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Irs 2012 Tax Forms 1040 Instructions

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Irs 2012 Tax Forms 1040 Instructions

Irs 2012 tax forms 1040 instructions 2. Irs 2012 tax forms 1040 instructions   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. Irs 2012 tax forms 1040 instructions How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. Irs 2012 tax forms 1040 instructions Deferral percentage. Irs 2012 tax forms 1040 instructions Employee compensation. Irs 2012 tax forms 1040 instructions Compensation of self-employed individuals. Irs 2012 tax forms 1040 instructions Choice not to treat deferrals as compensation. Irs 2012 tax forms 1040 instructions Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. Irs 2012 tax forms 1040 instructions Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. Irs 2012 tax forms 1040 instructions S. Irs 2012 tax forms 1040 instructions Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. Irs 2012 tax forms 1040 instructions Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. Irs 2012 tax forms 1040 instructions A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. Irs 2012 tax forms 1040 instructions SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). Irs 2012 tax forms 1040 instructions A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). Irs 2012 tax forms 1040 instructions Eligible employee. Irs 2012 tax forms 1040 instructions   An eligible employee is an individual who meets all the following requirements. Irs 2012 tax forms 1040 instructions Has reached age 21. Irs 2012 tax forms 1040 instructions Has worked for you in at least 3 of the last 5 years. Irs 2012 tax forms 1040 instructions Has received at least $550 in compensation from you in 2013. Irs 2012 tax forms 1040 instructions This amount remains the same in 2014. Irs 2012 tax forms 1040 instructions    You can use less restrictive participation requirements than those listed, but not more restrictive ones. Irs 2012 tax forms 1040 instructions Excludable employees. Irs 2012 tax forms 1040 instructions   The following employees can be excluded from coverage under a SEP. Irs 2012 tax forms 1040 instructions Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Irs 2012 tax forms 1040 instructions Nonresident alien employees who have received no U. Irs 2012 tax forms 1040 instructions S. Irs 2012 tax forms 1040 instructions source wages, salaries, or other personal services compensation from you. Irs 2012 tax forms 1040 instructions For more information about nonresident aliens, see Publication 519, U. Irs 2012 tax forms 1040 instructions S. Irs 2012 tax forms 1040 instructions Tax Guide for Aliens. Irs 2012 tax forms 1040 instructions Setting Up a SEP There are three basic steps in setting up a SEP. Irs 2012 tax forms 1040 instructions You must execute a formal written agreement to provide benefits to all eligible employees. Irs 2012 tax forms 1040 instructions You must give each eligible employee certain information about the SEP. Irs 2012 tax forms 1040 instructions A SEP-IRA must be set up by or for each eligible employee. Irs 2012 tax forms 1040 instructions Many financial institutions will help you set up a SEP. Irs 2012 tax forms 1040 instructions Formal written agreement. Irs 2012 tax forms 1040 instructions   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. Irs 2012 tax forms 1040 instructions You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. Irs 2012 tax forms 1040 instructions However, see When not to use Form 5305-SEP, below. Irs 2012 tax forms 1040 instructions   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Irs 2012 tax forms 1040 instructions Keep the original form. Irs 2012 tax forms 1040 instructions Do not file it with the IRS. Irs 2012 tax forms 1040 instructions Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. Irs 2012 tax forms 1040 instructions See the Form 5305-SEP instructions for details. Irs 2012 tax forms 1040 instructions If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. Irs 2012 tax forms 1040 instructions When not to use Form 5305-SEP. Irs 2012 tax forms 1040 instructions   You cannot use Form 5305-SEP if any of the following apply. Irs 2012 tax forms 1040 instructions You currently maintain any other qualified retirement plan other than another SEP. Irs 2012 tax forms 1040 instructions You have any eligible employees for whom IRAs have not been set up. Irs 2012 tax forms 1040 instructions You use the services of leased employees, who are not your common-law employees (as described in chapter 1). Irs 2012 tax forms 1040 instructions You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. Irs 2012 tax forms 1040 instructions An affiliated service group described in section 414(m). Irs 2012 tax forms 1040 instructions A controlled group of corporations described in section 414(b). Irs 2012 tax forms 1040 instructions Trades or businesses under common control described in section 414(c). Irs 2012 tax forms 1040 instructions You do not pay the cost of the SEP contributions. Irs 2012 tax forms 1040 instructions Information you must give to employees. Irs 2012 tax forms 1040 instructions   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. Irs 2012 tax forms 1040 instructions An IRS model SEP is not considered adopted until you give each employee this information. Irs 2012 tax forms 1040 instructions Setting up the employee's SEP-IRA. Irs 2012 tax forms 1040 instructions   A SEP-IRA must be set up by or for each eligible employee. Irs 2012 tax forms 1040 instructions SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. Irs 2012 tax forms 1040 instructions You send SEP contributions to the financial institution where the SEP-IRA is maintained. Irs 2012 tax forms 1040 instructions Deadline for setting up a SEP. Irs 2012 tax forms 1040 instructions   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. Irs 2012 tax forms 1040 instructions Credit for startup costs. Irs 2012 tax forms 1040 instructions   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. Irs 2012 tax forms 1040 instructions For more information, see Credit for startup costs under Reminders, earlier. Irs 2012 tax forms 1040 instructions How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. Irs 2012 tax forms 1040 instructions If you are self-employed, you can contribute to your own SEP-IRA. Irs 2012 tax forms 1040 instructions Contributions must be in the form of money (cash, check, or money order). Irs 2012 tax forms 1040 instructions You cannot contribute property. Irs 2012 tax forms 1040 instructions However, participants may be able to transfer or roll over certain property from one retirement plan to another. Irs 2012 tax forms 1040 instructions See Publication 590 for more information about rollovers. Irs 2012 tax forms 1040 instructions You do not have to make contributions every year. Irs 2012 tax forms 1040 instructions But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). Irs 2012 tax forms 1040 instructions When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. Irs 2012 tax forms 1040 instructions Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. Irs 2012 tax forms 1040 instructions A SEP-IRA cannot be a Roth IRA. Irs 2012 tax forms 1040 instructions Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Irs 2012 tax forms 1040 instructions Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. Irs 2012 tax forms 1040 instructions If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. Irs 2012 tax forms 1040 instructions Participants age 70½ or over must take required minimum distributions. Irs 2012 tax forms 1040 instructions Time limit for making contributions. Irs 2012 tax forms 1040 instructions   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. Irs 2012 tax forms 1040 instructions Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. Irs 2012 tax forms 1040 instructions Compensation generally does not include your contributions to the SEP. Irs 2012 tax forms 1040 instructions The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. Irs 2012 tax forms 1040 instructions Example. Irs 2012 tax forms 1040 instructions Your employee, Mary Plant, earned $21,000 for 2013. Irs 2012 tax forms 1040 instructions The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). Irs 2012 tax forms 1040 instructions Contributions for yourself. Irs 2012 tax forms 1040 instructions   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. Irs 2012 tax forms 1040 instructions However, special rules apply when figuring your maximum deductible contribution. Irs 2012 tax forms 1040 instructions See Deduction Limit for Self-Employed Individuals , later. Irs 2012 tax forms 1040 instructions Annual compensation limit. Irs 2012 tax forms 1040 instructions   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. Irs 2012 tax forms 1040 instructions However, $51,000 is the maximum contribution for an eligible employee. Irs 2012 tax forms 1040 instructions These limits are $260,000 and $52,000, respectively, in 2014. Irs 2012 tax forms 1040 instructions Example. Irs 2012 tax forms 1040 instructions Your employee, Susan Green, earned $210,000 for 2013. Irs 2012 tax forms 1040 instructions Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. Irs 2012 tax forms 1040 instructions More than one plan. Irs 2012 tax forms 1040 instructions   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. Irs 2012 tax forms 1040 instructions When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. Irs 2012 tax forms 1040 instructions Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. Irs 2012 tax forms 1040 instructions Tax treatment of excess contributions. Irs 2012 tax forms 1040 instructions   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. Irs 2012 tax forms 1040 instructions 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). Irs 2012 tax forms 1040 instructions $51,000. Irs 2012 tax forms 1040 instructions Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. Irs 2012 tax forms 1040 instructions For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. Irs 2012 tax forms 1040 instructions Reporting on Form W-2. Irs 2012 tax forms 1040 instructions   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). Irs 2012 tax forms 1040 instructions Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. Irs 2012 tax forms 1040 instructions If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. Irs 2012 tax forms 1040 instructions Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. Irs 2012 tax forms 1040 instructions Your contributions (including any excess contributions carryover). Irs 2012 tax forms 1040 instructions 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. Irs 2012 tax forms 1040 instructions In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. Irs 2012 tax forms 1040 instructions Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. Irs 2012 tax forms 1040 instructions When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. Irs 2012 tax forms 1040 instructions The deduction for the deductible part of your self-employment tax. Irs 2012 tax forms 1040 instructions The deduction for contributions