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Income Tax Deductions 2012

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Income Tax Deductions 2012

Income tax deductions 2012 5. Income tax deductions 2012   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Income tax deductions 2012 Short-term lease. Income tax deductions 2012 Retail space. Income tax deductions 2012 Qualified long-term real property. Income tax deductions 2012 Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Income tax deductions 2012 If there is a connection between any income you receive and your business, the income is business income. Income tax deductions 2012 A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Income tax deductions 2012 You can have business income even if you are not involved in the activity on a regular full-time basis. Income tax deductions 2012 Income from work you do on the side in addition to your regular job can be business income. Income tax deductions 2012 You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Income tax deductions 2012 But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Income tax deductions 2012 For information on selling business assets, see chapter 3. Income tax deductions 2012 Nonemployee compensation. Income tax deductions 2012 Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Income tax deductions 2012 This includes amounts reported as nonemployee compensation in box 7 of the form. Income tax deductions 2012 You can find more information in the instructions on the back of the Form 1099-MISC you received. Income tax deductions 2012 Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Income tax deductions 2012 In most cases, your business income will be in the form of cash, checks, and credit card charges. Income tax deductions 2012 But business income can be in other forms, such as property or services. Income tax deductions 2012 These and other types of income are explained next. Income tax deductions 2012 If you are a U. Income tax deductions 2012 S. Income tax deductions 2012 citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Income tax deductions 2012 S. Income tax deductions 2012 law. Income tax deductions 2012 If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Income tax deductions 2012 For details, see Publication 54, Tax Guide for U. Income tax deductions 2012 S. Income tax deductions 2012 Citizens and Resident Aliens Abroad. Income tax deductions 2012 Bartering for Property or Services Bartering is an exchange of property or services. Income tax deductions 2012 You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Income tax deductions 2012 If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Income tax deductions 2012 Example 1. Income tax deductions 2012 You are a self-employed lawyer. Income tax deductions 2012 You perform legal services for a client, a small corporation. Income tax deductions 2012 In payment for your services, you receive shares of stock in the corporation. Income tax deductions 2012 You must include the fair market value of the shares in income. Income tax deductions 2012 Example 2. Income tax deductions 2012 You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Income tax deductions 2012 You must include the fair rental value of the apartment in your gross receipts. Income tax deductions 2012 Your landlord must include the fair market value of the work of art in his or her rental income. Income tax deductions 2012 Example 3. Income tax deductions 2012 You are a self-employed accountant. Income tax deductions 2012 Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Income tax deductions 2012 Members get in touch with other members directly and bargain for the value of the services to be performed. Income tax deductions 2012 In return for accounting services you provided for the house painter's business, the house painter painted your home. Income tax deductions 2012 You must include in gross receipts the fair market value of the services you received from the house painter. Income tax deductions 2012 The house painter must include the fair market value of your accounting services in his or her gross receipts. Income tax deductions 2012 Example 4. Income tax deductions 2012 You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Income tax deductions 2012 As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Income tax deductions 2012 You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Income tax deductions 2012 The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Income tax deductions 2012 It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Income tax deductions 2012 See Publication 15 (Circular E), Employer's Tax Guide. Income tax deductions 2012 Example 5. Income tax deductions 2012 You operate a plumbing business and use the cash method of accounting. Income tax deductions 2012 You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Income tax deductions 2012 Each member has access to a directory that lists the members of the club and the services available. Income tax deductions 2012 Members contact each other directly and request services to be performed. Income tax deductions 2012 You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Income tax deductions 2012 You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Income tax deductions 2012 Information returns. Income tax deductions 2012   If you are involved in a bartering transaction, you may have to file either of the following forms. Income tax deductions 2012 Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Income tax deductions 2012 Form 1099-MISC, Miscellaneous Income. Income tax deductions 2012 For information about these forms, see the General Instructions for Certain Information Returns. Income tax deductions 2012 Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Income tax deductions 2012 , who provides services (maid services, etc. Income tax deductions 2012 ) for guests, report the rental income and expenses on Schedule C or C-EZ. Income tax deductions 2012 If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Income tax deductions 2012 For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Income tax deductions 2012 Real estate dealer. Income tax deductions 2012   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Income tax deductions 2012 Rent you receive from real estate held for sale to customers is subject to SE tax. Income tax deductions 2012 However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Income tax deductions 2012 Trailer park