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Previous Year Tax Return

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Previous Year Tax Return

Previous year tax return 4. Previous year tax return   Tax Withholding and Estimated Tax Table of Contents What's New for 2014 Reminders Introduction Useful Items - You may want to see: Tax Withholding for 2014Salaries and Wages Tips Taxable Fringe Benefits Sick Pay Pensions and Annuities Gambling Winnings Unemployment Compensation Federal Payments Backup Withholding Estimated Tax for 2014Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated Tax How To Figure Estimated Tax When To Pay Estimated Tax How To Figure Each Payment How To Pay Estimated Tax Credit for Withholding and Estimated Tax for 2013Withholding Estimated Tax Underpayment Penalty for 2013 What's New for 2014 Tax law changes for 2014. Previous year tax return  When you figure how much income tax you want withheld from your pay and when you figure your estimated tax, consider tax law changes effective in 2014. Previous year tax return For more information, see Publication 505. Previous year tax return Reminders Estimated tax safe harbor for higher income taxpayers. Previous year tax return  If your 2013 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2014 or 110% of the tax shown on your 2013 return to avoid an estimated tax penalty. Previous year tax return Introduction This chapter discusses how to pay your tax as you earn or receive income during the year. Previous year tax return In general, the federal income tax is a pay-as-you-go tax. Previous year tax return There are two ways to pay as you go. Previous year tax return Withholding. Previous year tax return If you are an employee, your employer probably withholds income tax from your pay. Previous year tax return Tax also may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. Previous year tax return The amount withheld is paid to the IRS in your name. Previous year tax return Estimated tax. Previous year tax return If you do not pay your tax through withholding, or do not pay enough tax that way, you may have to pay estimated tax. Previous year tax return People who are in business for themselves generally will have to pay their tax this way. Previous year tax return Also, you may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rent, and royalties. Previous year tax return Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. Previous year tax return This chapter explains these methods. Previous year tax return In addition, it also explains the following. Previous year tax return Credit for withholding and estimated tax. Previous year tax return When you file your 2013 income tax return, take credit for all the income tax withheld from your salary, wages, pensions, etc. Previous year tax return , and for the estimated tax you paid for 2013. Previous year tax return Also take credit for any excess social security or railroad retirement tax withheld (discussed in chapter 37). Previous year tax return Underpayment penalty. Previous year tax return If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. Previous year tax return In most cases, the IRS can figure this penalty for you. Previous year tax return See Underpayment Penalty for 2013 at the end of this chapter. Previous year tax return Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request 1040-ES Estimated Tax for Individuals 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen Tax Withholding for 2014 This section discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. Previous year tax return This section explains the rules for withholding tax from each of these types of income. Previous year tax return This section also covers backup withholding on interest, dividends, and other payments. Previous year tax return Salaries and Wages Income tax is withheld from the pay of most employees. Previous year tax return Your pay includes your regular pay, bonuses, commissions, and vacation allowances. Previous year tax return It also includes reimbursements and other expense allowances paid under a nonaccountable plan. Previous year tax return See Supplemental Wages , later, for more information about reimbursements and allowances paid under a nonaccountable plan. Previous year tax return If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. Previous year tax return This is explained under Exemption From Withholding , later. Previous year tax return You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. Previous year tax return If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . Previous year tax return Military retirees. Previous year tax return   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. Previous year tax return Household workers. Previous year tax return   If you are a household worker, you can ask your employer to withhold income tax from your pay. Previous year tax return A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. Previous year tax return   Tax is withheld only if you want it withheld and your employer agrees to withhold it. Previous year tax return If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed later under Estimated Tax for 2014 . Previous year tax return Farmworkers. Previous year tax return   Generally, income tax is withheld from your cash wages for work on a farm unless your employer does both of these: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. Previous year tax return Differential wage payments. Previous year tax return    When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Previous year tax return Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. Previous year tax return The wages and withholding will be reported on Form W-2, Wage and Tax Statement. Previous year tax return   The credit employers can claim for differential wages paid to activated military reservists is scheduled to expire for wages paid after December 31, 2013. Previous year tax return Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. Previous year tax return The amount you earn in each payroll period. Previous year tax return The information you give your employer on Form W-4. Previous year tax return Form W-4 includes four types of information that your employer will use to figure your withholding. Previous year tax return Whether to withhold at the single rate or at the lower married rate. Previous year tax return How many withholding allowances you claim (each allowance reduces the amount withheld). Previous year tax return Whether you want an additional amount withheld. Previous year tax return Whether you are claiming an exemption from withholding in 2014. Previous year tax return See Exemption From Withholding , later. Previous year tax return Note. Previous year tax return You must specify a filing status and a number of withholding allowances on Form W-4. Previous year tax return You cannot specify only a dollar amount of withholding. Previous year tax return New Job When you start a new job, you must fill out Form W-4 and give it to your employer. Previous year tax return Your employer should have copies of the form. Previous year tax return If you need to change the information later, you must fill out a new form. Previous year tax return If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. Previous year tax return You may be able to avoid overwithholding if your employer agrees to use the part-year method. Previous year tax return See Part-Year Method in chapter 1 of Publication 505 for more information. Previous year tax return Employee also receiving pension income. Previous year tax return   