to your own SEP-IRA. Irs 2012 tax forms 1040 instructions The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. Irs 2012 tax forms 1040 instructions For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. Irs 2012 tax forms 1040 instructions To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. Irs 2012 tax forms 1040 instructions Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Irs 2012 tax forms 1040 instructions Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. Irs 2012 tax forms 1040 instructions However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. Irs 2012 tax forms 1040 instructions If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. Irs 2012 tax forms 1040 instructions Excise tax. Irs 2012 tax forms 1040 instructions   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. Irs 2012 tax forms 1040 instructions For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. Irs 2012 tax forms 1040 instructions When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. Irs 2012 tax forms 1040 instructions If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. Irs 2012 tax forms 1040 instructions If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. Irs 2012 tax forms 1040 instructions Example. Irs 2012 tax forms 1040 instructions You are a fiscal year taxpayer whose tax year ends June 30. Irs 2012 tax forms 1040 instructions You maintain a SEP on a calendar year basis. Irs 2012 tax forms 1040 instructions You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. Irs 2012 tax forms 1040 instructions Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Irs 2012 tax forms 1040 instructions For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. Irs 2012 tax forms 1040 instructions S. Irs 2012 tax forms 1040 instructions Return of Partnership Income; and corporations deduct them on Form 1120, U. Irs 2012 tax forms 1040 instructions S. Irs 2012 tax forms 1040 instructions Corporation Income Tax Return, or Form 1120S, U. Irs 2012 tax forms 1040 instructions S. Irs 2012 tax forms 1040 instructions Income Tax Return for an S Corporation. Irs 2012 tax forms 1040 instructions Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Irs 2012 tax forms 1040 instructions (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Irs 2012 tax forms 1040 instructions , you receive from the partnership. Irs 2012 tax forms 1040 instructions ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. Irs 2012 tax forms 1040 instructions Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Irs 2012 tax forms 1040 instructions (See the Caution, next. Irs 2012 tax forms 1040 instructions ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. Irs 2012 tax forms 1040 instructions This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. Irs 2012 tax forms 1040 instructions You are not allowed to set up a SARSEP after 1996. Irs 2012 tax forms 1040 instructions However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. Irs 2012 tax forms 1040 instructions If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. Irs 2012 tax forms 1040 instructions Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. Irs 2012 tax forms 1040 instructions At least 50% of your employees eligible to participate choose to make elective deferrals. Irs 2012 tax forms 1040 instructions You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. Irs 2012 tax forms 1040 instructions The elective deferrals of your highly compensated employees meet the SARSEP ADP test. Irs 2012 tax forms 1040 instructions SARSEP ADP test. Irs 2012 tax forms 1040 instructions   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. Irs 2012 tax forms 1040 instructions A highly compensated employee is defined in chapter 1. Irs 2012 tax forms 1040 instructions Deferral percentage. Irs 2012 tax forms 1040 instructions   The deferral percentage for an employee for a year is figured as follows. Irs 2012 tax forms 1040 instructions   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. Irs 2012 tax forms 1040 instructions Employee compensation. Irs 2012 tax forms 1040 instructions   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. Irs 2012 tax forms 1040 instructions Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. Irs 2012 tax forms 1040 instructions See Compensation in chapter 1. Irs 2012 tax forms 1040 instructions Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. Irs 2012 tax forms 1040 instructions Compensation of self-employed individuals. Irs 2012 tax forms 1040 instructions   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. Irs 2012 tax forms 1040 instructions   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. Irs 2012 tax forms 1040 instructions Choice not to treat deferrals as compensation. Irs 2012 tax forms 1040 instructions   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. Irs 2012 tax forms 1040 instructions Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. Irs 2012 tax forms 1040 instructions 25% of the participant's compensation (limited to $255,000 of the participant's compensation). Irs 2012 tax forms 1040 instructions $17,500. Irs 2012 tax forms 1040 instructions The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. Irs 2012 tax forms 1040 instructions Cash or deferred arrangement (section 401(k) plan). Irs 2012 tax forms 1040 instructions Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). Irs 2012 tax forms 1040 instructions SIMPLE IRA plan. Irs 2012 tax forms 1040 instructions In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. Irs 2012 tax forms 1040 instructions Catch-up contributions. Irs 