owner. Income tax deductions 2012   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Income tax deductions 2012    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Income tax deductions 2012 Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Income tax deductions 2012   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Income tax deductions 2012   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Income tax deductions 2012 Hotels, boarding houses, and apartments. Income tax deductions 2012   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Income tax deductions 2012   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Income tax deductions 2012 An example of a service that is not normally provided for the convenience of the occupants is maid service. Income tax deductions 2012 However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Income tax deductions 2012 Prepaid rent. Income tax deductions 2012   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Income tax deductions 2012 This is true no matter what accounting method or period you use. Income tax deductions 2012 Lease bonus. Income tax deductions 2012   A bonus you receive from a lessee for granting a lease is an addition to the rent. Income tax deductions 2012 Include it in your gross receipts in the year received. Income tax deductions 2012 Lease cancellation payments. Income tax deductions 2012   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Income tax deductions 2012 Payments to third parties. Income tax deductions 2012   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Income tax deductions 2012 A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Income tax deductions 2012 Settlement payments. Income tax deductions 2012   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Income tax deductions 2012 Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Income tax deductions 2012 ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Income tax deductions 2012 Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Income tax deductions 2012 If you receive any of those payments, include them in your gross receipts as explained in that discussion. Income tax deductions 2012 Interest and Dividend Income Interest and dividends may be considered business income. Income tax deductions 2012 Interest. Income tax deductions 2012   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Income tax deductions 2012 Interest received on loans is business income if you are in the business of lending money. Income tax deductions 2012 Uncollectible loans. Income tax deductions 2012   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Income tax deductions 2012 If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Income tax deductions 2012 See Bad Debts in chapter 8. Income tax deductions 2012 Unstated interest. Income tax deductions 2012   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Income tax deductions 2012 See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Income tax deductions 2012 Dividends. Income tax deductions 2012   Generally, dividends are business income to dealers in securities. Income tax deductions 2012 For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Income tax deductions 2012 If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Income tax deductions 2012   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Income tax deductions 2012 To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Income tax deductions 2012 Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Income tax deductions 2012 General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Income tax deductions 2012 Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Income tax deductions 2012 If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Income tax deductions 2012 Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Income tax deductions 2012 Price reduced after purchase. Income tax deductions 2012   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Income tax deductions 2012 Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Income tax deductions 2012 Deductible debt. Income tax deductions 2012   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Income tax deductions 2012 Example. Income tax deductions 2012 You get accounting services for your business on credit. Income tax deductions 2012 Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Income tax deductions 2012 Your accountant forgives part of the amount you owe for the accounting services. Income tax deductions 2012 How you treat the canceled debt depends on your method of accounting. Income tax deductions 2012 Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Income tax deductions 2012 Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Income tax deductions 2012   For information on the cash and accrual methods of accounting, see chapter 2. Income tax deductions 2012 Exclusions Do not include canceled debt in income in the following situations. Income tax deductions 2012 However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Income tax deductions 2012 For more information, see Form 982. Income tax deductions 2012 The cancellation takes place in a bankruptcy case under title 11 of the U. Income tax deductions 2012 S. Income tax deductions 2012 Code (relating to bankruptcy). Income tax deductions 2012 See Publication 908, Bankruptcy Tax Guide. Income tax deductions 2012 The cancellation takes place when you are insolvent. Income tax deductions 2012 You can exclude the canceled debt to the extent you are insolvent. Income tax deductions 2012 See Publication 908. Income tax deductions 2012 The canceled debt is a qualified farm debt owed to a qualified person. Income tax deductions 2012 See chapter 3 in Publication 225, Farmer's Tax Guide. Income tax deductions 2012 The canceled debt is a qualified real property business debt. Income tax deductions 2012 This situation is explained later. Income tax deductions 2012 The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Income tax deductions 2012 See Form 982. Income tax deductions 2012 If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Income tax deductions 2012 If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Income tax deductions 2012 Debt. Income tax deductions 2012   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Income tax deductions 2012 Qualified real property business debt. Income tax deductions 2012   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Income tax deductions 2012 