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. Previous year tax return However, you can choose to split your withholding allowances between your pension and job in any manner. Previous year tax return Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. Previous year tax return When this happens, you may need to give your employer a new Form W-4 to change your withholding status or your number of allowances. Previous year tax return If the changes reduce the number of allowances you are claiming or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. Previous year tax return Generally, you can submit a new Form W-4 whenever you wish to change the number of your withholding allowances for any other reason. Previous year tax return Changing your withholding for 2015. Previous year tax return   If events in 2014 will decrease the number of your withholding allowances for 2015, you must give your employer a new Form W-4 by December 1, 2014. Previous year tax return If the event occurs in December 2014, submit a new Form W-4 within 10 days. Previous year tax return Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. Previous year tax return If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. Previous year tax return You should try to have your withholding match your actual tax liability. Previous year tax return If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. Previous year tax return If too much tax is withheld, you will lose the use of that money until you get your refund. Previous year tax return Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. Previous year tax return Note. Previous year tax return You cannot give your employer a payment to cover withholding on salaries and wages for past pay periods or a payment for estimated tax. Previous year tax return Completing Form W-4 and Worksheets Form W-4 has worksheets to help you figure how many withholding allowances you can claim. Previous year tax return The worksheets are for your own records. Previous year tax return Do not give them to your employer. Previous year tax return Multiple jobs. Previous year tax return   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Previous year tax return Then split your allowances between the Forms W-4 for each job. Previous year tax return You cannot claim the same allowances with more than one employer at the same time. Previous year tax return You can claim all your allowances with one employer and none with the other(s), or divide them any other way. Previous year tax return Married individuals. Previous year tax return   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Previous year tax return Use only one set of worksheets. Previous year tax return You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. Previous year tax return   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. Previous year tax return Alternative method of figuring withholding allowances. Previous year tax return   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. Previous year tax return For more information, see Alternative method of figuring withholding allowances under Completing Form W-4 and Worksheets in Publication 505, chapter 1. Previous year tax return Personal Allowances Worksheet. Previous year tax return   Use the Personal Allowances Worksheet on Form W-4 to figure your withholding allowances based on exemptions and any special allowances that apply. Previous year tax return Deduction and Adjustments Worksheet. Previous year tax return   Use the Deduction and Adjustments Worksheet on Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. Previous year tax return Also, complete this worksheet when you have changes to these items to see if you need to change your withholding. Previous year tax return Two-Earners/Multiple Jobs Worksheet. Previous year tax return   You may need to complete the Two-Earners/Multiple Jobs Worksheet on Form W-4 if you have more than one job, a working spouse, or are also receiving a pension. Previous year tax return Also, on this worksheet you can add any additional withholding necessary to cover any amount you expect to owe other than income tax, such as self-employment tax. Previous year tax return Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. Previous year tax return You accurately complete all the Form W-4 worksheets that apply to you. Previous year tax return You give your employer a new Form W-4 when changes occur. Previous year tax return But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. Previous year tax return This is most likely to happen in the following situations. Previous year tax return You are married and both you and your spouse work. Previous year tax return You have more than one job at a time. Previous year tax return You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. Previous year tax return You will owe additional amounts with your return, such as self-employment tax. Previous year tax return Your withholding is based on obsolete Form W-4 information for a substantial part of the year. Previous year tax return Your earnings are more than the amount shown under Check your withholding in the instructions at the top of page 1 of Form W-4. Previous year tax return You work only part of the year. Previous year tax return You change the number of your withholding allowances during the year. Previous year tax return Cumulative wage method. Previous year tax return   If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. Previous year tax return You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. Previous year tax return You must ask your employer in writing to use this method. Previous year tax return   To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. Previous year tax return ) since the beginning of the year. Previous year tax return Publication 505 To make sure you are getting the right amount of tax withheld, get Publication 505. Previous year tax return It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. Previous year tax return It also will help you determine how much, if any, additional withholding is needed each payday to avoid owing tax when you file your return. Previous year tax return If you do not have enough tax withheld, you may have to pay estimated tax, as explained under Estimated Tax for 2014 , later. Previous year tax return You can use the IRS Withholding Calculator at www. Previous year tax return irs. Previous year tax return gov/Individuals, instead of Publication 505 or the worksheets included with Form W-4, to determine whether you need to have your withholding increased or decreased. Previous year tax return Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. Previous year tax return These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. Previous year tax return New Form W-4. Previous year tax return   When you start a new job, your employer should have you complete a Form W-4. Previous year tax return Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. Previous year tax return   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. Previous year tax return The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. Previous year tax return No Form W-4. Previous year tax return   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. Previous year tax return Repaying withheld tax. Previous year tax return   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Previous year tax return Your employer cannot repay any of the tax previously withheld. Previous year tax return Instead, claim the full amount withheld when you file your tax return. Previous year tax return   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Previous year