2012 tax forms 1040 instructions   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Irs 2012 tax forms 1040 instructions The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. Irs 2012 tax forms 1040 instructions Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). Irs 2012 tax forms 1040 instructions However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Irs 2012 tax forms 1040 instructions The catch-up contribution limit. Irs 2012 tax forms 1040 instructions The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Irs 2012 tax forms 1040 instructions   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). Irs 2012 tax forms 1040 instructions Overall limit on SEP contributions. Irs 2012 tax forms 1040 instructions   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). Irs 2012 tax forms 1040 instructions The same rule applies to contributions you make to your own SEP-IRA. Irs 2012 tax forms 1040 instructions See Contribution Limits , earlier. Irs 2012 tax forms 1040 instructions Figuring the elective deferral. Irs 2012 tax forms 1040 instructions   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. Irs 2012 tax forms 1040 instructions Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. Irs 2012 tax forms 1040 instructions However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Irs 2012 tax forms 1040 instructions Excess deferrals. Irs 2012 tax forms 1040 instructions   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. Irs 2012 tax forms 1040 instructions For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. Irs 2012 tax forms 1040 instructions The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. Irs 2012 tax forms 1040 instructions See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. Irs 2012 tax forms 1040 instructions Excess SEP contributions. Irs 2012 tax forms 1040 instructions   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. Irs 2012 tax forms 1040 instructions You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. Irs 2012 tax forms 1040 instructions If you do not notify them within this time period, you must pay a 10% tax on the excess. Irs 2012 tax forms 1040 instructions For an explanation of the notification requirements, see Rev. Irs 2012 tax forms 1040 instructions Proc. Irs 2012 tax forms 1040 instructions 91-44, 1991-2 C. Irs 2012 tax forms 1040 instructions B. Irs 2012 tax forms 1040 instructions 733. Irs 2012 tax forms 1040 instructions If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. Irs 2012 tax forms 1040 instructions Reporting on Form W-2. Irs 2012 tax forms 1040 instructions   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Irs 2012 tax forms 1040 instructions You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Irs 2012 tax forms 1040 instructions You must also include them in box 12. Irs 2012 tax forms 1040 instructions Mark the “Retirement plan” checkbox in box 13. Irs 2012 tax forms 1040 instructions For more information, see the Form W-2 instructions. Irs 2012 tax forms 1040 instructions Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. Irs 2012 tax forms 1040 instructions Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. Irs 2012 tax forms 1040 instructions Distributions are subject to IRA rules. Irs 2012 tax forms 1040 instructions Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Irs 2012 tax forms 1040 instructions For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. Irs 2012 tax forms 1040 instructions Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. Irs 2012 tax forms 1040 instructions Making excess contributions. Irs 2012 tax forms 1040 instructions Making early withdrawals. Irs 2012 tax forms 1040 instructions Not making required withdrawals. Irs 2012 tax forms 1040 instructions For information about these taxes, see chapter 1 in Publication 590. Irs 2012 tax forms 1040 instructions Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. Irs 2012 tax forms 1040 instructions Prohibited transaction. Irs 2012 tax forms 1040 instructions   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. Irs 2012 tax forms 1040 instructions In that case, the SEP-IRA will no longer qualify as an IRA. Irs 2012 tax forms 1040 instructions For a list of prohibited transactions, see Prohibited Transactions in chapter 4. Irs 2012 tax forms 1040 instructions Effects on employee. Irs 2012 tax forms 1040 instructions   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. Irs 2012 tax forms 1040 instructions The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. Irs 2012 tax forms 1040 instructions Also, the employee may have to pay the additional tax for making early withdrawals. Irs 2012 tax forms 1040 instructions Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. Irs 2012 tax forms 1040 instructions See Setting Up a SEP , earlier. Irs 2012 tax forms 1040 instructions Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. Irs 2012 tax forms 1040 instructions You must also give them notice of any excess contributions. Irs 2012 tax forms 1040 instructions For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). Irs 2012 tax forms 1040 instructions Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. Irs 2012 tax forms 1040 instructions For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. Irs 2012 tax forms 1040 instructions Prev  Up  Next   Home   More Online Publications
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The Farm Credit Administration is an independent financial regulatory agency that oversees the various lending institutions and banks serving agricultural and rural America.

