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How To File Tax Extensions Online

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How To File Tax Extensions Online

How to file tax extensions online 4. How to file tax extensions online   Transportation Table of Contents Parking fees. How to file tax extensions online Advertising display on car. How to file tax extensions online Car pools. How to file tax extensions online Hauling tools or instruments. How to file tax extensions online Union members' trips from a union hall. How to file tax extensions online Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. How to file tax extensions online These expenses include the cost of transportation by air, rail, bus, taxi, etc. How to file tax extensions online , and the cost of driving and maintaining your car. How to file tax extensions online Transportation expenses include the ordinary and necessary costs of all of the following. How to file tax extensions online Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. How to file tax extensions online Tax home is defined in chapter 1. How to file tax extensions online Visiting clients or customers. How to file tax extensions online Going to a business meeting away from your regular workplace. How to file tax extensions online Getting from your home to a temporary workplace when you have one or more regular places of work. How to file tax extensions online These temporary workplaces can be either within the area of your tax home or outside that area. How to file tax extensions online Transportation expenses do not include expenses you have while traveling away from home overnight. How to file tax extensions online Those expenses are travel expenses discussed in chapter 1 . How to file tax extensions online However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. How to file tax extensions online See Car Expenses , later. How to file tax extensions online Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. How to file tax extensions online However, there may be exceptions to this general rule. How to file tax extensions online You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. How to file tax extensions online Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. How to file tax extensions online Illustration of transportation expenses. How to file tax extensions online    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. How to file tax extensions online You may want to refer to it when deciding whether you can deduct your transportation expenses. How to file tax extensions online Temporary work location. How to file tax extensions online   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. How to file tax extensions online   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. How to file tax extensions online   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. How to file tax extensions online   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. How to file tax extensions online It will not be treated as temporary after the date you determine it will last more than 1 year. How to file tax extensions online   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. How to file tax extensions online You may have deductible travel expenses as discussed in chapter 1 . How to file tax extensions online No regular place of work. How to file tax extensions online   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. How to file tax extensions online   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. How to file tax extensions online   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. How to file tax extensions online These are nondeductible commuting expenses. How to file tax extensions online Two places of work. How to file tax extensions online   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. How to file tax extensions online However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. How to file tax extensions online   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. How to file tax extensions online You cannot deduct them. How to file tax extensions online Armed Forces reservists. How to file tax extensions online   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. How to file tax extensions online You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . How to file tax extensions online   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. How to file tax extensions online In this case, your transportation generally is a nondeductible commuting expense. How to file tax extensions online However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. How to file tax extensions online   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. How to file tax extensions online   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. How to file tax extensions online These expenses are discussed in chapter 1 . How to file tax extensions online   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. How to file tax extensions online For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. How to file tax extensions online Commuting expenses. How to file tax extensions online   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. How to file tax extensions online These costs are personal commuting expenses. How to file tax extensions online You cannot deduct commuting expenses no matter how far your home is from your regular place of work. How to file tax extensions online You cannot deduct commuting expenses even if you work during the commuting trip. How to file tax extensions online Example. How to file tax extensions online You sometimes use your cell phone to make business calls while commuting to and from work. How to file tax extensions online Sometimes business associates ride with you to and from work, and you have a business discussion in the car. How to file tax extensions online These activities do not change the trip from personal to business. How to file tax extensions online You cannot deduct your commuting expenses. How to file tax extensions online Parking fees. How to file tax extensions online    Fees you pay to park your car at your place of business are nondeductible commuting expenses. How to file tax extensions online You can, however, deduct business-related parking fees when visiting a customer or client. How to file tax extensions online Advertising display on car. How to file tax extensions online   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. How to file tax extensions online If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. How to file tax extensions online Car pools. How to file tax extensions online   You cannot deduct the cost of using your car in a nonprofit car pool. How to file tax extensions online Do not include payments you receive from the passengers in your income. How to file tax extensions online These payments are considered reimbursements of your expenses. How to file tax extensions online However, if you operate a car pool for a profit, you must include payments from passengers in your income. How to file tax extensions online You can then deduct your car expenses (using the rules in this publication). How to file tax extensions online Hauling tools or instruments. How to file tax extensions online   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. How to file tax extensions online However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). How to file tax extensions online Union members' trips from a union hall. How to file tax extensions online   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. How to file tax extensions online Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. How to file tax extensions online Office in the home. How to file tax extensions online   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. How to file tax extensions online (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. How to file tax extensions online ) Examples of deductible transportation. How to file tax extensions online   The following examples show when you can deduct transportation expenses based on the location of your work and your home. How to file tax extensions online Example 1. How to file tax extensions online You regularly work in an office in the city where you live. How to file tax extensions online Your employer sends you to a 1-week training session at a different office in the same city. How to file tax extensions online You travel directly from your home to the training location and return each day. How to file tax extensions online You can deduct the cost of your daily round-trip transportation between your home and the training location. How to file tax extensions online Example 2. How to file tax extensions online Your principal place of business is in your home. How to file tax extensions online You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. How to file tax extensions online Example 3. How to file tax extensions online You have no regular office, and you do not have an office in your home. How to file tax extensions online In this case, the location of your first business contact inside the metropolitan area is considered your office. How to file tax extensions online Transportation expenses between your home and this first contact are nondeductible commuting expenses. How to file tax extensions online Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. How to file tax extensions online While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. How to file tax extensions online Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. How to file tax extensions online You generally can use one of the two following methods to figure your deductible expenses. How to file tax extensions online Standard mileage rate. How to file tax extensions online Actual car expenses. How to file tax extensions online If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. How to file tax extensions online See Leasing a Car , later. How to file tax extensions online In this publication, “car” includes a van, pickup, or panel truck. How to file tax extensions online For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. How to file tax extensions online Rural mail carriers. How to file tax extensions online   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. How to file tax extensions online Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. How to file tax extensions online   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). How to file tax extensions online You must complete Form 2106 and attach it to your Form 1040, U. How to file tax extensions online S. How to file tax extensions online Individual Income Tax Return. How to file tax extensions online   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. How to file tax extensions online It is given as an equipment maintenance allowance (EMA) to employees of the U. How to file tax extensions online S. How to file tax extensions online Postal Service. How to file tax extensions online It is at the rate contained in the 1991 collective bargaining agreement. How to file tax extensions online Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. How to file tax extensions online See your employer for information on your reimbursement. How to file tax extensions online    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. How to file tax extensions online Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. How to file tax extensions online For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. How to file tax extensions online If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. How to file tax extensions online You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. How to file tax extensions online See Choosing the standard mileage rate and Standard mileage rate not allowed, later. How to file tax extensions online You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. How to file tax extensions online See chapter 6 for more information on reimbursements . How to file tax extensions online Choosing the standard mileage rate. How to file tax extensions online   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. How to file tax extensions online Then, in later years, you can choose to use either the standard mileage rate or actual expenses. How to file tax extensions online   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. How to file tax extensions online For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. How to file tax extensions online   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. How to file tax extensions online You cannot revoke the choice. How to file tax extensions online However, in later years, you can switch from the standard mileage rate to the actual expenses method. How to file tax extensions online If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. How to file tax extensions online Example. How to file tax extensions online Larry is an employee who occasionally uses his own car for business purposes. How to file tax extensions online He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. How to file tax extensions online Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. How to file tax extensions online   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. How to file tax extensions online Standard mileage rate not allowed. How to file tax extensions online   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. How to file tax extensions online (See Rural mail carriers , earlier. How to file tax extensions online ) Note. How to file tax extensions online You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. How to file tax extensions online Five or more cars. How to file tax extensions online   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. How to file tax extensions online However, you may be able to deduct your actual expenses for operating each of the cars in your business. How to file tax extensions online See Actual Car Expenses , later, for information on how to figure your deduction. How to file tax extensions online   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. How to file tax extensions online   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. How to file tax extensions online Example 1. How to file tax extensions online Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. How to file tax extensions online She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. How to file tax extensions online Example 2. How to file tax extensions online Tony and his employees use his four pickup trucks in his landscaping business. How to file tax extensions online During the year, he traded in two of his old trucks for two newer ones. How to file tax extensions online Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. How to file tax extensions online Example 3. How to file tax extensions online Chris owns a repair shop and an insurance business. How to file tax extensions online He and his employees use his two pickup trucks and van for the repair shop. How to file tax extensions online Chris alternates using his two cars for the insurance business. How to file tax extensions online No one else uses the cars for business purposes. How to file tax extensions online Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. How to file tax extensions online Example 4. How to