tax return Your employer can repay the amount that was withheld incorrectly. Previous year tax return If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. Previous year tax return Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. Previous year tax return The exemption applies only to income tax, not to social security or Medicare tax. Previous year tax return You can claim exemption from withholding for 2014 only if both of the following situations apply. Previous year tax return For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. Previous year tax return For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. Previous year tax return Students. Previous year tax return   If you are a student, you are not automatically exempt. Previous year tax return See chapter 1 to find out if you must file a return. Previous year tax return If you work only part time or only during the summer, you may qualify for exemption from withholding. Previous year tax return Age 65 or older or blind. Previous year tax return   If you are 65 or older or blind, use Worksheet 1-3 or 1-4 in chapter 1 of Publication 505, to help you decide if you qualify for exemption from withholding. Previous year tax return Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. Previous year tax return Instead, see Itemizing deductions or claiming exemptions or credits in chapter 1 of Publication 505. Previous year tax return Claiming exemption from withholding. Previous year tax return   To claim exemption, you must give your employer a Form W-4. Previous year tax return Do not complete lines 5 and 6. Previous year tax return Enter “Exempt” on line 7. Previous year tax return   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. Previous year tax return If you claim exemption in 2014, but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. Previous year tax return   Your claim of exempt status may be reviewed by the IRS. Previous year tax return An exemption is good for only 1 year. Previous year tax return   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. Previous year tax return Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. Previous year tax return The payer can figure withholding on supplemental wages using the same method used for your regular wages. Previous year tax return However, if these payments are identified separately from your regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. Previous year tax return Expense allowances. Previous year tax return   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. Previous year tax return   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. Previous year tax return   For more information about accountable and nonaccountable expense allowance plans, see Reimbursements in chapter 26. Previous year tax return Penalties You may have to pay a penalty of $500 if both of the following apply. Previous year tax return You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. Previous year tax return You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. Previous year tax return There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. Previous year tax return The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. Previous year tax return These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. Previous year tax return A simple error or an honest mistake will not result in one of these penalties. Previous year tax return For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a W-4 penalty. Previous year tax return Tips The tips you receive while working on your job are considered part of your pay. Previous year tax return You must include your tips on your tax return on the same line as your regular pay. Previous year tax return However, tax is not withheld directly from tip income, as it is from your regular pay. Previous year tax return Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. Previous year tax return See chapter 6 for information on reporting your tips to your employer. Previous year tax return For more information on the withholding rules for tip income, see Publication 531, Reporting Tip Income. Previous year tax return How employer figures amount to withhold. Previous year tax return   The tips you report to your employer are counted as part of your income for the month you report them. Previous year tax return Your employer can figure your withholding in either of two ways. Previous year tax return By withholding at the regular rate on the sum of your pay plus your reported tips. Previous year tax return By withholding at the regular rate on your pay plus a percentage of your reported tips. Previous year tax return Not enough pay to cover taxes. Previous year tax return   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. Previous year tax return See Giving your employer money for taxes in chapter 6. Previous year tax return Allocated tips. Previous year tax return   Your employer should not withhold income tax, Medicare tax, social security tax, or railroad retirement tax on any allocated tips. Previous year tax return Withholding is based only on your pay plus your reported tips. Previous year tax return Your employer should refund to you any incorrectly withheld tax. Previous year tax return See Allocated Tips in chapter 6 for more information. Previous year tax return Taxable Fringe Benefits The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. Previous year tax return Your employer generally must withhold income tax on these benefits from your regular pay. Previous year tax return For information on fringe benefits, see Fringe Benefits under Employee Compensation in chapter 5. Previous year tax return Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. Previous year tax return Your employer must notify you if this choice is made. Previous year tax return For more information on withholding on taxable fringe benefits, see chapter 1 of Publication 505. Previous year tax return Sick Pay Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. Previous year tax return To qualify as sick pay, it must be paid under a plan to which your employer is a party. Previous year tax return If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. Previous year tax return An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate. Previous year tax return However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. Previous year tax return See Form W-4S , later. Previous year tax return If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable. Previous year tax return Union agreements. Previous year tax return   If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. Previous year tax return See your union representative or your employer for more information. Previous year tax return Form W-4S. Previous year tax return   If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W-4S. Previous year tax return Its instructions contain a worksheet you can use to figure the amount you want withheld. Previous year tax return They also explain restrictions that may apply. Previous year tax return   Give the completed form to the payer of your sick pay. Previous year tax return The payer must withhold according to your directions on the form. Previous year tax return Estimated tax. Previous year tax return   If you do not request withholding on Form W-4S, or if you do not have enough tax withheld, you may have to make estimated tax payments. Previous year tax return If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. Previous year tax return See Underpayment Penalty for 2013 at the end of this chapter. Previous year tax return Pensions and