Contact the Agency or Department

Website: Farm Credit Administration

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The Irs 2012 Tax Forms 1040 Instructions

Irs 2012 tax forms 1040 instructions Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. Irs 2012 tax forms 1040 instructions Publication 946, How To Depreciate Property, contains information on depreciation. Irs 2012 tax forms 1040 instructions However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Irs 2012 tax forms 1040 instructions The new provisions are in the Supplement to Publication 946, which is reprinted below. Irs 2012 tax forms 1040 instructions Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Irs 2012 tax forms 1040 instructions The new law made several changes in the tax rules explained in the publication. Irs 2012 tax forms 1040 instructions Some of the changes apply to property placed in service during 2001. Irs 2012 tax forms 1040 instructions This supplemental publication describes those changes and explains what you should do if you are affected by them. Irs 2012 tax forms 1040 instructions The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. Irs 2012 tax forms 1040 instructions The new law contains the following provisions. Irs 2012 tax forms 1040 instructions 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. Irs 2012 tax forms 1040 instructions An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Irs 2012 tax forms 1040 instructions A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Irs 2012 tax forms 1040 instructions An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Irs 2012 tax forms 1040 instructions If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. Irs 2012 tax forms 1040 instructions If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. Irs 2012 tax forms 1040 instructions See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. Irs 2012 tax forms 1040 instructions Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Irs 2012 tax forms 1040 instructions The allowance is an additional deduction of 30% of the property's depreciable basis. Irs 2012 tax forms 1040 instructions To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Irs 2012 tax forms 1040 instructions See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Irs 2012 tax forms 1040 instructions The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Irs 2012 tax forms 1040 instructions There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Irs 2012 tax forms 1040 instructions In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Irs 2012 tax forms 1040 instructions Example 1. Irs 2012 tax forms 1040 instructions On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Irs 2012 tax forms 1040 instructions You did not elect to claim a section 179 deduction. Irs 2012 tax forms 1040 instructions You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Irs 2012 tax forms 1040 instructions You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Irs 2012 tax forms 1040 instructions Example 2. Irs 2012 tax forms 1040 instructions The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. Irs 2012 tax forms 1040 instructions You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Irs 2012 tax forms 1040 instructions You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Irs 2012 tax forms 1040 instructions Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Irs 2012 tax forms 1040 instructions It is new property of one of the following types. Irs 2012 tax forms 1040 instructions Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Irs 2012 tax forms 1040 instructions See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Irs 2012 tax forms 1040 instructions Water utility property. Irs 2012 tax forms 1040 instructions See 25-year property on page 22 in Publication 946. Irs 2012 tax forms 1040 instructions Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Irs 2012 tax forms 1040 instructions (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Irs 2012 tax forms 1040 instructions ) Qualified leasehold improvement property (defined later). Irs 2012 tax forms 1040 instructions It meets the following tests (explained later under Tests To Be Met). Irs 2012 tax forms 1040 instructions Acquisition date test. Irs 2012 tax forms 1040 instructions Placed in service date test. Irs 2012 tax forms 1040 instructions Original use test. Irs 2012 tax forms 1040 instructions It is not excepted property (explained later under Excepted Property). Irs 2012 tax forms 1040 instructions Qualified leasehold improvement property. Irs 2012 tax forms 1040 instructions    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. Irs 2012 tax forms 1040 instructions The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Irs 2012 tax forms 1040 instructions That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Irs 2012 tax forms 1040 instructions The improvement is placed in service more than 3 years after the date the building was first placed in service. Irs 2012 tax forms 1040 instructions   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Irs 2012 tax forms 1040 instructions The enlargement of the building. Irs 2012 tax forms 1040 instructions Any elevator or escalator. Irs 2012 tax forms 1040 instructions Any structural component benefiting a common area. Irs 2012 tax forms 1040 instructions The internal structural framework of the building. Irs 2012 tax forms 1040 instructions   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Irs 2012 tax forms 1040 instructions However, a binding commitment between related persons is not treated as a lease. Irs 2012 tax forms 1040 instructions Related persons. Irs 2012 tax forms 1040 instructions   For this purpose, the following are related persons. Irs 2012 tax forms 1040 instructions Members of an affiliated group. Irs 2012 tax forms 1040 instructions The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). Irs 2012 tax forms 1040 instructions An executor and a beneficiary of the same estate. Irs 2012 tax forms 1040 instructions Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Irs 2012 tax forms 1040 instructions Acquisition date test. Irs 2012 tax forms 1040 instructions    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. Irs 2012 tax forms 1040 instructions   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. Irs 2012 tax forms 1040 instructions Placed in service date test. Irs 2012 tax forms 1040 instructions   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Irs 2012 tax forms 1040 instructions   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Irs 