file tax extensions online Maureen owns a car and four vans that are used in her housecleaning business. How to file tax extensions online Her employees use the vans, and she uses the car to travel to various customers. How to file tax extensions online Maureen cannot use the standard mileage rate for the car or the vans. How to file tax extensions online This is because all five vehicles are used in Maureen's business at the same time. How to file tax extensions online She must use actual expenses for all vehicles. How to file tax extensions online Interest. How to file tax extensions online   If you are an employee, you cannot deduct any interest paid on a car loan. How to file tax extensions online This applies even if you use the car 100% for business as an employee. How to file tax extensions online   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. How to file tax extensions online For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). How to file tax extensions online You cannot deduct the part of the interest expense that represents your personal use of the car. How to file tax extensions online    If you use a home equity loan to purchase your car, you may be able to deduct the interest. How to file tax extensions online See Publication 936, Home Mortgage Interest Deduction, for more information. How to file tax extensions online Personal property taxes. How to file tax extensions online   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. How to file tax extensions online You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. How to file tax extensions online   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). How to file tax extensions online If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). How to file tax extensions online Parking fees and tolls. How to file tax extensions online   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. How to file tax extensions online (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. How to file tax extensions online ) Sale, trade-in, or other disposition. How to file tax extensions online   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. How to file tax extensions online See Disposition of a Car , later. How to file tax extensions online Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. How to file tax extensions online If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. How to file tax extensions online Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. How to file tax extensions online Continue to keep records, as explained later in chapter 5 . How to file tax extensions online Business and personal use. How to file tax extensions online   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. How to file tax extensions online You can divide your expense based on the miles driven for each purpose. How to file tax extensions online Example. How to file tax extensions online You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. How to file tax extensions online You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. How to file tax extensions online Employer-provided vehicle. How to file tax extensions online   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. How to file tax extensions online You cannot use the standard mileage rate. How to file tax extensions online See Vehicle Provided by Your Employer in chapter 6. How to file tax extensions online Interest on car loans. How to file tax extensions online   If you are an employee, you cannot deduct any interest paid on a car loan. How to file tax extensions online This interest is treated as personal interest and is not deductible. How to file tax extensions online If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. How to file tax extensions online Taxes paid on your car. How to file tax extensions online   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. How to file tax extensions online Enter the amount paid on line 7 of Schedule A (Form 1040). How to file tax extensions online Sales taxes. How to file tax extensions online   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. How to file tax extensions online Fines and collateral. How to file tax extensions online   You cannot deduct fines you pay or collateral you forfeit for traffic violations. How to file tax extensions online Casualty and theft losses. How to file tax extensions online   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. How to file tax extensions online See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. How to file tax extensions online Depreciation and section 179 deductions. How to file tax extensions online   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. How to file tax extensions online Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. How to file tax extensions online However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. How to file tax extensions online Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. How to file tax extensions online The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. How to file tax extensions online   Generally, there are limits on these deductions. How to file tax extensions online Special rules apply if you use your car 50% or less in your work or business. How to file tax extensions online   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. How to file tax extensions online   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. How to file tax extensions online Car defined. How to file tax extensions online   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. How to file tax extensions online Its unloaded gross vehicle weight must not be more than 6,000 pounds. How to file tax extensions online A car includes any part, component, or other item physically attached to it or usually included in the purchase price. How to file tax extensions online   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. How to file tax extensions online Qualified nonpersonal use vehicles. How to file tax extensions online   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. How to file tax extensions online They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. How to file tax extensions online Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. How to file tax extensions online More information. How to file tax extensions online   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. How to file tax extensions online Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. How to file tax extensions online If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. How to file tax extensions online There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. How to file tax extensions online See Depreciation Limits, later. How to file tax extensions online You can claim the section 179 deduction only in the year you place the car in service. How to file tax extensions online For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. How to file tax extensions online Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. How to file tax extensions online A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. How to file tax extensions online Example. How to file tax extensions online In 2012, you bought a new car and used it for personal purposes. How to file tax extensions online In 2013, you began to use it for business. How to file tax extensions online Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. How to file tax extensions online However, you can claim a depreciation deduction for the business use of the car starting in 2013. How to file tax extensions online See Depreciation Deduction , later. How to file tax extensions online More than 50% business use requirement. How to file tax extensions online   You must use the property more than 50% for business to claim any section 179 deduction. How to file tax extensions online If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. How to file tax extensions online The result is the cost of the property that can qualify for the section 179 deduction. How to file tax extensions online Example. How to file tax extensions online Peter purchased a car in April 2013 for $24,500 and used it 60% for business. How to file tax extensions online Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). How to file tax extensions online But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. How to file tax extensions online Limits. How to file tax extensions online   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. How to file tax extensions online Limit on the amount of the section 179 deduction. How to file tax extensions online   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. How to file tax extensions online   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. How to file tax extensions online If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. How to file tax extensions online   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. How to file tax extensions online   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. How to file tax extensions online   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. How to file tax extensions online You must allocate the dollar limit (after any reduction) between you. How to file tax extensions online   For more information on the above section 179 deduction limits, see Publication 946. How to file tax extensions online Limit for sport utility and certain other vehicles. How to file tax extensions online   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. How to file tax extensions online This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. How to file tax extensions online However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. How to file tax extensions online    Limit on total section 179, special depreciation allowance, and depreciation deduction. How to file tax extensions online   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. How to file tax extensions online The limit is reduced if your business use of the car is less than 100%. How to file tax extensions online See Depreciation Limits , later, for more information. How to file tax extensions online Example. How to file tax extensions online In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. How to file tax extensions online However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). How to file tax extensions online Cost of car. How to file tax extensions online   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. How to file tax extensions online For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. How to file tax extensions online Your cost includes only the cash you paid. How to file tax extensions online Basis of car for depreciation. How to file tax extensions online   The amount of the section 179 deduction reduces your basis in your car. How to file tax extensions online If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. How to file tax extensions online The resulting amount is the basis in your car you use to figure your depreciation deduction. How to file tax extensions online When to choose. How to file tax extensions online   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. How to file tax extensions online How to choose. How to file tax extensions online    Employees use Form 2106 to make this choice and report the section 179 deduction. How to file tax extensions online All others use Form 4562. How to file tax extensions online   File the appropriate form with either of the following. How to file tax extensions online Your original tax return filed for the year the property was placed in service (whether or not you file it timely). How to file tax extensions online An amended return filed within the time prescribed by law. How to file tax extensions online An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. How to file tax extensions online The amended return must also include any resulting adjustments to taxable income. How to file tax extensions online    You must keep records that show the specific identification of each piece of qualifying section 179 property. How to file tax extensions online These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. How to file tax extensions online Revoking an election. How to file tax extensions online   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. How to file tax extensions online Recapture of section 179 deduction. How to file tax extensions online   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. How to file tax extensions online If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. How to file tax extensions online Any section 179 deduction claimed on the car is included in calculating the excess depreciation. How to file tax extensions online For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. How to file tax extensions online Dispositions. How to file tax extensions online   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. How to file tax extensions online You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). How to file tax extensions online For information on the disposition of a car, see Disposition of a Car , later. How to file tax extensions online Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. How to file tax extensions online The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). How to file tax extensions online The special depreciation allowance applies only for the first year the car is placed in service. How to file tax extensions online To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). How to file tax extensions online Combined depreciation. How to file tax extensions online   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). How to file tax extensions online For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). How to file tax extensions online See Depreciation Limits , later in this chapter. How to file tax extensions online Qualified car. How to file tax extensions online   To be a qualified car (including trucks and vans), the car must meet all of the following tests. How to file tax extensions online You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. How to file tax extensions online Election not to claim the special depreciation allowance. How to file tax extensions online   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. How to file tax extensions online If you make this election, it applies to all 5-year property placed in service during the year. How to file tax extensions online   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. How to file tax extensions online    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. How to file tax extensions online Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. How to file tax extensions online This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. How to file tax extensions online You generally need to know the following things about the car you intend to depreciate. How to file tax extensions online Your basis in the car. How to file tax extensions online The date you place the car in service. How to file tax extensions online The method of depreciation and recovery period you will use. How to file tax extensions online Basis. How to file tax extensions online   Your basis in a car for figuring depreciation is generally its cost. How to file tax extensions online This includes