Annuities Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. Previous year tax return This rule applies to distributions from: A traditional individual retirement arrangement (IRA); A life insurance company under an endowment, annuity, or life insurance contract; A pension, annuity, or profit-sharing plan; A stock bonus plan; and Any other plan that defers the time you receive compensation. Previous year tax return The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). Previous year tax return Income tax withholding from an ERD is mandatory. Previous year tax return More information. Previous year tax return   For more information on taxation of annuities and distributions (including ERDs) from qualified retirement plans, see chapter 10. Previous year tax return For information on IRAs, see chapter 17. Previous year tax return For more information on withholding on pensions and annuities, including a discussion of Form W-4P, see Pensions and Annuities in chapter 1 of Publication 505. Previous year tax return Gambling Winnings Income tax is withheld at a flat 25% rate from certain kinds of gambling winnings. Previous year tax return Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding. Previous year tax return Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery. Previous year tax return Any other wager, if the proceeds are at least 300 times the amount of the bet. Previous year tax return It does not matter whether your winnings are paid in cash, in property, or as an annuity. Previous year tax return Winnings not paid in cash are taken into account at their fair market value. Previous year tax return Exception. Previous year tax return   Gambling winnings from bingo, keno, and slot machines generally are not subject to income tax withholding. Previous year tax return However, you may need to provide the payer with a social security number to avoid withholding. Previous year tax return See Backup withholding on gambling winnings in chapter 1 of Publication 505. Previous year tax return If you receive gambling winnings not subject to withholding, you may need to pay estimated tax. Previous year tax return See Estimated Tax for 2014 , later. Previous year tax return If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Previous year tax return See Underpayment Penalty for 2013 at the end of this chapter. Previous year tax return Form W-2G. Previous year tax return   If a payer withholds income tax from your gambling winnings, you should receive a Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld. Previous year tax return Report the tax withheld on line 62 of Form 1040. Previous year tax return Unemployment Compensation You can choose to have income tax withheld from unemployment compensation. Previous year tax return To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. Previous year tax return All unemployment compensation is taxable. Previous year tax return So, if you do not have income tax withheld, you may have to pay estimated tax. Previous year tax return See Estimated Tax for 2014 , later. Previous year tax return If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Previous year tax return For information, see Underpayment Penalty for 2013 at the end of this chapter. Previous year tax return Federal Payments You can choose to have income tax withheld from certain federal payments you receive. Previous year tax return These payments are: Social security benefits, Tier 1 railroad retirement benefits, Commodity credit corporation loans you choose to include in your gross income, Payments under the Agricultural Act of 1949 (7 U. Previous year tax return S. Previous year tax return C. Previous year tax return 1421 et. Previous year tax return seq. Previous year tax return ), as amended, or title II of the Disaster Assistance Act of 1988, that are treated as insurance proceeds and that you receive because: Your crops were destroyed or damaged by drought, flood, or any other natural disaster, or You were unable to plant crops because of a natural disaster described in (a), and Any other payment under Federal law as determined by the Secretary. Previous year tax return To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer. Previous year tax return If you do not choose to have income tax withheld, you may have to pay estimated tax. Previous year tax return See Estimated Tax for 2014 , later. Previous year tax return If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Previous year tax return For information, see Underpayment Penalty for 2013 at the end of this chapter. Previous year tax return More information. Previous year tax return   For more information about the tax treatment of social security and railroad retirement benefits, see chapter 11. Previous year tax return Get Publication 225, Farmer's Tax Guide, for information about the tax treatment of commodity credit corporation loans or crop disaster payments. Previous year tax return Backup Withholding Banks or other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. Previous year tax return The information return shows how much you were paid during the year. Previous year tax return It also includes your name and taxpayer identification number (TIN). Previous year tax return TINs are explained in chapter 1 under Social Security Number (SSN) . Previous year tax return These payments generally are not subject to withholding. Previous year tax return However, “backup” withholding is required in certain situations. Previous year tax return Backup withholding can apply to most kinds of payments that are reported on Form 1099. Previous year tax return The payer must withhold at a flat 28% rate in the following situations. Previous year tax return You do not give the payer your TIN in the required manner. Previous year tax return The IRS notifies the payer that the TIN you gave is incorrect. Previous year tax return You are required, but fail, to certify that you are not subject to backup withholding. Previous year tax return The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. Previous year tax return The IRS will do this only after it has mailed you four notices over at least a 210-day period. Previous year tax return See Backup Withholding in chapter 1 of Publication 505 for more information. Previous year tax return Penalties. Previous year tax return   There are civil and criminal penalties for giving false information to avoid backup withholding. Previous year tax return The civil penalty is $500. Previous year tax return The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to 1 year, or both. Previous year tax return Estimated Tax for 2014 Estimated tax is the method used to pay tax on income that is not subject to withholding. Previous year tax return This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. Previous year tax return You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. Previous year tax return Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. Previous year tax return If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Previous year tax return If you do not pay enough by the due date of each payment period (see When To Pay Estimated Tax , later), you may be charged a penalty even if you are due a refund when you file your tax return. Previous year tax return For information on when the penalty applies, see Underpayment Penalty for 2013 at the end of this chapter. Previous year tax return Who Does Not Have To Pay Estimated Tax If you receive salaries or wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. Previous year tax return To do this, give a new Form W-4 to your employer. Previous year tax return See chapter 1 of Publication 505. Previous