If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Income tax deductions 2012 Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Income tax deductions 2012 However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Income tax deductions 2012 Cancellation of qualified real property business debt. Income tax deductions 2012   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Income tax deductions 2012 It was incurred or assumed in connection with real property used in a trade or business. Income tax deductions 2012 It was secured by such real property. Income tax deductions 2012 It was incurred or assumed at either of the following times. Income tax deductions 2012 Before January 1, 1993. Income tax deductions 2012 After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Income tax deductions 2012 It is debt to which you choose to apply these rules. Income tax deductions 2012   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Income tax deductions 2012   You cannot exclude more than either of the following amounts. Income tax deductions 2012 The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Income tax deductions 2012 The total adjusted bases of depreciable real property held by you immediately before the cancellation. Income tax deductions 2012 These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Income tax deductions 2012 Do not take into account depreciable real property acquired in contemplation of the cancellation. Income tax deductions 2012 Election. Income tax deductions 2012   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Income tax deductions 2012 You must file your return by the due date (including extensions). Income tax deductions 2012 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Income tax deductions 2012 For more information, see When To File in the form instructions. Income tax deductions 2012 Other Income The following discussion explains how to treat other types of business income you may receive. Income tax deductions 2012 Restricted property. Income tax deductions 2012   Restricted property is property that has certain restrictions that affect its value. Income tax deductions 2012 If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Income tax deductions 2012 However, you can choose to be taxed in the year you receive the property. Income tax deductions 2012 For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Income tax deductions 2012 Gains and losses. Income tax deductions 2012   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Income tax deductions 2012 Instead, you must report these gains and losses on other forms. Income tax deductions 2012 For more information, see chapter 3. Income tax deductions 2012 Promissory notes. Income tax deductions 2012   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Income tax deductions 2012 In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Income tax deductions 2012 Lost income payments. Income tax deductions 2012   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Income tax deductions 2012 Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Income tax deductions 2012 Damages. Income tax deductions 2012   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Income tax deductions 2012 Patent infringement. Income tax deductions 2012 Breach of contract or fiduciary duty. Income tax deductions 2012 Antitrust injury. Income tax deductions 2012 Economic injury. Income tax deductions 2012   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Income tax deductions 2012 Your deduction is the smaller of the following amounts. Income tax deductions 2012 The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Income tax deductions 2012 Your loss from the injury that you have not yet deducted. Income tax deductions 2012 Punitive damages. Income tax deductions 2012   You must also include punitive damages in income. Income tax deductions 2012 Kickbacks. Income tax deductions 2012   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Income tax deductions 2012 However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Income tax deductions 2012 Recovery of items previously deducted. Income tax deductions 2012   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Income tax deductions 2012 However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Income tax deductions 2012 If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Income tax deductions 2012 Example. Income tax deductions 2012 Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Income tax deductions 2012 He also had 2 personal exemptions for a total of $7,800. Income tax deductions 2012 He would not pay income tax even if he did not deduct the bad debt. Income tax deductions 2012 Therefore, he will not report as income any part of the $300 he may recover in any future year. Income tax deductions 2012 Exception for depreciation. Income tax deductions 2012   This rule does not apply to depreciation. Income tax deductions 2012 You recover depreciation using the rules explained next. Income tax deductions 2012 Recapture of depreciation. Income tax deductions 2012   In the following situations, you have to recapture the depreciation deduction. Income tax deductions 2012 This means you include in income part or all of the depreciation you deducted in previous years. Income tax deductions 2012 Listed property. Income tax deductions 2012   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Income tax deductions 2012 You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Income tax deductions 2012 Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Income tax deductions 2012 For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Income tax deductions 2012 That chapter explains how to determine whether property is used more than 50% in your business. Income tax deductions 2012 Section 179 property. Income tax deductions 2012   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Income tax deductions 2012 You do this by including in income on Schedule C part of the deduction you took. Income tax deductions 2012 Use Part IV of Form 4797 to figure the amount to include on Schedule C. Income tax deductions 2012 See chapter 2 in Publication 946 to find out when you recapture the deduction. Income tax deductions 2012 Sale or exchange of depreciable property. Income tax deductions 2012   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Income tax deductions 2012 You figure the income due to depreciation recapture in Part III of Form 4797. Income tax deductions 2012 For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Income tax deductions 2012 Items That Are Not Income In some cases the property or money you receive is not income. Income tax deductions 2012 Appreciation. Income tax deductions 2012   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Income tax deductions 2012 Consignments. Income tax deductions 2012   Consignments of merchandise to others to sell for you are not sales. Income tax deductions 2012 The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Income tax deductions 2012 Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Income tax deductions 2012 Merchandise you have shipped out on consignment is included in your inventory until it is sold. Income tax deductions 2012   Do not include merchandise you receive on consignment in your inventory. Income tax deductions 2012 Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Income tax deductions 2012 Construction allowances. Income tax deductions 2012   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Income tax deductions 2012 Under a short-term lease of retail space. Income tax deductions 2012 For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Income tax deductions 2012 Amount you can exclude. Income tax deductions 2012   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Income tax deductions 2012 Short-term lease. Income tax deductions 2012   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Income tax deductions 2012 The following rules apply in determining whether the lease is for 15 years or less. Income tax deductions 2012 Take into account options to renew when figuring whether the lease is for 15 years or less. Income tax deductions 2012 But do not take into account any option to renew at fair market value determined at the time of renewal. Income tax deductions 2012 Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Income tax deductions 2012 Retail space. Income tax deductions 2012   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Income tax deductions 2012 Qualified long-term real property. Income tax deductions 2012   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Income tax deductions 2012 Exchange of like-kind property. Income tax deductions 2012   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Income tax deductions 2012 This means that the gain is not taxable and the loss is not deductible. Income tax deductions 2012 A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Income tax deductions 2012 For more information, see Form 8824. Income tax deductions 2012 Leasehold improvements. Income tax deductions 2012   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Income tax deductions 2012 However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Income tax deductions 2012 Loans. Income tax deductions 2012   Money borrowed through a bona fide loan is not income. Income tax deductions 2012 Sales tax. Income tax deductions 2012   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Income tax deductions 2012 Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Income tax deductions 2012 Direct seller. Income tax deductions 2012   You must report all income you receive as a direct seller on Schedule C or C-EZ. Income tax deductions 2012 This includes any of the following. Income tax deductions 2012 Income from sales—payments you receive from customers for products they buy from you. Income tax deductions 2012 Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Income tax deductions 2012 Prizes, awards, and gifts you receive from your selling business. Income tax deductions 2012 You must report this income regardless of whether it is reported to you on an information return. Income tax deductions 2012   You are a direct seller if you meet all the following conditions. Income tax deductions 2012 You are engaged in one of the following trades or businesses. Income tax deductions 2012 Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Income tax deductions 2012 Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Income tax deductions 2012 Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Income tax deductions 2012 Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Income tax deductions 2012 Executor or administrator. Income tax deductions 2012   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Income tax deductions 2012 A nonprofessional fiduciary (personal representative) and both of the following apply. Income tax deductions 2012 The estate includes an active trade or business in which you actively participate. Income tax deductions 2012 Your fees are related to the operation of that trade or business. Income tax deductions 2012 A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Income tax deductions 2012    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Income tax deductions 2012 Fishing crew member. Income tax deductions 2012    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Income tax deductions 2012 Insurance agent, former. Income tax deductions 2012   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Income tax deductions 2012 You received payments after your agreement to perform services for the company ended. Income tax deductions 2012 You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Income tax deductions 2012 You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Income tax deductions 2012 The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Income tax deductions 2012 The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Income tax deductions 2012 Insurance agent, retired. Income tax deductions 2012   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Income tax deductions 2012 Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Income tax deductions 2012   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Income tax deductions 2012 Newspaper carrier or distributor. Income tax deductions 2012   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Income tax deductions 2012 You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Income tax deductions 2012 Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Income tax deductions 2012 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Income tax deductions 2012   This rule applies whether or not you hire others to help you make deliveries. Income tax deductions 2012 It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Income tax deductions 2012 Newspaper or magazine vendor. Income tax deductions 2012   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Income tax deductions 2012 You sell newspapers or magazines to ultimate consumers. Income tax deductions 2012 You sell them at a fixed price. Income tax deductions 2012 Your earnings are based on the difference between the sales price and your cost of goods sold. Income tax deductions 2012   This rule applies whether or not you are guaranteed a minimum amount of earnings. Income tax deductions 2012 It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Income tax deductions 2012 Notary public. Income tax deductions 2012   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Income tax deductions 2012 These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Income tax deductions 2012 Public official. Income tax deductions 2012   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Income tax deductions 2012 This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Income tax deductions 2012 Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Income tax deductions 2012   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Income tax deductions 2012 Real estate agent or direct seller. Income tax deductions 2012   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Income tax deductions 2012 Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Income tax deductions 2012 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Income tax deductions 2012 Securities dealer. Income tax deductions 2012   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Income tax deductions 2012 For more information, see sections 1256 and 1402(i). Income tax deductions 2012 Securities trader. Income tax deductions 2012   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Income tax deductions 2012 As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Income tax deductions 2012 However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Income tax deductions 2012 For more information about securities traders, see Publication 550, Investment Income and Expenses. Income tax deductions 2012 Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Income tax deductions 2012 This section discusses some of the more common differences that may affect business transactions. Income tax deductions 2012 Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Income tax deductions 2012 If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Income tax deductions 2012 Dealers in real estate are not allowed to use inventories. Income tax deductions 2012 For more information on inventories, see chapter 2. Income tax deductions 2012 Income paid to a third party. Income tax deductions 2012   All income you earn is taxable to you. Income tax deductions 2012 You cannot avoid tax by having the income paid to a third party. Income tax deductions 2012 Example. Income tax deductions 2012 You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Income tax deductions 2012 The amount paid to your son is gross income to you. Income tax deductions 2012 Cash discounts. Income tax deductions 2012   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Income tax deductions 2012 For income tax purposes, you can use either of the following two methods to account for cash discounts. Income tax deductions 2012 Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Income tax deductions 2012 Credit the cash discount to a discount income account. Income tax deductions 2012 You must use the chosen method every year for all your purchase discounts. Income tax deductions 2012   If you use the second method, the credit balance in the account at the end of your tax year is business income. Income tax deductions 2012 Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Income tax deductions 2012 When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Income tax deductions 2012 Trade discounts. Income tax deductions 2012   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Income tax deductions 2012 Do not enter these discounts on your books of account. Income tax deductions 2012 Instead, use only the net amount as the cost of the merchandise purchased. Income tax deductions 2012 For more information, see Trade discounts in chapter 6. Income tax deductions 2012 Payment placed in escrow. Income tax deductions 2012   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Income tax deductions 2012 However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Income tax deductions 2012 Sales returns and allowances. Income tax deductions 2012   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Income tax deductions 2012 Advance payments. Income tax deductions 2012   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Income tax deductions 2012 Insurance proceeds. Income tax deductions 2012   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Income tax deductions 2012 You cannot deduct the reimbursed part of a casualty or theft loss. Income tax deductions 2012   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Income tax deductions 2012 Prev  Up  Next   Home   More Online Publications
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The Income Tax Deductions 2012

Income tax deductions 2012 4. Income tax deductions 2012   Limit on Elective Deferrals Table of Contents Excess elective deferrals. Income tax deductions 2012 General Limit 15-Year RuleYears of Service Figuring the Limit on Elective DeferralsExample The second and final component of MAC is the limit on elective deferrals. Income tax deductions 2012 This is a limit on the amount of contributions that can be made to your account through a salary reduction agreement. Income tax deductions 2012 A salary reduction agreement is an agreement between you and your employer that allows for a portion of your compensation to be directly invested in a 403(b) account on your behalf. Income tax deductions 2012 You can enter into more than one salary reduction agreement during a year. Income tax deductions 2012 More than one 403(b) account. Income tax deductions 2012 If, for any year, elective deferrals are contributed to more than one 403(b) account for you (whether or not with the same employer), you must combine all the elective deferrals to determine whether the total is more than the limit for that year. Income tax deductions 2012 403(b) plan and another retirement plan. Income tax deductions 2012 If, during the year, contributions in the form of elective deferrals are made to other retirement plans on your behalf, you must combine all of the elective deferrals to determine if they are more than your limit on elective deferrals. Income tax deductions 2012 The limit on elective deferrals applies to amounts contributed to: 401(k) plans, to the extent excluded from income, Roth contribution programs, Section 501(c)(18) plans, to the extent excluded from income, Savings incentive match plan for employees (SIMPLE plans), Simplified employee pension (SEP) plans, and All 403(b) plans. Income tax deductions 2012 Roth contribution program. Income tax deductions 2012   Your 403(b) plan may allow you to designate all or a portion of your elective deferrals as Roth contributions. Income tax deductions 2012 Elective deferrals designated as Roth contributions must be maintained in a separate Roth account and are not excludable from your gross income. Income tax deductions 2012   The maximum amount of contributions allowed under a Roth contribution program is your limit on elective deferrals, less your elective deferrals not designated as Roth contributions. Income tax deductions 2012 For more information on the Roth contribution program, see Publication 560, Retirement Plans for Small Business. Income tax deductions 2012 Excess elective deferrals. Income tax deductions 2012   If the amount contributed is more than the allowable limit, you must include the excess that is not a Roth contribution in your gross income for the year contributed. Income tax deductions 2012 General Limit Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement is $17,500 for 2013 and 2014. Income tax deductions 2012 This limit applies without regard to community property laws. Income tax deductions 2012 15-Year Rule If you have at least 15 years of service with an educational organization (such as a public or private school), hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), the limit on elective deferrals to your 403(b) account is increased by the least of: $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in prior years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Income tax deductions 2012 If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013 and 2014. Income tax deductions 2012 To determine whether you have 15 years of service with your employer, see Years of Service , next. Income tax deductions 2012 Years of Service To determine if you are eligible for the increased limit on elective deferrals, you will first need to figure your years of service. Income tax deductions 2012 How you figure your years of service depends on whether you were a full-time or a part-time employee, whether you worked for the full year or only part of the year, and whether you have worked for your employer for an entire year. Income tax deductions 2012 You must figure years of service for each year during which you worked for the employer who is maintaining your 403(b) account. Income tax deductions 2012 If more than one employer maintains a 403(b) account for you in the same year, you must figure years of service separately for each employer. Income tax deductions 2012 Definition Your years of service are the total number of years you have worked as a full time employee for the employer maintaining your 403(b) account as of the end of the year. Income tax deductions 2012 Figuring Your Years of Service Take the following rules into account when figuring your years of service. Income tax deductions 2012 Status of employer. Income tax deductions 2012   Your years of service include only periods during which your employer was a qualified employer. Income tax deductions 2012 Your plan administrator can tell you whether or not your employer was qualified during all your periods of service. Income tax deductions 2012 Service with one employer. Income tax deductions 2012   Generally, you cannot count service for any employer other than the one who maintains your 403(b) account. Income tax deductions 2012 Church employee. Income tax deductions 2012   If you are a church employee, treat all of your years of service with related church organizations as years of service with the same employer. Income tax deductions 2012 For more information about church employees, see chapter 5. Income tax deductions 2012 Self-employed ministers. Income tax deductions 2012   If you are a self-employed minister, your years of service include full and part years in which you have been treated as employed by a tax-exempt organization that is a qualified employer. Income tax deductions 2012 Total years of service. Income tax deductions 2012   When figuring prior years of service, figure each year individually and then add the individual years of service to determine your total years of service. Income tax deductions 2012 Example. Income tax deductions 2012 The annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Income tax deductions 2012 Marsha began working with ABC schools in September 2009. Income tax deductions 2012 She has always worked full-time for each annual work period. Income tax deductions 2012 At the end of 2013, Marsha had 4. Income tax deductions 2012 5 years of service with ABC Public Schools, as shown in Table 4-1. Income tax deductions 2012 Table 4-1. Income tax deductions 2012 Marsha's Years of Service Note. Income tax deductions 2012 This table shows how Marsha figures her years of service, as explained in the previous example. Income tax deductions 2012 Year Period Worked Portion of Work Period Years of Service 2009 Sept. Income tax deductions 2012 –Dec. Income tax deductions 2012 . Income tax deductions 2012 5 year . Income tax deductions 2012 5 year 2010 Feb. Income tax deductions 2012 –May . Income tax deductions 2012 5 year 1 year Sept. Income tax deductions 2012 –Dec. Income tax deductions 2012 . Income tax deductions 2012 5 year 2011 Feb. Income tax deductions 2012 –May . Income tax deductions 2012 5 year 1 year Sept. Income tax deductions 2012 –Dec. Income tax deductions 2012 . Income tax deductions 2012 5 year 2012 Feb. Income tax deductions 2012 –May . Income tax deductions 2012 5 year 1 year Sept. Income tax deductions 2012 –Dec. Income tax deductions 2012 . Income tax deductions 2012 5 year 2013 Feb. Income tax deductions 2012 –May . Income tax deductions 2012 5 year 1 year Sept. Income tax deductions 2012 –Dec. Income tax deductions 2012 . Income tax deductions 2012 5 year Total years of service 4. Income tax deductions 2012 5 years Full-time or part-time. Income tax deductions 2012   To figure your years of service, you must analyze each year individually and determine whether you worked full-time for the full year or something other than full-time. Income tax deductions 2012 When determining whether you worked full-time or something other than full-time, use your employer's annual work period as the standard. Income tax deductions 2012 Employer's annual work period. Income tax deductions 2012   Your employer's annual work period is the usual amount of time an individual working full-time in a specific position is required to work. Income tax deductions 2012 Generally, this period of time is expressed in days, weeks, months, or semesters, and can span 2 calendar years. Income tax deductions 2012 Note. Income tax deductions 2012 You cannot accumulate more than 1 year of service in a 12-month period. Income tax deductions 2012 Example. Income tax deductions 2012 All full-time teachers at ABC Public Schools are required to work both the September through December semester and the February through May semester. Income tax deductions 2012 Therefore, the annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Income tax deductions 2012 Teachers at ABC Public Schools who work both semesters in the same calendar year are considered working a full year of service in that calendar year. Income tax deductions 2012 Full-Time Employee for the Full Year Count each full year during which you were employed full-time as 1 year of service. Income tax deductions 2012 In determining whether you were employed full-time, compare the amount of work you were required to perform with the amount of work normally required of others who held the same position with the same employer and who generally received most of their pay from the position. Income tax deductions 2012 How to compare. Income tax deductions 2012   You can use any method that reasonably and accurately reflects the amount of work required. Income tax deductions 2012 For example, if you are a teacher, you can use the number of hours of classroom instruction as a measure of the amount of work required. Income tax deductions 2012   In determining whether positions with the same employer are the same, consider all of the facts and circumstances concerning the positions, including the work performed, the methods by which pay is determined, and the descriptions (or titles) of the positions. Income tax deductions 2012 Example. Income tax deductions 2012 An assistant professor employed in the English department of a university will be considered a full-time employee if the amount of work that he or she is required to perform is the same as the amount of work normally required of assistant professors of English at that university who get most of their pay from that position. Income tax deductions 2012   If no one else works for your employer in the same position, compare your work with the work normally required of others who held the same position with similar employers or similar positions with your employer. Income tax deductions 2012 Full year of service. Income tax deductions 2012   A full year of service for a particular position means the usual annual work period of anyone employed full-time in that general type of work at that place of employment. Income tax deductions 2012 Example. Income tax deductions 2012 If a doctor works for a hospital 12 months of a year except for a 1-month vacation, the doctor will be considered as employed for a full year if the other doctors at that hospital also work 11 months of the year with a 1-month vacation. Income tax deductions 2012 Similarly, if the usual annual work period at a university consists of the fall and spring semesters, an instructor at that university who teaches these semesters will be considered as working a full year. Income tax deductions 2012 Other Than Full-Time for the Full Year If, during any year, you were employed full-time for only part of your employer's annual work period, part-time for the entire annual work period, or part-time for only part of the work period, your year of service for that year is a fraction of your employer's annual work period. Income tax deductions 2012 Full-time for part of the year. Income tax deductions 2012   If, during a year, you were employed full-time for only part of your employer's annual work period, figure the fraction for that year as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. Income tax deductions 2012 The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. Income tax deductions 2012 Example. Income tax deductions 2012 Jason was employed as a full-time instructor by a local college for the 4 months of the 2013 spring semester (February 2013 through May 2013). Income tax deductions 2012 The annual work period for the college is 8 months (February through May and July through October). Income tax deductions 2012 Given these facts, Jason was employed full-time for part of the annual work period and provided ½ of a year of service. Income tax deductions 2012 Jason's years of service computation for 2013 is as follows: Number of months Jason worked = 4 = 1 Number of months in annual work period 8 2 Part-time for the full year. Income tax deductions 2012   If, during a year, you were employed part-time for the employer's entire annual work period, you figure the fraction for that year as follows: The numerator (top number) is the number of hours or days you worked. Income tax deductions 2012 The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. Income tax deductions 2012 Example. Income tax deductions 2012 Vance teaches one course at a local medical school. Income tax deductions 2012 He teaches 3 hours per week for two semesters. Income tax deductions 2012 Other faculty members at the same school teach 9 hours per week for two semesters. Income tax deductions 2012 The annual work period of the medical school is two semesters. Income tax deductions 2012 An instructor teaching 9 hours a week for two semesters is considered a full-time employee. Income tax deductions 2012 Given these facts, Vance has worked part-time for a full annual work period. Income tax deductions 2012 Vance has completed 1/3 of a year of service, figured as shown below. Income tax deductions 2012 Number of hours per week Vance worked = 3 = 1 Number of hours per week considered full-time 9 3 Part-time for part of the year. Income tax deductions 2012   If, during any year, you were employed part-time for only part of your employer's annual work period, you figure your fraction for that year by multiplying two fractions. Income tax deductions 2012   Figure the first fraction as though you had worked full-time for part of the annual work period. Income tax deductions 2012 The fraction is as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. Income tax deductions 2012 The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. Income tax deductions 2012   Figure the second fraction as though you had worked part-time for the entire annual work period. Income tax deductions 2012 The fraction is as follows: The numerator (top number) is the number of hours or days you worked. Income tax deductions 2012 The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. Income tax deductions 2012   Once you have figured these two fractions, multiply them together to determine the fraction representing your partial year of service for the year. Income tax deductions 2012 Example. Income tax deductions 2012 Maria, an attorney, teaches a course for one semester at a law school. Income tax deductions 2012 She teaches 3 hours per week. Income tax deductions 2012 The annual work period for teachers at the school is two semesters. Income tax deductions 2012 All full-time instructors at the school are required to teach 12 hours per week. Income tax deductions 2012 Based on these facts, Maria is employed part-time for part of the annual work period. Income tax deductions 2012 Her year of service for this year is determined by multiplying two fractions. Income tax deductions 2012 Her computation is as follows: Maria's first fraction Number of semesters Maria worked = 1 Number of semesters in annual work period 2 Maria's second fraction Number of hours Maria worked per week = 3 = 1 Number of hours per week considered full-time 12 4 Maria would multiply these fractions to obtain the fractional year of service: 1 x 1 = 1         2 4 8         Figuring the Limit on Elective Deferrals You can use Part II of Worksheet 1 in chapter 9 to figure the limit on elective deferrals. Income tax deductions 2012 Example Floyd has figured his limit on annual additions. Income tax deductions 2012 The only other component needed before he can determine his MAC for 2014 is his limit on elective deferrals. Income tax deductions 2012 Figuring Floyd's limit on elective deferrals. Income tax deductions 2012   Floyd has been employed with his current employer for less than 15 years. Income tax deductions 2012 He is not eligible for the special 15-year increase. Income tax deductions 2012 Therefore, his limit on elective deferrals for 2014 is $17,500 as shown in Table 4-2. Income tax deductions 2012 Floyd's employer will not make any nonelective contributions to his 403(b) account and Floyd will not make any after-tax contributions. Income tax deductions 2012 Additionally, Floyd's employer does not offer a Roth contribution program. Income tax deductions 2012 Figuring Floyd's MAC Floyd has determined that his limit on annual additions for 2014 is $52,000 and his limit on elective deferrals is $17,500. Income tax deductions 2012 Because elective deferrals are the only contributions made to Floyd's account, the maximum amount that can be contributed to a 403(b) account on Floyd's behalf in 2014 is $17,500, the lesser of both limits. Income tax deductions 2012 Table 4-2. Income tax deductions 2012 Worksheet 1. Income tax deductions 2012 Maximum Amount Contributable (MAC) Note. Income tax deductions 2012 Use this worksheet to figure your MAC. Income tax deductions 2012 Part I. Income tax deductions 2012 Limit on Annual Additions     1. Income tax deductions 2012 Enter your includible compensation for your most recent year of service 1. Income tax deductions 2012 $70,475 2. Income tax deductions 2012 Maximum: For 2013 enter $51,000 For 2014 enter $52,000 2. Income tax deductions 2012 52,000 3. Income tax deductions 2012 Enter the lesser of line 1 or line 2. Income tax deductions 2012 This is your limit on annual additions 3. Income tax deductions 2012 52,000   Caution: If you had only nonelective contributions, skip Part II and enter the amount from line 3 on line 18. Income tax deductions 2012     Part II. Income tax deductions 2012 Limit on Elective Deferrals     4. Income tax deductions 2012 Maximum contribution: For 2013, enter $17,500 For 2014, enter $17,500 4. Income tax deductions 2012 17,500   Note. Income tax deductions 2012 If you have at least 15 years of service with a qualifying organization, complete lines 5 through 17. Income tax deductions 2012 If not, enter zero (-0-) on line 16 and go to line 17. Income tax deductions 2012     5. Income tax deductions 2012 Amount per year of service 5. Income tax deductions 2012 5,000 6. Income tax deductions 2012 Enter your years of service 6. Income tax deductions 2012   7. Income tax deductions 2012 Multiply line 5 by line 6 7. Income tax deductions 2012   8. Income tax deductions 2012 Enter the total of all elective deferrals made for you by the qualifying organization for prior years 8. Income tax deductions 2012   9. Income tax deductions 2012 Subtract line 8 from line 7. Income tax deductions 2012 If zero or less, enter zero (-0-) 9. Income tax deductions 2012   10. Income tax deductions 2012 Maximum increase in limit for long service 10. Income tax deductions 2012 15,000 11. Income tax deductions 2012 Enter the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11. Income tax deductions 2012   12. Income tax deductions 2012 Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 12. Income tax deductions 2012   13. Income tax deductions 2012 Add lines 11 and 12 13. Income tax deductions 2012   14. Income tax deductions 2012 Subtract line 13 from line 10 14. Income tax deductions 2012   15. Income tax deductions 2012 Maximum additional contributions 15. Income tax deductions 2012 3,000 16. Income tax deductions 2012 Enter the least of lines 9, 14, or 15. Income tax deductions 2012 This is your increase in the limit for long service 16. Income tax deductions 2012 -0- 17. Income tax deductions 2012 Add lines 4 and 16. Income tax deductions 2012 This is your limit on elective deferrals 17. Income tax deductions 2012 17,500   Part III. Income tax deductions 2012 Maximum Amount Contributable     18. Income tax deductions 2012 If you had only nonelective contributions, enter the amount from line 3. Income tax deductions 2012 This is your MAC. Income tax deductions 2012    If you had only elective deferrals, enter the lesser of lines 3 or 17. Income tax deductions 2012 This is your MAC. Income tax deductions 2012    If you had both elective deferrals and nonelective contributions, enter the amount from line 3. Income tax deductions 2012 This is your MAC. Income tax deductions 2012 (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7. Income tax deductions 2012 ) 18. Income tax deductions 2012 $17,500 Prev  Up  Next   Home   More Online Publications