any amount you borrow or pay in cash, other property, or services. How to file tax extensions online   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). How to file tax extensions online However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). How to file tax extensions online For one of these situations see Exception under Methods of depreciation, later. How to file tax extensions online   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. How to file tax extensions online Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . How to file tax extensions online Placed in service. How to file tax extensions online   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. How to file tax extensions online Depreciation begins when the car is placed in service for use in your work or business or for the production of income. How to file tax extensions online   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. How to file tax extensions online Car placed in service and disposed of in the same year. How to file tax extensions online   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. How to file tax extensions online Methods of depreciation. How to file tax extensions online   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). How to file tax extensions online MACRS is discussed later in this chapter. How to file tax extensions online Exception. How to file tax extensions online   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. How to file tax extensions online You must use straight line depreciation over the estimated remaining useful life of the car. How to file tax extensions online   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. How to file tax extensions online The rate per mile varies depending on the year(s) you used the standard mileage rate. How to file tax extensions online For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. How to file tax extensions online   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . How to file tax extensions online You must use your adjusted basis in your car to figure your depreciation deduction. How to file tax extensions online For additional information on the straight line method of depreciation, see Publication 946. How to file tax extensions online More-than-50%-use test. How to file tax extensions online   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. How to file tax extensions online You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. How to file tax extensions online   If your business use is 50% or less, you must use the straight line method to depreciate your car. How to file tax extensions online This is explained later under Car Used 50% or Less for Business . How to file tax extensions online Qualified business use. How to file tax extensions online   A qualified business use is any use in your trade or business. How to file tax extensions online It does not include use for the production of income (investment use). How to file tax extensions online However, you do combine your business and investment use to compute your depreciation deduction for the tax year. How to file tax extensions online Use of your car by another person. How to file tax extensions online   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. How to file tax extensions online It is directly connected with your business. How to file tax extensions online It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). How to file tax extensions online It results in a payment of fair market rent. How to file tax extensions online This includes any payment to you for the use of your car. How to file tax extensions online Business use changes. How to file tax extensions online   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. How to file tax extensions online See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. How to file tax extensions online    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. How to file tax extensions online Use for more than one purpose. How to file tax extensions online   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. How to file tax extensions online You do this on the basis of mileage. How to file tax extensions online Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. How to file tax extensions online Change from personal to business use. How to file tax extensions online   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. How to file tax extensions online In this case, you figure the percentage of business use for the year as follows. How to file tax extensions online Determine the percentage of business use for the period following the change. How to file tax extensions online Do this by dividing business miles by total miles driven during that period. How to file tax extensions online Multiply the percentage in (1) by a fraction. How to file tax extensions online The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. How to file tax extensions online Example. How to file tax extensions online You use a car only for personal purposes during the first 6 months of the year. How to file tax extensions online During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. How to file tax extensions online This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. How to file tax extensions online Your business use for the year is 40% (80% × 6/12). How to file tax extensions online Limits. How to file tax extensions online   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. How to file tax extensions online The maximum amount you can claim depends on the year in which you placed your car in service. How to file tax extensions online You have to reduce the maximum amount if you did not use the car exclusively for business. How to file tax extensions online See Depreciation Limits , later. How to file tax extensions online Unadjusted basis. How to file tax extensions online   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . How to file tax extensions online Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. How to file tax extensions online   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. How to file tax extensions online Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. How to file tax extensions online Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. How to file tax extensions online Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. How to file tax extensions online 1, 2006), and alternative motor vehicle credit. How to file tax extensions online   See Form 8910 for information on the alternative motor vehicle credit. How to file tax extensions online If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. How to file tax extensions online See Car Used 50% or Less for Business, later, for more information. How to file tax extensions online If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. How to file tax extensions online Improvements. How to file tax extensions online   A major improvement to a car is treated as a new item of 5-year recovery property. How to file tax extensions online It is treated as placed in service in the year the improvement is made. How to file tax extensions online It does not matter how old the car is when the improvement is added. How to file tax extensions online Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. How to file tax extensions online However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. How to file tax extensions online Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. How to file tax extensions online See Depreciation Limits , later. How to file tax extensions online Car trade-in. How to file tax extensions online   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. How to file tax extensions online You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. How to file tax extensions online If you make this election, you treat the old car as disposed of at the time of the trade-in. How to file tax extensions online The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. How to file tax extensions online You then figure your depreciation deduction for the new car beginning with the date you placed it in service. How to file tax extensions online You make this election by completing Form 2106, Part II, Section D. How to file tax extensions online This method is explained later, beginning at Effect of trade-in on basis . How to file tax extensions online If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. How to file tax extensions online You must apply two depreciation limits (see Depreciation Limits , later). How to file tax extensions online The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. How to file tax extensions online The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. How to file tax extensions online You must use Form 4562 to compute your depreciation deduction. How to file tax extensions online You cannot use Form 2106, Part II, Section D. How to file tax extensions online This method is explained in Publication 946. How to file tax extensions online   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). How to file tax extensions online Otherwise, you must use the method described in (2). How to file tax extensions online Effect of trade-in on basis. How to file tax extensions online   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. How to file tax extensions online For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. How to file tax extensions online 168(i)-6(d)(3). How to file tax extensions online Traded car used only for business. How to file tax extensions online   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. How to file tax extensions online Example. How to file tax extensions online Paul trades in a car that has an adjusted basis of $5,000 for a new car. How to file tax extensions online In addition, he pays cash of $20,000 for the new car. How to file tax extensions online His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). How to file tax extensions online Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. How to file tax extensions online Traded car used partly in business. How to file tax extensions online   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. How to file tax extensions online This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. How to file tax extensions online (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. How to file tax extensions online See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. How to file tax extensions online )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. How to file tax extensions online Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. How to file tax extensions online For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. How to file tax extensions online Modified Accelerated Cost Recovery System (MACRS). How to file tax extensions online   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. How to file tax extensions online   The maximum amount you can deduct is limited, depending on the year you placed your car in service. How to file tax extensions online See Depreciation Limits , later. How to file tax extensions online Recovery period. How to file tax extensions online   Under MACRS, cars are classified as 5-year property. How to file tax extensions online You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. How to file tax extensions online This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. How to file tax extensions online Depreciation deduction for certain Indian reservation property. How to file tax extensions online   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. How to file tax extensions online The recovery that applies for a business-use car is 3 years instead of 5 years. How to file tax extensions online However, the depreciation limits, discussed later, will still apply. How to file tax extensions online   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. How to file tax extensions online Depreciation methods. How to file tax extensions online   You can use one of the following methods to depreciate your car. How to file tax extensions online The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. How to file tax extensions online The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. How to file tax extensions online The straight line method (SL) over a 5-year recovery period. How to file tax extensions online    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. How to file tax extensions online This is because the chart has the switch to the straight line method built into its rates. How to file tax extensions online   Before choosing a method, you may wish to consider the following facts. How to file tax extensions online Using the straight line method provides equal yearly deductions throughout the recovery period. How to file tax extensions online Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. How to file tax extensions online MACRS depreciation chart. How to file tax extensions online   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . How to file tax extensions online Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. How to file tax extensions online A similar chart appears in the Instructions for Form 2106. How to file tax extensions online    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. How to file tax extensions online   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. How to file tax extensions online You file your return on a fiscal year basis. How to file tax extensions online You file your return for a short tax year (less than 12 months). How to file tax extensions online During the year, all of the following conditions apply. How to file tax extensions online You placed some property in service from January through September. How to file tax extensions online You placed some property in service from October through December. How to file tax extensions online Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. How to file tax extensions online   You placed qualified property in service on an Indian reservation. How to file tax extensions online Depreciation in future years. How to file tax extensions online   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. How to file tax extensions online However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. How to file tax extensions online In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. How to file tax extensions online See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. How to file tax extensions online    In future years, do not use the chart in this edition of the publication. How to file tax extensions online Instead, use the chart in the publication or the form instructions for those future years. How to file tax extensions online Disposition of car during recovery period. How to file tax extensions online   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. How to file tax extensions online See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. How to file tax extensions online How to use the 2013 chart. How to file tax extensions online   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. How to file tax extensions online Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. How to file tax extensions online If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. How to file