year tax return Estimated tax not required. Previous year tax return   You do not have to pay estimated tax for 2014 if you meet all three of the following conditions. Previous year tax return You had no tax liability for 2013. Previous year tax return You were a U. Previous year tax return S. Previous year tax return citizen or resident alien for the whole year. Previous year tax return Your 2013 tax year covered a 12-month period. Previous year tax return   You had no tax liability for 2013 if your total tax was zero or you did not have to file an income tax return. Previous year tax return For the definition of “total tax” for 2013, see Publication 505, chapter 2. Previous year tax return Who Must Pay Estimated Tax If you owe additional tax for 2013, you may have to pay estimated tax for 2014. Previous year tax return You can use the following general rule as a guide during the year to see if you will have enough withholding, or if you should increase your withholding or make estimated tax payments. Previous year tax return General rule. Previous year tax return   In most cases, you must pay estimated tax for 2014 if both of the following apply. Previous year tax return You expect to owe at least $1,000 in tax for 2014, after subtracting your withholding and refundable credits. Previous year tax return You expect your withholding plus your refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return (but see Special rules for farmers, fishermen, and higher income taxpayers, later). Previous year tax return Your 2013 tax return must cover all 12 months. Previous year tax return    If the result from using the general rule above suggests that you will not have enough withholding, complete the 2014 Estimated Tax Worksheet in Publication 505 for a more accurate calculation. Previous year tax return Special rules for farmers, fishermen, and higher income taxpayers. Previous year tax return   If at least two-thirds of your gross income for tax year 2013 or 2014 is from farming or fishing, substitute 662/3% for 90% in (2a) under the General rule, earlier. Previous year tax return If your AGI for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing a separate return), substitute 110% for 100% in (2b) under General rule , earlier. Previous year tax return See Figure 4-A and Publication 505, chapter 2 for more information. Previous year tax return Figure 4-A. Previous year tax return Do You Have To Pay Estimated Tax? Please click here for the text description of the image. Previous year tax return Figure 4-A Do You Have To Pay Estimated Tax? Aliens. Previous year tax return   Resident and nonresident aliens also may have to pay estimated tax. Previous year tax return Resident aliens should follow the rules in this chapter unless noted otherwise. Previous year tax return Nonresident aliens should get Form 1040-ES (NR), U. Previous year tax return S. Previous year tax return Estimated Tax for Nonresident Alien Individuals. Previous year tax return   You are an alien if you are not a citizen or national of the United States. Previous year tax return You are a resident alien if you either have a green card or meet the substantial presence test. Previous year tax return For more information about the substantial presence test, see Publication 519, U. Previous year tax return S. Previous year tax return Tax Guide for Aliens. Previous year tax return Married taxpayers. Previous year tax return   If you qualify to make joint estimated tax payments, apply the rules discussed here to your joint estimated income. Previous year tax return   You and your spouse can make joint estimated tax payments even if you are not living together. Previous year tax return   However, you and your spouse cannot make joint estimated tax payments if:  You are legally separated under a decree of divorce or separate maintenance, You and your spouse have different tax years, or Either spouse is a nonresident alien (unless that spouse elected to be treated as a resident alien for tax purposes (see chapter 1 of Publication 519)). Previous year tax return   If you do not qualify to make joint estimated tax payments, apply these rules to your separate estimated income. Previous year tax return Making joint or separate estimated tax payments will not affect your choice of filing a joint tax return or separate returns for 2014. Previous year tax return 2013 separate returns and 2014 joint return. Previous year tax return   If you plan to file a joint return with your spouse for 2014, but you filed separate returns for 2013, your 2013 tax is the total of the tax shown on your separate returns. Previous year tax return You filed a separate return if you filed as single, head of household, or married filing separately. Previous year tax return 2013 joint return and 2014 separate returns. Previous year tax return   If you plan to file a separate return for 2014 but you filed a joint return for 2013, your 2013 tax is your share of the tax on the joint return. Previous year tax return You file a separate return if you file as single, head of household, or married filing separately. Previous year tax return   To figure your share of the tax on the joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2013 using the same filing status as for 2014. Previous year tax return Then multiply the tax on the joint return by the following fraction. Previous year tax return     The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. Previous year tax return Joe and Heather filed a joint return for 2013 showing taxable income of $48,500 and a tax of $6,386. Previous year tax return Of the $48,500 taxable income, $40,100 was Joe's and the rest was Heather's. Previous year tax return For 2014, they plan to file married filing separately. Previous year tax return Joe figures his share of the tax on the 2013 joint return as follows. Previous year tax return   Tax on $40,100 based on a separate return $5,960     Tax on $8,400 based on a separate return 843     Total $6,803     Joe's percentage of total ($5,960 ÷ $6,803) 87. Previous year tax return 6%     Joe's share of tax on joint return  ($6,386 × 87. Previous year tax return 6%) $5,594   How To Figure Estimated Tax To figure your estimated tax, you must figure your expected adjusted gross income (AGI), taxable income, taxes, deductions, and credits for the year. Previous year tax return When figuring your 2014 estimated tax, it may be helpful to use your income, deductions, and credits for 2013 as a starting point. Previous year tax return Use your 2013 federal tax return as a guide. Previous year tax return You can use Form 1040-ES and Publication 505 to figure your estimated tax. Previous year tax return Nonresident aliens use Form 1040-ES (NR) and Publication 505 to figure estimated tax (see chapter 8 of Publication 519 for more information). Previous year tax return You must make adjustments both for changes in your own situation and for recent changes in the tax law. Previous year tax return For a discussion of these changes, visit IRS. Previous year tax return gov. Previous year tax return For more complete information on how to figure your estimated tax for 2014, see chapter 2 of Publication 505. Previous year tax return When To Pay Estimated Tax For estimated tax purposes, the tax year is divided into four payment periods. Previous year tax return Each period has a specific payment due date. Previous year tax return If you do not pay enough tax by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your income tax return. Previous year tax return The payment periods and due dates for estimated tax payments are shown next. Previous year