2012 tax forms 1040 instructions Original use test. Irs 2012 tax forms 1040 instructions   The original use of the property must have begun with you after September 10, 2001. Irs 2012 tax forms 1040 instructions “Original use” means the first use to which the property is put, whether or not by you. Irs 2012 tax forms 1040 instructions Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Irs 2012 tax forms 1040 instructions Excepted Property The following property does not qualify for the special depreciation allowance. Irs 2012 tax forms 1040 instructions Property used by any person before September 11, 2001. Irs 2012 tax forms 1040 instructions Property required to be depreciated using ADS. Irs 2012 tax forms 1040 instructions This includes listed property used 50% or less in a qualified business use. Irs 2012 tax forms 1040 instructions Qualified New York Liberty Zone leasehold improvement property (defined next). Irs 2012 tax forms 1040 instructions Qualified New York Liberty Zone leasehold improvement property. Irs 2012 tax forms 1040 instructions   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Irs 2012 tax forms 1040 instructions The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Irs 2012 tax forms 1040 instructions The improvement is placed in service after September 10, 2001, and before January 1, 2007. Irs 2012 tax forms 1040 instructions No written binding contract for the improvement was in effect before September 11, 2001. Irs 2012 tax forms 1040 instructions Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Irs 2012 tax forms 1040 instructions If you make this election for any property, it applies to all property in the same property class placed in service during the year. Irs 2012 tax forms 1040 instructions To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Irs 2012 tax forms 1040 instructions When to make election. Irs 2012 tax forms 1040 instructions   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Irs 2012 tax forms 1040 instructions   However, 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 original return (not including extensions). Irs 2012 tax forms 1040 instructions Attach the election statement to the amended return. Irs 2012 tax forms 1040 instructions At the top of the election statement, write “Filed pursuant to section 301. Irs 2012 tax forms 1040 instructions 9100–2. Irs 2012 tax forms 1040 instructions ” Revoking an election. Irs 2012 tax forms 1040 instructions   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Irs 2012 tax forms 1040 instructions A request to revoke the election is subject to a user fee. Irs 2012 tax forms 1040 instructions Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. Irs 2012 tax forms 1040 instructions The rules apply to returns for the following years. Irs 2012 tax forms 1040 instructions 2000 fiscal years that end after September 10, 2001. Irs 2012 tax forms 1040 instructions 2001 calendar and fiscal years. Irs 2012 tax forms 1040 instructions Claiming the allowance. Irs 2012 tax forms 1040 instructions   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. Irs 2012 tax forms 1040 instructions File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. Irs 2012 tax forms 1040 instructions Write “Filed Pursuant to Rev. Irs 2012 tax forms 1040 instructions Proc. Irs 2012 tax forms 1040 instructions 2002–33” at the top of the amended return. Irs 2012 tax forms 1040 instructions File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Irs 2012 tax forms 1040 instructions Your return must be filed by the due date (including extensions). Irs 2012 tax forms 1040 instructions Write “Automatic Change Filed Under Rev. Irs 2012 tax forms 1040 instructions Proc. Irs 2012 tax forms 1040 instructions 2002–33” on the appropriate line of Form 3115. Irs 2012 tax forms 1040 instructions You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. Irs 2012 tax forms 1040 instructions For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. Irs 2012 tax forms 1040 instructions Example 1. Irs 2012 tax forms 1040 instructions You are an individual and you use the calendar year. Irs 2012 tax forms 1040 instructions You placed qualified property in service for your business in December 2001. Irs 2012 tax forms 1040 instructions You filed your 2001 income tax return before April 15, 2002. Irs 2012 tax forms 1040 instructions You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Irs 2012 tax forms 1040 instructions You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Irs 2012 tax forms 1040 instructions Proc. Irs 2012 tax forms 1040 instructions 2002–33” at the top of the amended return. Irs 2012 tax forms 1040 instructions You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Irs 2012 tax forms 1040 instructions Example 2. Irs 2012 tax forms 1040 instructions The facts concerning your 2001 return are the same as in Example 1. Irs 2012 tax forms 1040 instructions In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Irs 2012 tax forms 1040 instructions You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Irs 2012 tax forms 1040 instructions Proc. Irs 2012 tax forms 1040 instructions 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Irs 2012 tax forms 1040 instructions You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Irs 2012 tax forms 1040 instructions Electing not to claim the allowance. Irs 2012 tax forms 1040 instructions   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. Irs 2012 tax forms 1040 instructions The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Irs 2012 tax forms 1040 instructions The statement can be either attached to or written on the return. Irs 2012 tax forms 1040 instructions You can, for example, write “not deducting 30%” on Form 4562. Irs 2012 tax forms 1040 instructions Deemed election. Irs 2012 tax forms 1040 instructions   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. Irs 2012 tax forms 1040 instructions You will be treated as making the election if you meet both of the following conditions. Irs 2012 tax forms 1040 instructions You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. Irs 2012 tax forms 1040 instructions You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Irs 2012 tax forms 1040 instructions See Claiming the allowance, earlier. Irs 2012 tax forms 1040 instructions Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. Irs 2012 tax forms 1040 instructions Generally, the limit is increased from $3,060 to $7,660. Irs 2012 tax forms 1040 instructions However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). Irs 2012 tax forms 1040 instructions Table 1 shows the maximum deduction amounts for 2001. Irs 2012 tax forms 1040 instructions Table 1. Irs 2012 tax forms 1040 instructions Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Irs 2012 tax forms 1040 instructions 11 Placed in Service After Sept. Irs 2012 tax forms 1040 instructions 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. Irs 2012 tax forms 1040 instructions Election not to claim the allowance. Irs 2012 tax forms 1040 instructions   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. Irs 2012 tax forms 1040 instructions New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Irs 2012 tax forms 1040 instructions They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. Irs 2012 tax forms 1040 instructions Area defined. Irs 2012 tax forms 1040 instructions   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. Irs 2012 tax forms 1040 instructions Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. Irs 2012 tax forms 1040 instructions The allowance is an additional deduction of 30% of the property's depreciable basis. Irs 2012 tax forms 1040 instructions To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Irs 2012 tax forms 1040 instructions See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Irs 2012 tax forms 1040 instructions The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Irs 2012 tax forms 1040 instructions There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Irs 2012 tax forms 1040 instructions In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Irs 2012 tax forms 1040 instructions You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Irs 2012 tax forms 1040 instructions Qualified property is eligible for only one special depreciation allowance. Irs 2012 tax forms 1040 instructions Example 1. Irs 2012 tax forms 1040 instructions On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. Irs 2012 tax forms 1040 instructions You did not elect to claim a section 179 deduction. Irs 2012 tax forms 1040 instructions You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Irs 2012 tax forms 1040 instructions You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Irs 2012 tax forms 1040 instructions Example 2. Irs 2012 tax forms 1040 instructions The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. Irs 2012 tax forms 1040 instructions (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Irs 2012 tax forms 1040 instructions You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Irs 2012 tax forms 1040 instructions You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Irs 2012 tax forms 1040 instructions Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. Irs 2012 tax forms 1040 instructions It is one of the following types of property. Irs 2012 tax forms 1040 instructions Used property depreciated under MACRS with a recovery period of 20 years or less. Irs 2012 tax forms 1040 instructions See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Irs 2012 tax forms 1040 instructions Used water utility property. Irs 2012 tax forms 1040 instructions See 25-year property on page 22 in Publication 946. Irs 2012 tax forms 1040 instructions Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Irs 2012 tax forms 1040 instructions (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Irs 2012 tax forms 1040 instructions ) Certain nonresidential real property and residential rental property (defined later). Irs 2012 tax forms 1040 instructions It meets the following tests (explained later under Tests to be met). Irs 2012 tax forms 1040 instructions Acquisition date test. Irs 2012 tax forms 1040 instructions Placed in service date test. Irs 2012 tax forms 1040 instructions Substantial use test. Irs 2012 tax forms 1040 instructions Original use test. Irs 2012 tax forms 1040 instructions It is not excepted property (explained later under Excepted property). Irs 2012 tax forms 1040 instructions Nonresidential real property and residential rental property. Irs 2012 tax forms 1040 instructions   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. Irs 2012 tax forms 1040 instructions Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. Irs 2012 tax forms 1040 instructions   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. Irs 2012 tax forms 1040 instructions Otherwise, the property is considered damaged real property. Irs 2012 tax forms 1040 instructions For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. Irs 2012 tax forms 1040 instructions Tests to be met. Irs 2012 tax forms 1040 instructions   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Irs 2012 tax forms 1040 instructions Acquisition date test. Irs 2012 tax forms 1040 instructions   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. Irs 2012 tax forms 1040 instructions   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Irs 2012 tax forms 1040 instructions   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. Irs 2012 tax forms 1040 instructions Placed in service date test. Irs 2012 tax forms 1040 instructions   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). Irs 2012 tax forms 1040 instructions   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Irs 2012 tax forms 1040 instructions Substantial use test. Irs 2012 tax forms 1040 instructions   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. Irs 2012 tax forms 1040 instructions Original use test. Irs 2012 tax forms 1040 instructions   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Irs 2012 tax forms 1040 instructions   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Irs 2012 tax forms 1040 instructions Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. Irs 2012 tax forms 1040 instructions Excepted property. Irs 2012 tax forms 1040 instructions   The following property does not qualify for the special Liberty Zone depreciation allowance. Irs 2012 tax forms 1040 instructions Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Irs 2012 tax forms 1040 instructions Property required to be depreciated using ADS. Irs 2012 tax forms 1040 instructions This includes listed property used 50% or less in a qualified business use. Irs 2012 tax forms 1040 instructions Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Irs 2012 tax forms 1040 instructions Example. Irs 2012 tax forms 1040 instructions In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Irs 2012 tax forms 1040 instructions New office furniture with a MACRS recovery period of 7 years. Irs 2012 tax forms 1040 instructions A used computer with a MACRS recovery period of 5 years. Irs 2012 tax forms 1040 instructions The computer had not previously been used within the Liberty Zone. Irs 2012 tax forms 1040 instructions Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Irs 2012 tax forms 1040 instructions Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. Irs 2012 tax forms 1040 instructions Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Irs 2012 tax forms 1040 instructions If you make this election for any property, it applies to all property in the same property class placed in service during the year. Irs 2012 tax forms 1040 instructions To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Irs 2012 tax forms 1040 instructions When to make the election. Irs 2012 tax forms 1040 instructions   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Irs 2012 tax forms 1040 instructions   However, 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 original return (not including extensions). Irs 2012 tax forms 1040 instructions Attach the election statement to the amended return. Irs 2012 tax forms 1040 instructions At the top of the election statement, write “Filed pursuant to section 301. Irs 2012 tax forms 1040 instructions 9100–2. Irs 2012 tax forms 1040 instructions ” Revoking an election. Irs 2012 tax forms 1040 instructions   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Irs 2012 tax forms 1040 instructions A request to revoke the election is subject to a user fee. Irs 2012 tax forms 1040 instructions Returns filed before June 1, 2002. Irs 2012 tax forms 1040 instructions   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. Irs 2012 tax forms 1040 instructions Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Irs 2012 tax forms 1040 instructions For tax years beginning in 2000, that limit was $20,000. Irs 2012 tax forms 1040 instructions For tax years beginning in 2001 and 2002, that limit is generally $24,000. Irs 2012 tax forms 1040 instructions If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. Irs 2012 tax forms 1040 instructions Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Irs 2012 tax forms 1040 instructions The increase is the smaller of the following amounts. Irs 2012 tax forms 1040 instructions $35,000. Irs 2012 tax forms 1040 instructions The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Irs 2012 tax forms 1040 instructions If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. Irs 2012 tax forms 1040 instructions Qualified property. Irs 2012 tax forms 1040 instructions   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. Irs 2012 tax forms 1040 instructions Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Irs 2012 tax forms 1040 instructions Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Irs 2012 tax forms 1040 instructions For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. Irs 2012 tax forms 1040 instructions Example 1. Irs 2012 tax forms 1040 instructions In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Irs 2012 tax forms 1040 instructions Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). Irs 2012 tax forms 1040 instructions Example 2. Irs 2012 tax forms 1040 instructions In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Irs 2012 tax forms 1040 instructions Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). Irs 2012 tax forms 1040 instructions Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. Irs 2012 tax forms 1040 instructions However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. Irs 2012 tax forms 1040 instructions Example. Irs 2012 tax forms 1040 instructions In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Irs 2012 tax forms 1040 instructions Your increased dollar limit is $59,000 ($35,000 + $24,000). Irs 2012 tax forms 1040 instructions Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). Irs 2012 tax forms 1040 instructions Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. Irs 2012 tax forms 1040 instructions Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. Irs 2012 tax forms 1040 instructions This rule applies to returns for the following years. Irs 2012 tax forms 1040 instructions 2000 fiscal years that end after September 10, 2001. Irs 2012 tax forms 1040 instructions 2001 calendar and fiscal years. Irs 2012 tax forms 1040 instructions On the amended return, write “Filed Pursuant to Rev. Irs 2012 tax forms 1040 instructions Proc. Irs 2012 tax forms 1040 instructions 2002–33. Irs 2012 tax forms 1040 instructions ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Irs 2012 tax forms 1040 instructions This means that it is depreciated over a recovery period of 5 years. Irs 2012 tax forms 1040 instructions For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Irs 2012 tax forms 1040 instructions The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Irs 2012 tax forms 1040 instructions Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Irs 2012 tax forms 1040 instructions Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. Irs 2012 tax forms 1040 instructions Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Irs 2012 tax forms 1040 instructions Your 2001 calendar or fiscal year return. Irs 2012 tax forms 1040 instructions On the amended return, write “Filed Pursuant to Rev. Irs 2012 tax forms 1040 instructions Proc. Irs 2012 tax forms 1040 instructions 2002–33. Irs 2012 tax forms 1040 instructions ” Table 2. Irs 2012 tax forms 1040 instructions Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. Irs 2012 tax forms 1040 instructions See the text for definitions and examples. Irs 2012 tax forms 1040 instructions Do not rely on this chart alone. Irs 2012 tax forms 1040 instructions IF you want to. Irs 2012 tax forms 1040 instructions . Irs 2012 tax forms 1040 instructions . Irs 2012 tax forms 1040 instructions THEN you. Irs 2012 tax forms 1040 instructions . Irs 2012 tax forms 1040 instructions . Irs 2012 tax forms 1040 instructions BY. Irs 2012 tax forms 1040 instructions . Irs 2012 tax forms 1040 instructions . Irs 2012 tax forms 1040 instructions claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. Irs 2012 tax forms 1040 instructions elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). Irs 2012 tax forms 1040 instructions deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. Irs 2012 tax forms 1040 instructions use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. Irs 2012 tax forms 1040 instructions 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. Irs 2012 tax forms 1040 instructions Prev  Up  Next   Home   More Online Publications