tax extensions online    Your deduction cannot be more than the maximum depreciation limit for cars. How to file tax extensions online See Depreciation Limits, later. How to file tax extensions online Example. How to file tax extensions online Phil bought a used truck in February 2012 to use exclusively in his landscape business. How to file tax extensions online He paid $9,200 for the truck with no trade-in. How to file tax extensions online Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. How to file tax extensions online Phil used the MACRS depreciation chart in 2012 to find his percentage. How to file tax extensions online The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. How to file tax extensions online He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. How to file tax extensions online In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. How to file tax extensions online His records show that the business use of his truck was 90% in 2013. How to file tax extensions online Phil used Table 4-1 to find his percentage. How to file tax extensions online Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. How to file tax extensions online He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. How to file tax extensions online Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. How to file tax extensions online The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. How to file tax extensions online The maximum amount you can deduct each year depends on the year you place the car in service. How to file tax extensions online These limits are shown in the following tables. How to file tax extensions online   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. How to file tax extensions online 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. How to file tax extensions online 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. How to file tax extensions online 4$7,660 if you acquired the car before 5/6/2003. How to file tax extensions online $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. How to file tax extensions online 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. How to file tax extensions online Trucks and vans. How to file tax extensions online   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. How to file tax extensions online A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. How to file tax extensions online For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. How to file tax extensions online Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. How to file tax extensions online 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. How to file tax extensions online Car used less than full year. How to file tax extensions online   The depreciation limits are not reduced if you use a car for less than a full year. How to file tax extensions online This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. How to file tax extensions online However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. How to file tax extensions online See Reduction for personal use , next. How to file tax extensions online Reduction for personal use. How to file tax extensions online   The depreciation limits are reduced based on your percentage of personal use. How to file tax extensions online If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. How to file tax extensions online Section 179 deduction. How to file tax extensions online   The section 179 deduction is treated as a depreciation deduction. How to file tax extensions online If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. How to file tax extensions online Example. How to file tax extensions online On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. How to file tax extensions online He used it 80% for his business, and he chooses to take a section 179 deduction for the car. How to file tax extensions online The car is not qualified property for purposes of the special depreciation allowance. How to file tax extensions online Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. How to file tax extensions online This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). How to file tax extensions online Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). How to file tax extensions online He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. How to file tax extensions online Jack has reached his maximum depreciation deduction for 2013. How to file tax extensions online For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. How to file tax extensions online Deductions in years after the recovery period. How to file tax extensions online   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. How to file tax extensions online If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. How to file tax extensions online Unrecovered basis. How to file tax extensions online   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. How to file tax extensions online The recovery period. How to file tax extensions online   For 5-year property, your recovery period is 6 calendar years. How to file tax extensions online A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. How to file tax extensions online   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. How to file tax extensions online You determine your unrecovered basis in the 7th year after you placed the car in service. How to file tax extensions online How to treat unrecovered basis. How to file tax extensions online   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. How to file tax extensions online The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. How to file tax extensions online For example, no deduction is allowed for a year you use your car 100% for personal purposes. How to file tax extensions online Example. How to file tax extensions online In April 2007, Bob bought and placed in service a car he used exclusively in his business. How to file tax extensions online The car cost $31,500. How to file tax extensions online Bob did not claim a section 179 deduction or the special depreciation allowance for the car. How to file tax extensions online He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). How to file tax extensions online For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. How to file tax extensions online Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. How to file tax extensions online      MACRS     Deprec. How to file tax extensions online Year % Amount Limit Allowed 2007 20. How to file tax extensions online 00 $6,300 $3,060 $ 3,060 2008 32. How to file tax extensions online 00 10,080 4,900 4,900 2009 19. How to file tax extensions online 20 6,048 2,850 2,850 2010 11. How to file tax extensions online 52 3,629 1,775 1,775 2011 11. How to file tax extensions online 52 3,629 1,775 1,775 2012 5. How to file tax extensions online 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. How to file tax extensions online   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). How to file tax extensions online If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. How to file tax extensions online   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. How to file tax extensions online However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. How to file tax extensions online For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. How to file tax extensions online Table 4-1. How to file tax extensions online 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. How to file tax extensions online ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. How to file tax extensions online   First, using the left column, find the date you first placed the car in service in 2013. How to file tax extensions online Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. How to file tax extensions online For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. How to file tax extensions online Refer back to the MACRS Depreciation Chart for the year you placed the car in service. How to file tax extensions online (See Car Used 50% or Less for Business . How to file tax extensions online )  Multiply the unadjusted basis of your car by your business use percentage. How to file tax extensions online Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. How to file tax extensions online (Also see Depreciation Limits . How to file tax extensions online )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. How to file tax extensions online 1—Sept. How to file tax extensions online 30 percentage instead of the Oct. How to file tax extensions online 1—Dec. How to file tax extensions online 31 percentage for your car. How to file tax extensions online               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. How to file tax extensions online If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. How to file tax extensions online 1—Sept. How to file tax extensions online 30 for figuring depreciation for your car. How to file tax extensions online See Which Convention Applies? in chapter 4 of Publication 946 for more details. How to file tax extensions online               Example. How to file tax extensions online You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. How to file tax extensions online You
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How to file tax extensions online Publication 969 - Main Content Table of Contents Health Savings Accounts (HSAs)Qualifying for an HSA Contributions to an HSA Distributions From an HSA Balance in an HSA Death of HSA Holder Filing Form 8889 Employer Participation Medical Savings Accounts (MSAs)Archer MSAs Contributions to an MSA Distributions From an MSA Balance in an Archer MSA Death of the Archer MSA Holder Filing Form 8853 Employer Participation Medicare Advantage MSAs Flexible Spending Arrangements (FSAs)Qualifying for an FSA Contributions to an FSA Distributions From an FSA Balance in an FSA Employer Participation Health Reimbursement Arrangements (HRAs)Qualifying for an HRA Contributions to an HRA Distributions From an HRA Balance in an HRA Employer Participation How To Get Tax HelpLow Income Taxpayer Clinics Health Savings Accounts (HSAs) A health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. How to file tax extensions online You must be an eligible individual to qualify for an HSA. How to file tax extensions online No permission or authorization from the IRS is necessary to establish an HSA. How to file tax extensions online You set up an HSA with a trustee. How to file tax extensions online A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. How to file tax extensions online The HSA can be established through a trustee that is different from your health plan provider. How to file tax extensions online Your employer may already have some information on HSA trustees in your area. How to file tax extensions online If you have an Archer MSA, you can generally roll it over into an HSA tax free. How to file tax extensions online See Rollovers, later. How to file tax extensions online What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. How to file tax extensions online You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. How to file tax extensions online Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. How to file tax extensions online The contributions remain in your account until you use them. How to file tax extensions online The interest or other earnings on the assets in the account are tax free. How to file tax extensions online Distributions may be tax free if you pay qualified medical expenses. How to file tax extensions online See Qualified medical expenses , later. How to file tax extensions online An HSA is “portable. How to file tax extensions online ” It stays with you if you change employers or leave the work force. How to file tax extensions online Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. How to file tax extensions online You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. How to file tax extensions online You have no other health coverage except what is permitted under Other health coverage , later. How to file tax extensions online You are not enrolled in Medicare. How to file tax extensions online You cannot be claimed as a dependent on someone else's 2013 tax return. How to file tax extensions online Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). How to file tax extensions online If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you. How to file tax extensions online If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. How to file tax extensions online This is true even if the other person does not actually claim your exemption. How to file tax extensions online Each spouse who is an eligible individual who wants an HSA must open a separate HSA. How to file tax extensions online You cannot have a joint HSA. How to file tax extensions online High deductible health plan (HDHP). How to file tax extensions online   An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. How to file tax extensions online Out-of-pocket expenses include copayments and other amounts, but do not include premiums. How to file tax extensions online   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. How to file tax extensions online Preventive care includes, but is not limited to, the following. How to file tax extensions online Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. How to file tax extensions online Routine prenatal and well-child care. How to file tax extensions online Child and adult immunizations. How to file tax extensions online Tobacco cessation programs. How to file tax extensions online Obesity weight-loss programs. How to file tax extensions online Screening services. How to file tax extensions online This includes screening services for the following: Cancer. How to file tax extensions online Heart and vascular diseases. How to file tax extensions online Infectious diseases. How to file tax extensions online Mental health conditions. How to file tax extensions online Substance abuse. How to file tax extensions online Metabolic, nutritional, and endocrine conditions. How to file tax extensions online Musculoskeletal disorders. How to file tax extensions online Obstetric and gynecological conditions. How to file tax extensions online Pediatric conditions. How to file tax extensions online Vision and hearing disorders. How to file tax extensions online For more information on screening services, see Notice 2004-23, 2004-15 I. How to file tax extensions online R. How to file tax extensions online B. How to file tax extensions online 725 available at www. How to file tax extensions online irs. How to file tax extensions online gov/irb/2004-15_IRB/ar10. How to file tax extensions online html. How to file tax extensions online     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. How to file tax extensions online      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,250 $12,500 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. How to file tax extensions online Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. How to file tax extensions online    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. How to file tax extensions online      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,350 $12,700 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. How