tax return   For the period: Due date:*     Jan. Previous year tax return 1 – March 31 April 15     April 1 – May 31 June 16     June 1 – August 31 Sept. Previous year tax return 15     Sept. Previous year tax return 1– Dec. Previous year tax return 31 Jan. Previous year tax return 15, next year     *See Saturday, Sunday, holiday rule and January payment . Previous year tax return Saturday, Sunday, holiday rule. Previous year tax return   If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday. Previous year tax return January payment. Previous year tax return   If you file your 2014 Form 1040 or Form 1040A by January 31, 2015, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2015. Previous year tax return Fiscal year taxpayers. Previous year tax return   If your tax year does not start on January 1, see the Form 1040-ES instructions for your payment due dates. Previous year tax return When To Start You do not have to make estimated tax payments until you have income on which you will owe income tax. Previous year tax return If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. Previous year tax return You can pay all your estimated tax at that time, or you can pay it in installments. Previous year tax return If you choose to pay in installments, make your first payment by the due date for the first payment period. Previous year tax return Make your remaining installment payments by the due dates for the later periods. Previous year tax return No income subject to estimated tax during first period. Previous year tax return    If you do not have income subject to estimated tax until a later payment period, you must make your first payment by the due date for that period. Previous year tax return You can pay your entire estimated tax by the due date for that period or you can pay it in installments by the due date for that period and the due dates for the remaining periods. Previous year tax return The following chart shows when to make installment payments. Previous year tax return If you first have income on which you must pay estimated tax: Make a payment  by:* Make later installments by:* Before April 1 April 15 June 16 Sept. Previous year tax return 15 Jan. Previous year tax return 15 next year April 1–May 31 June 16 Sept. Previous year tax return 15 Jan. Previous year tax return 15 next year June 1–Aug. Previous year tax return 31 Sept. Previous year tax return 15 Jan. Previous year tax return 15 next year After Aug. Previous year tax return 31 Jan. Previous year tax return 15 next year (None) *See Saturday, Sunday, holiday rule and January payment . Previous year tax return How much to pay to avoid a penalty. Previous year tax return   To determine how much you should pay by each payment due date, see How To Figure Each Payment, next. Previous year tax return How To Figure Each Payment You should pay enough estimated tax by the due date of each payment period to avoid a penalty for that period. Previous year tax return You can figure your required payment for each period by using either the regular installment method or the annualized income installment method. Previous year tax return These methods are described in chapter 2 of Publication 505. Previous year tax return If you do not pay enough during each payment period, you may be charged a penalty even if you are due a refund when you file your tax return. Previous year tax return If the earlier discussion of No income subject to estimated tax during first period or the later discussion of Change in estimated tax applies to you, you may benefit from reading Annualized Income Installment Method in chapter 2 of Publication 505 for information on how to avoid a penalty. Previous year tax return Underpayment penalty. Previous year tax return   Under the regular installment method, if your estimated tax payment for any period is less than one-fourth of your estimated tax, you may be charged a penalty for underpayment of estimated tax for that period when you file your tax return. Previous year tax return Under the annualized income installment method, your estimated tax payments vary with your income, but the amount required must be paid each period. Previous year tax return See chapter 4 of Publication 505 for more information. Previous year tax return Change in estimated tax. Previous year tax return   After you make an estimated tax payment, changes in your income, adjustments, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax. Previous year tax return Pay the unpaid balance of your amended estimated tax by the next payment due date after the change or in installments by that date and the due dates for the remaining payment periods. Previous year tax return Estimated Tax Payments Not Required You do not have to pay estimated tax if your withholding in each payment period is at least as much as: One-fourth of your required annual payment, or Your required annualized income installment for that period. Previous year tax return You also do not have to pay estimated tax if you will pay enough through withholding to keep the amount you owe with your return under $1,000. Previous year tax return How To Pay Estimated Tax There are several ways to pay estimated tax. Previous year tax return Credit an overpayment on your 2013 return to your 2014 estimated tax. Previous year tax return Pay by direct transfer from your bank account, or pay by credit or debit card using a pay-by-phone system or the Internet. Previous year tax return Send in your payment (check or money order) with a payment voucher from Form 1040-ES. Previous year tax return Credit an Overpayment If you show an overpayment of tax after completing your Form 1040 or Form 1040A for 2013, you can apply part or all of it to your estimated tax for 2014. Previous year tax return On line 75 of Form 1040, or line 44 of Form 1040A, enter the amount you want credited to your estimated tax rather than refunded. Previous year tax return Take the amount you have credited into account when figuring your estimated tax payments. Previous year tax return You cannot have any of the amount you credited to your estimated tax refunded to you until you file your tax return for the following year. Previous year tax return You also cannot use that overpayment in any other way. Previous year tax return Pay Online Paying online is convenient and secure and helps make sure we get your payments on time. Previous year tax return You can pay using either of the following electronic payment methods. Previous year tax return Direct transfer from your bank account. Previous year tax return Credit or debit card. Previous year tax return To pay your taxes online or for more information, go to www. Previous year tax return irs. Previous year tax return gov/e-pay. Previous year tax return Pay by Phone Paying by phone is another safe and secure method of paying electronically. Previous year tax return Use one of the following methods. Previous year tax return Direct transfer from your bank account. Previous year tax return Credit or debit card. Previous year tax return To pay by direct transfer from your bank account, call 1-800-555-4477 (English), 1-800-244-4829 (Espanol). Previous year tax return People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD can call 1-800-733-4829. Previous year tax return To pay using a credit or debit card, you can call one of the following service providers. Previous year tax return There is a convenience fee charged by these providers that varies by provider, card type, and payment amount. Previous year tax return WorldPay 1-888-9-PAY-TAXTM(1-888-972-9829) www. Previous year tax return payUSAtax. Previous year tax return com Official Payments Corporation 1-888-UPAY-TAXTM (1-888-872-9829) www. Previous year tax return officialpayments. Previous year tax return com Link2Gov Corporation 1-888-PAY-1040TM (1-888-729-1040) www. Previous year tax return PAY1040. Previous year tax return com For the latest details on how to pay by phone, go to www. Previous year tax return irs. Previous year tax return gov/e-pay. Previous year tax return Pay by Check or Money Order Using the Estimated Tax Payment Voucher Each payment of estimated tax by check or money order must be accompanied by a payment voucher from Form 1040-ES. Previous year tax return During 2013, if you: made at least one estimated tax payment but not by electronic means, did not use software or a paid preparer to prepare or file your return,  then you should receive a copy of the 2014 Form 1040-ES/V. Previous year tax return The enclosed payment vouchers will be preprinted with your name, address, and social security number. Previous year tax return Using the preprinted vouchers will speed processing, reduce the chance of error, and help save processing costs. Previous year tax return Use the window envelopes that came with your Form 1040-ES package. Previous year tax return If you use your own envelopes, make sure you mail your payment vouchers to the address shown in the Form 1040-ES instructions for the place where you live. Previous year tax return Note. Previous year tax return These criteria can change without notice. Previous year tax return If you do not receive a Form 1040-ES/V package and you are required to make an estimated tax payment, you should go to www. Previous year tax return irs. Previous year tax return gov and print a copy of Form 1040-ES which includes four blank payment vouchers. Previous year tax return Complete one of these and make your payment timely to avoid penalties for paying late. Previous year tax return Do not use the address shown in the Form 1040 or Form 1040A instructions for your estimated tax payments. Previous year tax return If you did not pay estimated tax last year, you can order Form 1040-ES from the IRS (see inside back cover of this publication) or download it from IRS. Previous year tax return gov. Previous year tax return Follow the instructions to make sure you use the vouchers correctly. Previous year tax return Joint estimated tax payments. Previous year tax return   If you file a joint return and are making joint estimated tax payments, enter the names and social security numbers on the payment voucher in the same order as they will appear on the joint return. Previous year tax return Change of address. Previous year tax return   You must notify the IRS if you are making estimated tax payments and you changed your address during the year. Previous year tax return Complete Form 8822, Change of Address, and mail it to the address shown in the instructions for that form. Previous year tax return Credit for Withholding and Estimated Tax for 2013 When you file your 2013 income tax return, take credit for all the income tax and excess social security or railroad retirement tax withheld from your salary, wages, pensions, etc. Previous year tax return Also take credit for the estimated tax you paid for 2013. Previous year tax return These credits are subtracted from your total tax. Previous year tax return Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. Previous year tax return Two or more employers. Previous year tax return   If you had two or more employers in 2013 and were paid wages of more than $113,700, too much social security or tier 1 railroad retirement tax may have been withheld from your pay. Previous year tax return You may be able to claim the excess as a credit against your income tax when you file your return. Previous year tax return See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld in chapter 37. Previous year tax return Withholding If you had income tax withheld during 2013, you should be sent a statement by January 31, 2014, showing your income and the tax withheld. Previous year tax return Depending on the source of your income, you should receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. Previous year tax return Forms W-2 and W-2G. Previous year tax return   If you file a paper return, always file Form W-2 with your income tax return. Previous year tax return File Form W-2G with your return only if it shows any federal income tax withheld from your winnings. Previous year tax return   You should get at least two copies of each form. Previous year tax return If you file a paper return, attach one copy to the front of your federal income tax return. Previous year tax return Keep one copy for your records. Previous year tax return You also should receive copies to file with your state and local returns. Previous year tax return Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. Previous year tax return You should receive a separate Form W-2 from each employer you worked for. Previous year tax return If you stopped working before the end of 2013, your employer could have given you your Form W-2 at any time after you stopped working. Previous year tax return However, your employer must provide or send it to you by January 31, 2014. Previous year tax return If you ask for the form, your employer must send it to you within 30 days after receiving your written request or within 30 days after your final wage payment, whichever is later. Previous year tax return If you have not received your Form W-2 by January 31, you should ask your employer for it. Previous year tax return If you do not receive it by February 15, call the IRS. Previous year tax return Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. Previous year tax return Include the federal income tax withheld (as shown in box 2 of Form W-2) on: Line 62 if you file Form 1040, Line 36 if you file Form 1040A, or Line 7 if you file Form 1040EZ. Previous year tax return In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. Previous year tax return Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. Previous year tax return If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. Previous year tax return Report the amounts you won on line 21 of Form 1040. Previous year tax return Take credit for the tax withheld on line 62 of Form 1040. Previous year tax return If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. Previous year tax return The 1099 Series Most forms in the 1099 series are not filed with your return. Previous year tax return These forms should be furnished to you by January 31, 2014 (or, for Forms 1099-B, 1099-S, and certain Forms 1099-MISC, by February 15, 2014). Previous year tax return Unless instructed to file any of these forms with your return, keep them for your records. Previous year tax return There are several different forms in this series, including: Form 1099-B, Proceeds From Broker and Barter Exchange Transactions; Form 1099-DIV, Dividends and Distributions; Form 1099-G, Certain Government Payments; Form 1099-INT, Interest Income; Form 1099-K, Payment Card and Third Party Network Transactions; Form 1099-MISC, Miscellaneous Income; Form 1099-OID, Original Issue Discount; Form 1099-PATR, Taxable Distributions Received from Cooperatives; Form 1099-Q, Payments From Qualified Education Programs; Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Previous year tax return ; Form 1099-S, Proceeds From Real Estate Transactions; Form RRB-1099, Payments by the Railroad Retirement Board. Previous year tax return If you received the types of income reported on some forms in the 1099 series, you may not be able to use Form 1040A or Form 1040EZ. Previous year tax return See the instructions to these forms for details. Previous year tax return Form 1099-R. Previous year tax return   Attach Form 1099-R to your paper return if box 4 shows federal income tax withheld. Previous year tax return Include the amount withheld in the total on line 62 of Form 1040 or line 36 of Form 1040A. Previous year tax return You cannot use Form 1040EZ if you received payments reported on Form 1099-R. Previous year tax return Backup withholding. Previous year tax return   If you were subject to backup withholding on income you received during 2013, include the amount withheld, as shown on your Form 1099, in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. Previous year tax return Form Not Correct If you receive a form with incorrect information on it, you should ask the payer for a corrected form. Previous year tax return Call the telephone number or write to the address given for the payer on the form. Previous year tax return The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. Previous year tax return A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. Previous year tax return In certain situations, you will receive two forms in place of the original incorrect form. Previous year tax return This will happen when your taxpayer identification number is wrong or missing, your name and address are wrong, or you received the wrong type of form (for example, a Form 1099-DIV instead of a Form 1099-INT). Previous year tax return One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. Previous year tax return This form will have an “X” in the “CORRECTED” box at the top of the form. Previous year tax return The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). Previous year tax return Form Received After Filing If you file your return and you later receive a form for income that you did not include on your return, you should report the income and take credit for any income tax withheld by filing Form 1040X, Amended U. Previous year tax return S. Previous year tax return Individual Income Tax Return. Previous year tax return Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. Previous year tax return Do not include any amount withheld from your spouse's income. Previous year tax return However, different rules may apply if you live in a community property state. Previous year tax return Community property states are listed in chapter 2. Previous year tax return For more information on these rules, and some exceptions, see Publication 555, Community Property. Previous year tax return Fiscal Years If you file your tax return on the basis of a fiscal year (a 12-month period ending on the last day of any month except December), you must follow special rules to determine your credit for federal income tax withholding. Previous year tax return For a discussion of how to take credit for withholding on a fiscal year return, see Fiscal Years (FY) in chapter 3 of Publication 505. Previous year tax return Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. Previous year tax return Include any overpayment from 2012 that you had credited to your 2013 estimated tax. Previous year tax return You must use Form 1040 or Form 1040A if you paid estimated tax. Previous year tax return You cannot use Form 1040EZ. Previous year tax return Name changed. Previous year tax return   If you changed your name, and you made estimated tax payments using your old name, attach a brief statement to the front of your paper tax return indicating: When you made the payments, The amount of each payment, Your name when you made the payments, and Your social security number. Previous year tax return The statement should cover payments you made jointly with your spouse as well as any you made separately. Previous year tax return   Be sure to report the change to the Social Security Administration. Previous year tax return This prevents delays in processing your return and issuing any refunds. Previous year tax return Separate Returns If you and your spouse made separate estimated tax payments for 2013 and you file separate returns, you can take credit only for your own payments. Previous year tax return If you made joint estimated tax payments, you must decide how to divide the payments between your returns. Previous year tax return One of you can claim all of the estimated tax paid and the other none, or you can divide it in any other way you agree on. Previous year tax return If you cannot agree, you must divide the payments in proportion to each spouse's individual tax as shown on your separate returns for 2013. Previous year tax return Divorced Taxpayers If you made joint estimated tax payments for 2013, and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. Previous year tax return If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse's individual tax as shown on your separate returns for 2013. Previous year tax return If you claim any of the joint payments on your tax return, enter your former spouse's social security number (SSN) in the space provided on the front of Form 1040 or Form 1040A. Previous year tax return If you divorced and remarried in 2013, enter your present spouse's SSN in that space and write your former spouse's SSN, followed by “DIV,” to the left of Form 1040, line 63, or Form 1040A, line 37. Previous year tax return Underpayment Penalty for 2013 If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have an underpayment of estimated tax and you may have to pay a penalty. Previous year tax return Generally, you will not have to pay a penalty for 2013 if any of the following apply. Previous year tax return The total of your withholding and estimated tax payments was at least as much as your 2012 tax (or 110% of your 2012 tax if your AGI was more than $150,000, $75,000 if your 2013 filing status is married filing separately) and you paid all required estimated tax payments on time. Previous year tax return The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. Previous year tax return Your total 2013 tax minus your withholding and refundable credits is less than $1,000. Previous year tax return You did not have a tax liability for 2012 and your 2012 tax year was 12 months, or You did not have any withholding taxes and your current year tax less any household employment taxes is less than $1,000. Previous year tax return See Publication 505, chapter 4, for a definition of “total tax” for 2012 and 2013. Previous year tax return Farmers and fishermen. Previous year tax return   Special rules apply if you are a farmer or fisherman. Previous year tax return See Farmers and Fishermen in chapter 4 of Publication 505 for more information. Previous year tax return IRS can figure the penalty for you. Previous year tax return   If you think you owe the penalty but you do not want to figure it yourself when you file your tax return, you may not have to. Previous year tax return Generally, the IRS will figure the penalty for you and send you a bill. Previous year tax return However, if you think you are able to lower or eliminate your penalty, you must complete Form 2210 or Form 2210-F and attach it to your paper return. Previous year tax return See chapter 4 of Publication 505. Previous year tax return Prev  Up  Next   Home   More Online Publications
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The Previous Year Tax Return

Previous year tax return Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Previous year tax return Cost Basis The basis of property you buy is usually its cost. Previous year tax return The cost is the amount you pay in cash, debt obligations, other property, or services. