return 2011 See Deduction Limit for Self-Employed Individuals , later. File amended tax return 2011   When figuring the deduction limit, the following rules apply. File amended tax return 2011 Elective deferrals (discussed later) are not subject to the limit. File amended tax return 2011 Compensation includes elective deferrals. File amended tax return 2011 The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). File amended tax return 2011 Defined benefit plans. File amended tax return 2011   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. File amended tax return 2011 Consequently, an actuary must figure your deduction limit. File amended tax return 2011    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. File amended tax return 2011 Table 4–1. File amended tax return 2011 Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. File amended tax return 2011 Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. File amended tax return 2011 Compensation is your net earnings from self-employment, defined in chapter 1. File amended tax return 2011 This definition takes into account both the following items. File amended tax return 2011 The deduction for the deductible part of your self-employment tax. File amended tax return 2011 The deduction for contributions on your behalf to the plan. File amended tax return 2011 The deduction for your own contributions and your net earnings depend on each other. File amended tax return 2011 For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. File amended tax return 2011 To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. File amended tax return 2011 Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. File amended tax return 2011 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. File amended tax return 2011 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. File amended tax return 2011 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. File amended tax return 2011 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. File amended tax return 2011 ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. File amended tax return 2011 Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. File amended tax return 2011 For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. File amended tax return 2011 However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. File amended tax return 2011 See Deduction Limit for Self-Employed Individuals, earlier. File amended tax return 2011 The amount you carry over and deduct may be subject to the excise tax discussed next. File amended tax return 2011 Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. File amended tax return 2011 Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. File amended tax return 2011 In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. File amended tax return 2011 Special rule for self-employed individuals. File amended tax return 2011   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. File amended tax return 2011 Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. File amended tax return 2011 See Minimum Funding Requirement , earlier. File amended tax return 2011 Reporting the tax. File amended tax return 2011   You must report the tax on your nondeductible contributions on Form 5330. File amended tax return 2011 Form 5330 includes a computation of the tax. File amended tax return 2011 See the separate instructions for completing the form. File amended tax return 2011 Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. File amended tax return 2011 A plan with this type of arrangement is popularly known as a “401(k) plan. File amended tax return 2011 ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. File amended tax return 2011 ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. File amended tax return 2011 In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. File amended tax return 2011 A profit-sharing plan. File amended tax return 2011 A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. File amended tax return 2011 Partnership. File amended tax return 2011   A partnership can have a 401(k) plan. File amended tax return 2011 Restriction on conditions of participation. File amended tax return 2011   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. File amended tax return 2011 Matching contributions. File amended tax return 2011   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. File amended tax return 2011 For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. File amended tax return 2011 Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. File amended tax return 2011 Nonelective contributions. File amended tax return 2011   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. File amended tax return 2011 These are called nonelective contributions. File amended tax return 2011 Employee compensation limit. File amended tax return 2011   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. File amended tax return 2011 This limit is $260,000 in 2014. File amended tax return 2011 SIMPLE 401(k) plan. File amended tax return 2011   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. File amended tax return 2011 A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. File amended tax return 2011 For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. File amended tax return 2011 Distributions. File amended tax return 2011   Certain rules apply to distributions from 401(k) plans. File amended tax return 2011 See Distributions From 401(k) Plans , later. File amended tax return 2011 Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. File amended tax return 2011 This limit applies without regard to community property laws. File amended tax return 2011 Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. File amended tax return 2011 For 2013 and 2014, the basic limit on elective deferrals is $17,500. File amended tax return 2011 This limit applies to all salary reduction contributions and elective deferrals. File amended tax return 2011 If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. File amended tax return 2011 Catch-up contributions. File amended tax return 2011   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. File amended tax return 2011 The catch-up contribution limit for 2013 and 2014 is $5,500. File amended tax return 2011 Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). File amended tax return 2011 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. File amended tax return 2011 The catch-up contribution limit. File amended tax return 2011 The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. File amended tax return 2011 Treatment of contributions. File amended tax return 2011   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. File amended tax return 2011 Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. File amended tax return 2011 Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. File amended tax return 2011 Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. File amended tax return 2011 Forfeiture. File amended tax return 2011   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. File amended tax return 2011 Reporting on Form W-2. File amended tax return 2011   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. File amended tax return 2011 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. File amended tax return 2011 You must also include them in box 12. File amended tax return 2011 Mark the “Retirement plan” checkbox in box 13. File amended tax return 2011 For more information, see the Form W-2 instructions. File amended tax return 2011 Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. File amended tax return 2011 Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. File amended tax return 2011 These contributions are elective deferrals. File amended tax return 2011 An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). File amended tax return 2011 For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. File amended tax return 2011 Eligible automatic contribution arrangement. File amended tax return 2011   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. File amended tax return 2011 This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). File amended tax return 2011 There is no required deferral percentage. File amended tax return 2011 Withdrawals. File amended tax return 2011   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. File amended tax return 2011 The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. File amended tax return 2011 The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. File amended tax return 2011   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. File amended tax return 2011 The additional 10% tax on early distributions will not apply to the distribution. File amended tax return 2011 Notice requirement. File amended tax return 2011   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. File amended tax return 2011 The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. File amended tax return 2011 The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. File amended tax return 2011 The notice also must explain how contributions will be invested in the absence of an investment election by the employee. File amended tax return 2011 Qualified automatic contribution arrangement. File amended tax return 2011    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. File amended tax return 2011 It contains an automatic enrollment feature, and mandatory employer contributions are required. File amended tax return 2011 If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). File amended tax return 2011 Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. File amended tax return 2011 Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. File amended tax return 2011 In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). File amended tax return 2011 If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. File amended tax return 2011 It must be applied uniformly. File amended tax return 2011 It must not exceed 10%. File amended tax return 2011 It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. File amended tax return 2011 It must increase to at least 4% in the following plan year. File amended tax return 2011 It must increase to at least 5% in the following plan year. File amended tax return 2011 It must increase to at least 6% in subsequent plan years. File amended tax return 2011 Matching or nonelective contributions. File amended tax return 2011   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. File amended tax return 2011 Matching contributions. File amended tax return 2011 You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. File amended tax return 2011 An amount equal to 100% of elective deferrals, up to 1% of compensation. File amended tax return 2011 An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. File amended tax return 2011 Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. File amended tax return 2011 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. File amended tax return 2011 Nonelective contributions. File amended tax return 2011 You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. File amended tax return 2011 Vesting requirements. File amended tax return 2011   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. File amended tax return 2011 These contributions are subject to special withdrawal restrictions, discussed later. File amended tax return 2011 Notice requirements. File amended tax return 2011   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. File amended tax return 2011 The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. File amended tax return 2011 The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. File amended tax return 2011 Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. File amended tax return 2011 The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. File amended tax return 2011 Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. File amended tax return 2011 He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. File amended tax return 2011 The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. File amended tax return 2011 Excess withdrawn by April 15. File amended tax return 2011   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. File amended tax return 2011 However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. File amended tax return 2011 The distribution is not subject to the additional 10% tax on early distributions. File amended tax return 2011   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. File amended tax return 2011   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. File amended tax return 2011 Excess not withdrawn by April 15. File amended tax return 2011   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. File amended tax return 2011 In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. File amended tax return 2011 Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. File amended tax return 2011 Reporting corrective distributions on Form 1099-R. File amended tax return 2011   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. File amended tax return 2011 For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. File amended tax return 2011 Tax on excess contributions of highly compensated employees. File amended tax return 2011   The law provides tests to detect discrimination in a plan. File amended tax return 2011 If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. File amended tax return 2011 Report the tax on Form 5330. File amended tax return 2011 The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. File amended tax return 2011 Also, the ACP test does not apply to these plans if certain additional requirements are met. File