to file tax extensions online Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. How to file tax extensions online   Self-only HDHP coverage is an HDHP covering only an eligible individual. How to file tax extensions online Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual (whether or not that individual is an eligible individual). How to file tax extensions online Example. How to file tax extensions online An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. How to file tax extensions online This is family HDHP coverage. How to file tax extensions online Family plans that do not meet the high deductible rules. How to file tax extensions online   There are some family plans that have deductibles for both the family as a whole and for individual family members. How to file tax extensions online Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. How to file tax extensions online If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. How to file tax extensions online Example. How to file tax extensions online You have family health insurance coverage in 2013. How to file tax extensions online The annual deductible for the family plan is $3,500. How to file tax extensions online This plan also has an individual deductible of $1,500 for each family member. How to file tax extensions online The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($2,500) for family coverage. How to file tax extensions online Other health coverage. How to file tax extensions online   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. How to file tax extensions online However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. How to file tax extensions online    You can have additional insurance that provides benefits only for the following items. How to file tax extensions online Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. How to file tax extensions online A specific disease or illness. How to file tax extensions online A fixed amount per day (or other period) of hospitalization. How to file tax extensions online   You can also have coverage (whether provided through insurance or otherwise) for the following items. How to file tax extensions online Accidents. How to file tax extensions online Disability. How to file tax extensions online Dental care. How to file tax extensions online Vision care. How to file tax extensions online Long-term care. How to file tax extensions online    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. How to file tax extensions online For example, if your plan provides coverage substantially all of which is for a specific disease or illness, the plan is not an HDHP for purposes of establishing an HSA. How to file tax extensions online Prescription drug plans. How to file tax extensions online   You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan does not provide benefits until the minimum annual deductible of the HDHP has been met. How to file tax extensions online If you can receive benefits before that deductible is met, you are not an eligible individual. How to file tax extensions online Other employee health plans. How to file tax extensions online   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. How to file tax extensions online Health FSAs and HRAs are discussed later. How to file tax extensions online   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. How to file tax extensions online Limited-purpose health FSA or HRA. How to file tax extensions online These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. How to file tax extensions online Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. How to file tax extensions online Suspended HRA. How to file tax extensions online Before the beginning of an HRA coverage period, you can elect to suspend the HRA. How to file tax extensions online The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. How to file tax extensions online When the suspension period ends, you are no longer eligible to make contributions to an HSA. How to file tax extensions online Post-deductible health FSA or HRA. How to file tax extensions online These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. How to file tax extensions online The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met. How to file tax extensions online Retirement HRA. How to file tax extensions online This arrangement pays or reimburses only those medical expenses incurred after retirement. How to file tax extensions online After retirement you are no longer eligible to make contributions to an HSA. How to file tax extensions online Health FSA – grace period. How to file tax extensions online   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero. How to file tax extensions online See Flexible Spending Arrangements (FSAs) , later. How to file tax extensions online Contributions to an HSA Any eligible individual can contribute to an HSA. How to file tax extensions online For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. How to file tax extensions online For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. How to file tax extensions online Family members or any other person may also make contributions on behalf of an eligible individual. How to file tax extensions online Contributions to an HSA must be made in cash. How to file tax extensions online Contributions of stock or property are not allowed. How to file tax extensions online Limit on Contributions The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. How to file tax extensions online For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. How to file tax extensions online If you have family HDHP coverage, you can contribute up to $6,450. How to file tax extensions online For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. How to file tax extensions online If you have family HDHP coverage you can contribute up to $6,550. How to file tax extensions online If you were, or were considered (under the last-month rule, discussed later), an eligible individual for the entire year and did not change your type of coverage, you can contribute the full amount based on your type of coverage. How to file tax extensions online However, if you were not an eligible individual for the entire year or changed your coverage during the year, your contribution limit is the greater of: The limitation shown on the Line 3 Limitation Chart and Worksheetin the Instructions for Form 8889, Health Savings Accounts (HSAs), or The maximum annual HSA contribution based on your HDHP coverage (self-only or family) on the first day of the last month of your tax year. How to file tax extensions online If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2013 is $6,450 even if you changed coverage during the year. How to file tax extensions online Last-month rule. How to file tax extensions online   Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. How to file tax extensions online You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. How to file tax extensions online Testing period. How to file tax extensions online   If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. How to file tax extensions online For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. How to file tax extensions online For example, December 1, 2013, through December 31, 2014. How to file tax extensions online   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. How to file tax extensions online You include this amount in your income in the year in which you fail to be an eligible individual. How to file tax extensions online This amount is also subject to a 10% additional tax. How to file tax extensions online The income and additional tax are shown on Form 8889, Part III. How to file tax extensions online Example 1. How to file tax extensions online Chris, age 53, becomes an eligible individual on December 1, 2013. How to file tax extensions online He has family HDHP coverage on that date. How to file tax extensions online Under the last-month rule, he contributes $6,450 to his HSA. How to file tax extensions online Chris fails to be an eligible individual in June 2014. How to file tax extensions online Because Chris did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), he must include in his 2014 income the contributions made in 2013 that would not have been made except for the last-month rule. How to file tax extensions online Chris uses the worksheet in the Form 8889 instructions to determine this amount. How to file tax extensions online January -0- February -0- March -0- April -0- May -0- June -0- July -0- August -0- September -0- October -0- November -0- December $6,450. How to file tax extensions online 00 Total for all months $6,450. How to file tax extensions online 00 Limitation. How to file tax extensions online Divide the total by 12 $537. How to file tax extensions online 50 Chris would include $5,912. How to file tax extensions online 50 ($6,450. How to file tax extensions online 00 – $537. How to file tax extensions online 50) in his gross income on his 2014 tax return. How to file tax extensions online Also, a 10% additional tax applies to this amount. How to file tax extensions online Example 2. How to file tax extensions online Erika, age 39, has self-only HDHP coverage on January 1, 2013. How to file tax extensions online Erika changes to family HDHP coverage on November 1, 2013. How to file tax extensions online Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. How to file tax extensions online Erika fails to be an eligible individual in March 2014. How to file tax extensions online Because she did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), she must include in income the contribution made that would not have been made except for the last-month rule. How to file tax extensions online Erika uses the worksheet in the Form 8889 instructions to determine this amount. How to file tax extensions online January $3,250. How to file tax extensions online 00 February $3,250. How to file tax extensions online 00 March $3,250. How to file tax extensions online 00 April $3,250. How to file tax extensions online 00 May $3,250. How to file tax extensions online 00 June $3,250. How to file tax extensions online 00 July $3,250. How to file tax extensions online 00 August $3,250. How to file tax extensions online 00 September $3,250. How to file tax extensions online 00 October $3,250. How to file tax extensions online 00 November $6,450. How to file tax extensions online 00 December $6,450. How to file tax extensions online 00 Total for all months $45,400. How to file tax extensions online 00 Limitation. How to file tax extensions online Divide the total by 12 $3,783. How to file tax extensions online 34 Erika would include $2,666. How to file tax extensions online 67 ($6,450 – $3,783. How to file tax extensions online 34) in her gross income on her 2014 tax return. How to file tax extensions online Also, a 10% additional tax applies to this amount. How to file tax extensions online Additional contribution. How to file tax extensions online   If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. How to file tax extensions online For example, if you have self-only coverage, you can contribute up to $4,250 (the contribution limit for self-only coverage ($3,250) plus the additional contribution of $1,000). How to file tax extensions online However, see Enrolled in Medicare , later. How to file tax extensions online If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. How to file tax extensions online Reduction of contribution limit. How to file tax extensions online   You must reduce the amount that can be contributed (including any additional contribution) to your HSA by the amount of any contribution made to your Archer MSA (including employer contributions) for the year. How to file tax extensions online A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. How to file tax extensions online Rules for married people. How to file tax extensions online   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. How to file tax extensions online If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. How to file tax extensions online You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. How to file tax extensions online After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. How to file tax extensions online The rules for married people apply only if both spouses are eligible individuals. How to file tax extensions online If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. How to file tax extensions online If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. How to file tax extensions online Each spouse must make the additional contribution to his or her own HSA. How to file tax extensions online Example. How to file tax extensions online For 2013, Mr. How to file tax extensions online Auburn and his wife are both eligible individuals. How to file tax extensions online They each have family coverage under separate HDHPs. How to file tax extensions online Mr. How to file tax extensions online Auburn is 58 years old and Mrs. How to file tax extensions online Auburn is 53. How to file tax extensions online Mr. How to file tax extensions online and Mrs. How to file tax extensions online Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. How to file tax extensions online If they split it equally, Mr. How to file tax extensions online Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. How to file tax extensions online Auburn can contribute $3,225 to an HSA. How to file tax extensions online Employer contributions. How to file tax extensions online   You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. How to file tax extensions online This includes amounts contributed to your account by your employer through a cafeteria plan. How to file tax extensions online Enrolled in Medicare. How to file tax extensions online   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. How to file tax extensions online Example. How to file tax extensions online You turned age 65 in July 2013 and enrolled in Medicare. How to file tax extensions online You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. How to file tax extensions online Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). How to file tax extensions online Qualified HSA funding distribution. How to file tax extensions online   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. How to file tax extensions online This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. How to file tax extensions online For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. How to file tax extensions online   The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. How to file tax extensions online The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. How to file tax extensions online The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. How to file tax extensions online The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. How to file tax extensions online   You can make only one qualified HSA funding distribution during your lifetime. How to file tax extensions online However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. How to file tax extensions online The total qualified HSA funding distribution cannot be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled. How to file tax extensions online Example. How to file tax extensions online In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. How to file tax extensions online You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). How to file tax extensions online Funding distribution – testing period. How to file tax extensions online   You must remain an eligible individual during the testing period. How to file tax extensions online For a qualified HSA funding distribution, the testing period begins with the month in which the qualified HSA funding distribution is contributed and ends on the last day of the 12th month following that month. How to file tax extensions online For example, if a qualified HSA funding distribution is contributed to your HSA on August 10, 2013, your testing period begins in August 2013, and ends on August 31, 2014. How to file tax extensions online   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the qualified HSA funding distribution. How to file tax extensions online You include this amount in income in the year in which you fail to be an eligible individual. How to file tax extensions online This amount is also subject to a 10% additional tax. How to file tax extensions online The income and the additional tax are shown on Form 8889, Part III. How to file tax extensions online   Each qualified HSA funding distribution allowed has its own testing period. How to file tax extensions online For example, you are an eligible individual, age 45, with self-only HDHP coverage. How to file tax extensions online On June 18, 2013, you make a qualified HSA funding distribution of $3,250. How to file tax extensions online On July 27, 2013, you enroll in family HDHP coverage and on August 17, 2013, you make a qualified HSA funding distribution of $3,200. How to file tax extensions online Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. How to file tax extensions online Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. How to file tax extensions online   The testing period rule that applies under the last-month rule (discussed earlier) does not apply to amounts contributed to an HSA through a qualified HSA funding distribution. How to file tax extensions online If you remain an eligible individual during the entire funding distribution testing period, then no amount of that distribution is included in income and will not be subject to the additional tax for failing to meet the last-month rule testing period. How to file tax extensions online Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. How to file tax extensions online Archer MSAs and other HSAs. How to file tax extensions online   You can roll over amounts from Archer MSAs and other HSAs into an HSA. How to file tax extensions online You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. How to file tax extensions online Rollover contributions do not need to be in cash. How to file tax extensions online Rollovers are not subject to the annual contribution limits. How to file tax extensions online   You must roll over the amount within 60 days after the date of receipt. How to file tax extensions online You can make only one rollover contribution to an HSA during a 1-year period. How to file tax extensions online Note. How to file tax extensions online If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer is not considered a rollover. How to file tax extensions online There is no limit on the number of these transfers. How to file tax extensions online Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. How to file tax extensions online When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. How to file tax extensions online If you fail to be an eligible individual during 2013, you can still make contributions, up until April 15, 2014, for the months you were an eligible individual. How to file tax extensions online Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. How to file tax extensions online Your employer must notify you and the trustee of your HSA that the contribution is for 2013. How to file tax extensions online The contribution will be reported on your 2014 Form W-2. How to file tax extensions online Reporting Contributions on Your Return Contributions made by your employer are not included in your income. How to file tax extensions online Contributions to an employee's account by an employer using the amount of an employee's salary reduction through a cafeteria plan are treated as employer contributions. How to file tax extensions online Generally, you can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income. How to file tax extensions online Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. How to file tax extensions online The contributions are treated as a distribution of money and are not included in the partner's gross income. How to file tax extensions online Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner's gross income. How to file tax extensions online In both situations, the partner can deduct the contribution made to the partner's HSA. How to file tax extensions online Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. How to file tax extensions online The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. How to file tax extensions online Form 8889. How to file tax extensions online   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. How to file tax extensions online You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. How to file tax extensions online Contributions made by your employer and qualified HSA funding distributions are also shown on the form. How to file tax extensions online   You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. How to file tax extensions online Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. How to file tax extensions online Follow the instructions for Form 8889. How to file tax extensions online Report your HSA deduction on Form 1040 or Form 1040NR. How to file tax extensions online Excess contributions. How to file tax extensions online   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. How to file tax extensions online Excess contributions are not deductible. How to file tax extensions online Excess contributions made by your employer are included in your gross income. How to file tax extensions online If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. How to file tax extensions online   Generally, you must pay a 6% excise tax on excess contributions. How to file tax extensions online See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. How to file tax extensions online The excise tax applies to each tax year the excess contribution remains in the account. How to file tax extensions online   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. How to file tax extensions online You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. How to file tax extensions online You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. How to file tax extensions online If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income is not an excess contribution. How to file tax extensions online If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. How to file tax extensions online Deducting an excess contribution in a later year. How to file tax extensions online   You may be able to deduct excess contributions for previous years that are still in your HSA. How to file tax extensions online The excess contribution you can deduct for the current year is the lesser of the following two amounts. How to file tax extensions online Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. How to file tax extensions online The total excess contributions in your HSA at the beginning of the year. How to file tax extensions online   Amounts contributed for the year include contributions by you, your employer, and any other person. How to file tax extensions online They also include any qualified HSA funding distribution made to your HSA. How to file tax extensions online Any excess contribution remaining at the end of a tax year is subject to the excise tax. How to file tax extensions online See Form 5329. How to file tax extensions online Distributions From an HSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. How to file tax extensions online When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA. How to file tax extensions online You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. How to file tax extensions online If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. How to file tax extensions online You do not have to make distributions from your HSA each year. How to file tax extensions online If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. How to file tax extensions online Generally, a distribution is money you get from your health savings account. How to file tax extensions online Your total distributions include amounts paid with a debit card that restricts payments to health care and amounts withdrawn from the HSA by other individuals that you have designated. How to file tax extensions online The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. How to file tax extensions online Qualified medical expenses. How to file tax extensions online   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. How to file tax extensions online These are explained in Publication 502, Medical and Dental Expenses. How to file tax extensions online   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. How to file tax extensions online A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. How to file tax extensions online   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. How to file tax extensions online State law determines when an HSA is established. How to file tax extensions online An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established. How to file tax extensions online   If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses. How to file tax extensions online   Qualified medical expenses are those incurred by the following persons. How to file tax extensions online You and your spouse. How to file tax extensions online All dependents you claim on your tax return. How to file tax extensions online Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. How to file tax extensions online    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. How to file tax extensions online You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA. How to file tax extensions online Insurance premiums. How to file tax extensions online   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. How to file tax extensions online Health care continuation coverage (such as coverage under COBRA). How to file tax extensions online Health care coverage while receiving unemployment compensation under federal or state law. How to file tax extensions online Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). How to file tax extensions online   The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. How to file tax extensions online See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). How to file tax extensions online   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. How to file tax extensions online For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses. How to file tax extensions online Health coverage tax credit. How to file tax extensions online   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. How to file tax extensions online See Publication 502 for more information on this credit. How to file tax extensions online Deemed distributions from HSAs. How to file tax extensions online   The following situations result in deemed taxable distributions from your HSA. How to file tax extensions online You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. How to file tax extensions online Your account ceases to be an HSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8889. How to file tax extensions online You used any portion of any of your HSAs as security for a loan at any time in 2013. How to file tax extensions online You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. How to file tax extensions online   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the HSA, Lending of money between you and the HSA, Furnishing goods, services, or facilities between you and the HSA, and Transfer to or use by you, or for your benefit, of any assets of the HSA. How to file tax extensions online   Any deemed distribution will not be treated as used to pay qualified medical expenses. How to file tax extensions online These distributions are included in your income and are subject to the additional 20% tax, discussed later. How to file tax extensions online Recordkeeping. How to file tax extensions online You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. How to file tax extensions online Do not send these records with your tax return. How to file tax extensions online Keep them with your tax records. How to file tax extensions online Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). How to file tax extensions online If you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8889. How to file tax extensions online However, the distribution of an excess contribution taken out after the due date, including extensions, of your return is subject to tax even if used for qualified medical expenses. How to file tax extensions online Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. How to file tax extensions online If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. How to file tax extensions online Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. How to file tax extensions online You may have to pay an additional 20% tax on your taxable distribution. How to file tax extensions online HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. How to file tax extensions online Additional tax. How to file tax extensions online   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. How to file tax extensions online Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. How to file tax extensions online Exceptions. How to file tax extensions online   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. How to file tax extensions online Balance in an HSA An HSA is generally exempt from tax. How to file tax extensions online You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. How to file tax extensions online Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). How to file tax extensions online Earnings on amounts in an HSA are not included in your income while held in the HSA. How to file tax extensions online Death of HSA Holder You should choose a beneficiary when you set up your HSA. How to file tax extensions online What happens to that HSA when you die depends on whom you designate as the beneficiary. How to file tax extensions online Spouse is the designated beneficiary. How to file tax extensions online   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. How to file tax extensions online Spouse is not the designated beneficiary. How to file tax extensions online   If your spouse is not the designated beneficiary of your HSA: The account stops being an HSA, and The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. How to file tax extensions online If your estate is the beneficiary, the value is included on your final income tax return. How to file tax extensions online The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. How to file tax extensions online Filing Form 8889 You must file Form 8889 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your HSA during the year. How to file tax extensions online You must file the form even if only your employer or your spouse's employer made contributions to the HSA. How to file tax extensions online If, during the tax year, you are the beneficiary of two or more HSAs or you are a beneficiary of an HSA and you have your own HSA, you must complete a separate Form 8889 for each HSA. How to file tax extensions online Enter “statement” at the top of each Form 8889 and complete the form as instructed. How to file tax extensions online Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. How to file tax extensions online Attach the statements to your tax return after the controlling Form 8889. How to file tax extensions online Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. How to file tax extensions online Unlike the previous discussions, “you” refers to the employer and not to the employee. How to file tax extensions online Health plan. How to file tax extensions online   If you want your employees to be able to have an HSA, they must have an HDHP. How to file tax extensions online You can provide no additional coverage other than those exceptions listed previously under Other health coverage . How to file tax extensions online Contributions. How to file tax extensions online   You can make contributions to your employees' HSAs. How to file tax extensions online You deduct the contributions on your business income tax return for the year in which you make the contributions. How to file tax extensions online If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. How to file tax extensions online   For more information on employer contributions, see Notice 2008-59, 2008-29 I. How to file tax extensions online R. How to file tax extensions online B. How to file tax extensions online 123, questions 23 through 27, available at www. How to file tax extensions online irs. How to file tax extensions online gov/irb/2008-29_IRB/ar11. How to file tax extensions online html. How to file tax extensions online Comparable contributions. How to file tax extensions online   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. How to file tax extensions online Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. How to file tax extensions online The comparability rules do not apply to contributions made through a cafeteria plan. How to file tax extensions online Comparable participating employees. How to file tax extensions online   Comparable participating employees: Are covered by your HDHP and are eligible to establish an HSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (part-time, full-time, or former employees). How to file tax extensions online   To meet the comparability requirements for eligible employees who have not established an HSA by December 31 or have not notified you that they have an HSA, you must meet a notice requirement and a contribution requirement. How to file tax extensions online   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. How to file tax extensions online The notice must state that each eligible employee who, by the last day of February, establishes an HSA and notifies you that they have established an HSA will receive a comparable contribution to the HSA for the prior year. How to file tax extensions online For a sample of the notice, see Regulation 54. How to file tax extensions online 4980G-4 A-14(c). How to file tax extensions online You will meet the contribution requirement for these employees if by April 15, 2014, you contribute comparable amounts plus reasonable interest to the employee's HSA for the prior year. How to file tax extensions online Note. How to file tax extensions online For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. How to file tax extensions online Excise tax. How to file tax extensions online   If you made contributions to your employees' HSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. How to file tax extensions online Employment taxes. How to file tax extensions online   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. How to file tax extensions online You must report the contributions in box 12 of the Form W-2 you file for each employee. How to file tax extensions online This includes the amounts the employee elected to contribute through a cafeteria plan. How to file tax extensions online Enter code “W” in box 12. How to file tax extensions online Medical Savings Accounts (MSAs) Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder's spouse, or the account holder's dependent(s). How to file tax extensions online After December 31, 2007, you cannot be treated as an eligible individual for Archer MSA purposes unless: You were an active participant for any tax year ending before January 1, 2008, or You became an active participant for a tax year ending after December 31, 2007, by reason of coverage under a high deductible health plan (HDHP) of an Archer MSA participating employer. How to file tax extensions online A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare. How to file tax extensions online Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. How to file tax extensions online S. How to file tax extensions online financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. How to file tax extensions online What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. How to file tax extensions online You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. How to file tax extensions online The interest or other earnings on the assets in your Archer MSA are tax free. How to file tax extensions online Distributions may be tax free if you pay qualified medical expenses. How to file tax extensions online See Qualified medical expenses , later. How to file tax extensions online The contributions remain in your Archer MSA from year to year until you use them. How to file tax extensions online An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. How to file tax extensions online Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. How to file tax extensions online An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). How to file tax extensions online A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. How to file tax extensions online You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. How to file tax extensions online You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. How to file tax extensions online If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. How to file tax extensions online This is true even if the other person does not actually claim your exemption. How to file tax extensions online Small employer. How to file tax extensions online   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. How to file tax extensions online The definition of small employer is modified for new employers and growing employers. How to file tax extensions online Growing employer. How to file tax extensions online   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. How to file tax extensions online The employer will continue to meet the requirement for small employers if he or she: Had 50 or fewer employees when the Archer MSAs began, Made a contribution that was excludable or deductible as an Archer MSA for the last year he or she had 50 or fewer employees, and Had an average of 200 or fewer employees each year after 1996. How to file tax extensions online Changing employers. How to file tax extensions online   If you change employers, your Archer MSA moves with you. How to file tax extensions online However, you may not make additional contributions unless you are otherwise eligible. How to file tax extensions online High deductible health plan (HDHP). How to file tax extensions online   To be eligible for an Archer MSA, you must be covered under an HDHP. How to file tax extensions online An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the annual out-of-pocket medical expenses that you must pay for covered expenses. How to file tax extensions online Limits. How to file tax extensions online   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. How to file tax extensions online   Self-only coverage Family coverage Minimum annual deductible $2,150 $4,300 Maximum annual deductible $3,200 $6,450 Maximum annual out-of-pocket expenses $4,300 $7,850 Family plans that do not meet the high deductible rules. How to file tax extensions online   There are some family plans that have deductibles for both the family as a whole and for individual family members. How to file tax extensions online Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. How to file tax extensions online If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. How to file tax extensions online Example. How to file tax extensions online You have family health insurance coverage in 2013. How to file tax extensions online The annual deductible for the family plan is $5,500. How to file tax extensions online This plan also has an individual deductible of $2,000 for each family member. How to file tax extensions online The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($4,300) for family coverage. How to file tax extensions online Other health coverage. How to file tax extensions online   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. How to file tax extensions online However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. How to file tax extensions online However, you can have additional insurance that provides benefits only for the following items. How to file tax extensions online Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. How to file tax extensions online A specific disease or illness. How to file tax extensions online A fixed amount per day (or other period) of hospitalization. How to file tax extensions online You can also have coverage (whether provided through insurance or otherwise) for the following items. How to file tax extensions online Accidents. How to file tax extensions online Disability. How to file tax extensions online Dental care. How to file tax extensions online Vision care. How to file tax extensions online Long-term care. How to file tax extensions online Contributions to an MSA Contributions to an Archer MSA must be made in cash. How to file tax extensions online You cannot contribute stock or other property to an Archer MSA. How to file tax extensions online Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. How to file tax extensions online (You do not pay tax on these contributions. How to file tax extensions online ) If your employer does not make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. How to file tax extensions online Both you and your employer cannot make contributions to your Archer MSA in the same year. How to file tax extensions online You do not have to make contributions to your Archer MSA every year. How to file tax extensions online    If your spouse is covered by your HDHP and an excludable amount is contributed by your spouse's employer to an Archer MSA belonging to your spouse, you cannot make contributions to your own Archer MSA that year. How to file tax extensions online Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. How to file tax extensions online An income limit. How to file tax extensions online Annual deductible limit. How to file tax extensions online   You (or your employer) can contribute up to 75% of the annual deductible of your HDHP (65% if you have a self-only plan) to your Archer MSA. How to file tax extensions online You must have the HDHP all year to contribute the full amount. How to file tax extensions online If you do not qualify to contribute the full amount for the year, determine your annual deductible limit by using the worksheet in the Instructions for Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. How to file tax extensions online Example 1. How to file tax extensions online You have an HDHP for your family all year in 2013. How to file tax extensions online The annual deductible is $5,000. How to file tax extensions online You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. How to file tax extensions online Example 2. How to file tax extensions online You have an HDHP for your family for the entire months of July through December 2013 (6 months). How to file tax extensions online The annual deductible is $5,000. How to file tax extensions online You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. How to file tax extensions online If you and your spouse each have a family plan, you are treated as having family coverage with the lower annual deductible of the two health plans. How to file tax extensions online The contribution limit is split equally between you unless you agree on a different division. How to file tax extensions online Income limit. How to file tax extensions online   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. How to file tax extensions online   If you are self-employed, you cannot contribute more than your net self-employment income. How to file tax extensions online This is your income from self-employment minus expenses (including the deductible part of self-employment tax). How to file tax extensions online Example 1. How to file tax extensions online Noah Paul earned $25,000 from ABC Company in 2013. How to file tax extensions online Through ABC, he had an HDHP for his family for the entire year. How to file tax extensions online The annual deductible was $5,000. How to file tax extensions online He can contribute up to $3,750 to his Archer MSA (75% × $5,000). How to file tax extensions online He can contribute the full amount because he earned more than $3,750 at ABC. How to file tax extensions online Example 2. How to file tax extensions online Westley Lawrence is self-employed. How to file tax extensions online He had an HDHP for his family for the entire year in 2013. How to file tax extensions online The annual deductible was $5,000. How to file tax extensions online Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). How to file tax extensions online However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. How to file tax extensions online Therefore, he is limited to a contribution of $2,500. How to file tax extensions online Individuals enrolled in Medicare. How to file tax extensions online   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. How to file tax extensions online However, you may be eligible for a Medicare Advantage MSA, discussed later. How to file tax extensions online When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. How to file tax extensions online Reporting Contributions on Your Return Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040 or Form 1040NR. How to file tax extensions online You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. How to file tax extensions online You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount you (or your employer) contributed during the year. How to file tax extensions online Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. How to file tax extensions online Follow the instructions for Form 8853 and complete the worksheet in the instructions. How to file tax extensions online Report your Archer MSA deduction on Form 1040 or Form 1040NR. How to file tax extensions online Excess contributions. How to file tax extensions online   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. How to file tax extensions online Excess contributions are not deductible. How to file tax extensions online Excess contributions made by your employer are included in your gross income. How to file tax extensions online If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. How to file tax extensions online   Generally, you must pay a 6% excise tax on excess contributions. How to file tax extensions online See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. How to file tax extensions online The excise tax applies to each tax year the excess contribution remains in the account. How to file tax extensions online   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. How to file tax extensions online You withdraw the excess contributions by the due date, including extensions, of your tax return. How to file tax extensions online You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. How to file tax extensions online Deducting an excess contribution in a later year. How to file tax extensions online   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. How to file tax extensions online The excess contribution you can deduct in the current year is the lesser of the following two amounts. How to file tax extensions online Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. How to file tax extensions online The total excess contributions in your Archer MSA at the beginning of the year. How to file tax extensions online   Any excess contributions remaining at the end of a tax year are subject to the excise tax. How to file tax extensions online See Form 5329. How to file tax extensions online Distributions From an MSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. How to file tax extensions online When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your Archer MSA to send you a distribution from your Archer MSA. How to file tax extensions online You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). How to file tax extensions online If you receive distributions for other reasons, the amount will be subject to income tax and may be subject to an additional 20% tax as well. How to file tax extensions online You do not have to make withdrawals from your Archer MSA each year. How to file tax extensions online If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. How to file tax extensions online A distribution is money you get from your Archer MSA. How to file tax extensions online The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. How to file tax extensions online Qualified medical expenses. How to file tax extensions online   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. How to file tax extensions online These are explained in Publication 502. How to file tax extensions online   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. How to file tax extensions online A medicine or drug will be a qualified medical expense for MSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. How to file tax extensions online   Qualified medical expenses are those incurred by the following persons. How to file tax extensions online You and your spouse. How to file tax extensions online All dependents you claim on your tax return. How to file tax extensions online Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. How to file tax extensions online    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. How to file tax extensions online    You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your Archer MSA. How to file tax extensions online Special rules for insurance premiums. How to file tax extensions online   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. How to file tax extensions online You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law as qualified medical expenses for Archer MSAs. How to file tax extensions online Health coverage tax credit. How to file tax extensions online   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. How to file tax extensions online See Publication 502 for information on this credit. How to file tax extensions online Deemed distributions from Archer MSAs. How to file tax extensions online   The following situations result in deemed taxable distributions from your Archer MSA. How to file tax extensions online You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. How to file tax extensions online Your account ceases to be an Archer MSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8853. How to file tax extensions online You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. How to file tax extensions online You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. How to file tax extensions online   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the Archer MSA, Lending of money between you and the Archer MSA, Furnishing goods, services, or facilities between you and the Archer MSA, and Transfer to or use by you, or for your benefit, of any assets of the Archer MSA. How to file tax extensions online   Any deemed distribution will not be treated as used to pay qualified medical expenses. How to file tax extensions online These distributions are included in your income and are subject to the additional 20% tax, discussed later. How to file tax extensions online Recordkeeping. How to file tax extensions online You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. How to file tax extensions online Do not send these records with your tax return. How to file tax extensions online Keep them with your tax records. How to file tax extensions online Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). How to file tax extensions online If you use a distribution from your Archer MSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. How to file tax extensions online Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. How to file tax extensions online If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. How to file tax extensions online Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. How to file tax extensions online You may have to pay an additional 20% tax, discussed later, on your taxable distribution. How to file tax extensions online If an amount (other than a rollover) is contributed to your Archer MSA this year (by you or your employer), you also must report and pay tax on a distribution you receive from your Archer MSA this year that is used to pay medical expenses of someone who is not covered by an HDHP, or is also covered by another health plan that is not an HDHP, at the time the expenses are incurred. How to file tax extensions online Rollovers. How to file tax extensions online   Generally, any distribution from an Archer MSA that you roll over into another Archer MSA or an HSA is not taxable if you complete the rollover within 60 days. How to file tax extensions online An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. How to file tax extensions online See the Form 8853 instructions for more information. How to file tax extensions online Additional tax. How to file tax extensions online   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. How to file tax extensions online Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. How to file tax extensions online Report the additional tax in the total on Form 1040 or Form 1040NR. How to file tax extensions online Exceptions. How to file tax extensions online   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. How to file tax extensions online Balance in an Archer MSA An Archer MSA is generally exempt from tax. How to file tax extensions online You are permitted to take a distribution from your Archer MSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. How to file tax extensions online Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). How to file tax extensions online Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. How to file tax extensions online Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. How to file tax extensions online What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. How to file tax extensions online Spouse is the designated beneficiary. How to file tax extensions online   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. How to file tax extensions online Spouse is not the designated beneficiary. How to file tax extensions online   If your spouse is not the designated beneficiary of your Archer MSA: The account stops being an Archer MSA, and The fair market value of the Archer MSA becomes taxable to the beneficiary in the year in which you die. How to file tax extensions online   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. How to file tax extensions online The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. How to file tax extensions online Filing Form 8853 You must file Form 8853 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your Archer MSA during the year. How to file tax extensions online You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. How to file tax extensions online If, during the tax year, you are the beneficiary of two or more Archer MSAs or you are a beneficiary of an Archer MSA and you have your own Archer MSA, you must complete a separate Form 8853 for each MSA. How to file tax extensions online Enter “statement” at the top of each Form 8853 and complete the form as instructed. How to file tax extensions online Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. How to file tax extensions online Attach the statements to your tax return after the controlling Form 8853. How to file tax extensions online Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. How to file tax extensions online Unlike the previous discussions, “you” refers to the employer and not to the employee. How to file tax extensions online Health plan. How to file tax extensions online   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. How to file tax extensions online You can provide no additional coverage other than those exceptions listed previously under Other health coverage . How to file tax extensions online Contributions. How to file tax extensions online   You can make contributions to your employees' Archer MSAs. How to file tax extensions online You deduct the contributions on the “Employee benefit programs” line of your business income tax return for the year in which you make the contributions. How to file tax extensions online If you are filing Form 1040, Schedule C, this is Part II, line 14. How to file tax extensions online Comparable contributions. How to file tax extensions online   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. How to file tax extensions online Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. How to file tax extensions online Comparable participating employees. How to file tax extensions online   Comparable participating employees: Are covered by your HDHP and are eligible to establish an Archer MSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (either part-time or full-time). How to file tax extensions online Excise tax. How to file tax extensions online   If you made contributions to your employees' Archer MSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. How to file tax extensions online Employment taxes. How to file tax extensions online   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. How to file tax extensions online You must report the contributions in box 12 of the Form W-2 you file for each employee. How to file tax extensions online Enter code “R” in box 12. How to file tax extensions online Medicare Advantage MSAs A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. How to file tax extensions online To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have a high deductible health plan (HDHP) that meets the Medicare guidelines. How to file tax extensions online A Medicare Advantage MSA is a tax-exempt trust or custodial savings account that you set up with a financial institution (such as a bank or an insurance company) in which the Medicare program can deposit money for qualified medical expenses. How to file tax extensions online The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. How to file tax extensions online An HDHP is a special health insurance policy that has a high deductible. How to file tax extensions online You choose the policy you want to use as part of your Medicare Advantage MSA plan. How to file tax extensions online However, the policy must be approved by the Medicare program. How to file tax extensions online Medicare Advantage MSAs are administered through the federal Medicare program. How to file tax extensions online You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. How to file tax extensions online medicare. How to file tax extensions online gov. How to file tax extensions online Note. How to file tax extensions online You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. How to file tax extensions online Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. How to file tax extensions online FSAs are usually funded through voluntary salary reduction agreements with your employer. How to file tax extensions online No employment or federal income taxes are deducted from your contribution. How to file tax extensions online The employer may also contribute. How to file tax extensions online Note. How to file tax extensions online Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for FSAs on your income tax return. How to file tax extensions online For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. How to file tax extensions online What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. How to file tax extensions online Contributions made by your employer can be excluded from your gross income. How to file tax extensions online No employment or federal income taxes are deducted from the contributions. How to file tax extensions online Withdrawals may be tax free if you pay qualified medical expenses. How to file tax extensions online See Qualified medical expenses , later. How to file tax extensions online You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. How to file tax extensions online Qualifying for an FSA Health FSAs are employer-established benefit plans. How to file tax extensions online These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. How to file tax extensions online Employers have complete flexibility to offer various combinations of benefits in designing their plan. How to file tax extensions online You do not have to be covered under any other health care plan to participate. How to file tax extensions online Self-employed persons are not eligible for an FSA. How to file tax extensions online Certain limitations may apply if you are a highly compensated participant or a key employee. How to file tax extensions online Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. How to file tax extensions online This is sometimes called a salary reduction agreement. How to file tax extensions online The employer may also contribute to your FSA if specified in the plan. How to file tax extensions online You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. How to file tax extensions online However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. How to file tax extensions online When To Contribute At the