amended tax return 2011   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. File amended tax return 2011 Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. File amended tax return 2011   See Regulations sections 1. File amended tax return 2011 401(k)-2 and 1. File amended tax return 2011 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). File amended tax return 2011    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. File amended tax return 2011 Safe harbor 401(k) plan. File amended tax return 2011 If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. File amended tax return 2011 For your plan to be a safe harbor plan, you must meet the following conditions. File amended tax return 2011 Matching or nonelective contributions. File amended tax return 2011 You must make matching or nonelective contributions according to one of the following formulas. File amended tax return 2011 Matching contributions. File amended tax return 2011 You must make matching contributions according to the following rules. File amended tax return 2011 You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. File amended tax return 2011 You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. File amended tax return 2011 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. File amended tax return 2011 Nonelective contributions. File amended tax return 2011 You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. File amended tax return 2011 These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. File amended tax return 2011 Notice requirement. File amended tax return 2011 You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. File amended tax return 2011 The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. File amended tax return 2011 Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. File amended tax return 2011 Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. File amended tax return 2011 However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. File amended tax return 2011 Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. File amended tax return 2011 Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. File amended tax return 2011 Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. File amended tax return 2011 An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. File amended tax return 2011 The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. File amended tax return 2011 Rollover. File amended tax return 2011   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. File amended tax return 2011 For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. File amended tax return 2011 R. File amended tax return 2011 B. File amended tax return 2011 872, available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2010-51_IRB/ar11. File amended tax return 2011 html, and Notice 2013-74. File amended tax return 2011 A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. File amended tax return 2011 Rollover amounts do not apply toward the annual deferral limit. File amended tax return 2011 Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. File amended tax return 2011 See the Form W-2 and 1099-R instructions for detailed information. File amended tax return 2011 Distributions Amounts paid to plan participants from a qualified plan are called distributions. File amended tax return 2011 Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. File amended tax return 2011 Also, certain loans may be treated as distributions. File amended tax return 2011 See Loans Treated as Distributions in Publication 575. File amended tax return 2011 Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). File amended tax return 2011 These distribution rules apply individually to each qualified plan. File amended tax return 2011 You cannot satisfy the requirement for one plan by taking a distribution from another. File amended tax return 2011 The plan must provide that these rules override any inconsistent distribution options previously offered. File amended tax return 2011 Minimum distribution. File amended tax return 2011   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. File amended tax return 2011 This minimum is figured by dividing the account balance by the applicable life expectancy. File amended tax return 2011 The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. File amended tax return 2011 For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. File amended tax return 2011 Required beginning date. File amended tax return 2011   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. File amended tax return 2011   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. File amended tax return 2011 Calendar year in which he or she reaches age 70½. File amended tax return 2011 Calendar year in which he or she retires from employment with the employer maintaining the plan. File amended tax return 2011 However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. File amended tax return 2011   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. File amended tax return 2011 For more information, see Tax on Excess Accumulation in Publication 575. File amended tax return 2011 Distributions after the starting year. File amended tax return 2011   The distribution required to be made by April 1 is treated as a distribution for the starting year. File amended tax return 2011 (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. File amended tax return 2011 ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. File amended tax return 2011 If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). File amended tax return 2011 Distributions after participant's death. File amended tax return 2011   See Publication 575 for the special rules covering distributions made after the death of a participant. File amended tax return 2011 Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. File amended tax return 2011 The employee retires, dies, becomes disabled, or otherwise severs employment. File amended tax return 2011 The plan ends and no other defined contribution plan is established or continued. File amended tax return 2011 In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. File amended tax return 2011 For the rules on hardship distributions, including the limits on them, see Regulations section 1. File amended tax return 2011 401(k)-1(d). File amended tax return 2011 The employee becomes eligible for a qualified reservist distribution (defined next). File amended tax return 2011 Certain distributions listed above may be subject to the tax on early distributions discussed later. File amended tax return 2011 Qualified reservist distributions. File amended tax return 2011   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. File amended tax return 2011 All or part of a qualified reservist distribution can be recontributed to an IRA. File amended tax return 2011 The additional 10% tax on early distributions does not apply to a qualified reservist distribution. File amended tax return 2011 Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. File amended tax return 2011 Since most recipients have no cost basis, a distribution is generally fully taxable. File amended tax return 2011 An exception is a distribution that is properly rolled over as discussed under Rollover, next. File amended tax return 2011 The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. File amended tax return 2011 See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. File amended tax return 2011 Note. File amended tax return 2011 A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. File amended tax return 2011 Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. File amended tax return 2011 See Qualified distributions under Qualified Roth Contribution Program, earlier. File amended tax return 2011 Rollover. File amended tax return 2011   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. File amended tax return 2011 However, it may be subject to withholding as discussed under Withholding requirement, later. File amended tax return 2011 A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. File amended tax return 2011 Eligible rollover distribution. File amended tax return 2011   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. File amended tax return 2011 A required minimum distribution. File amended tax return 2011 See Required Distributions , earlier. File amended tax return 2011 Any of a series of substantially equal payments made at least once a year over any of the following periods. File amended tax return 2011 The employee's life or life expectancy. File amended tax return 2011 The joint lives or life expectancies of the employee and beneficiary. File amended tax return 2011 A period of 10 years or longer. File amended tax return 2011 A hardship distribution. File amended tax return 2011 The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. File amended tax return 2011 See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. File amended tax return 2011 Loans treated as distributions. File amended tax return 2011 Dividends on employer securities. File amended tax return 2011 The cost of any life insurance coverage provided under a qualified retirement plan. File amended tax return 2011 Similar items designated by the IRS in published guidance. File amended tax return 2011 See, for example, the Instructions for Forms 1099-R and 5498. File amended tax return 2011 Rollover of nontaxable amounts. File amended tax return 2011   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. File amended tax return 2011 If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. File amended tax return 2011 If the rollover is to an IRA, the transfer can be made by any rollover method. File amended tax return 2011 Note. File amended tax return 2011 A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. File amended tax return 2011 If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). File amended tax return 2011 More information. File amended tax return 2011   For more information about rollovers, see Rollovers in Pubs. File amended tax return 2011 575 and 590. File amended tax return 2011 Withholding requirement. File amended tax return 2011   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. File amended tax return 2011 Exceptions. File amended tax return 2011   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. File amended tax return 2011   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. File amended tax return 2011 Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). File amended tax return 2011 However, the participant can choose not to have tax withheld from these distributions. File amended tax return 2011 If the participant does not make this choice, the following withholding rules apply. File amended tax return 2011 For periodic distributions, withholding is based on their treatment as wages. File amended tax return 2011 For nonperiodic distributions, 10% of the taxable part is withheld. File amended tax return 2011 Estimated tax payments. File amended tax return 2011   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. File amended tax return 2011 For more information, see Withholding Tax and Estimated Tax in Publication 575. File amended tax return 2011 Section 402(f) Notice. File amended tax return 2011   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. File amended tax return 2011 That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. File amended tax return 2011 That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. File amended tax return 2011 That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. File amended tax return 2011 Certain other rules that may be applicable. File amended tax return 2011   Notice 2009-68, 2009-39 I. File amended tax return 2011 R. File amended tax return 2011 B. File amended tax return 2011 423, available at www. File amended tax return 2011 irs. File amended tax return 2011 gov/irb/2009-39_IRB/ar14. File amended tax return 2011 html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. File amended tax return 2011 If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. File amended tax return 2011 Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. File amended tax return 2011 Timing of notice. File amended tax return 2011   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. File amended tax return 2011 Method of notice. File amended tax return 2011   The written notice must be provided individually to each distributee of an eligible rollover distribution. File amended tax return 2011 Posting of the notice is not sufficient. File amended tax return 2011 However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. File amended tax return 2011 See Regulations section 1. File amended tax return 2011 401(a)-21. File amended tax return 2011 Tax on failure to give notice. File amended tax return 2011   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. File amended tax return 2011 The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. File amended tax return 2011 Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. File amended tax return 2011 This tax applies to the amount received that the employee must include in income. File amended tax return 2011 Exceptions. File amended tax return 2011   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. File amended tax return 2011 Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. File amended tax return 2011 Made due to the employee having a qualifying disability. File amended tax return 2011 Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. File amended tax return 2011 (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. File amended tax return 2011 ) Made to an employee after separation from service if the separation occurred during o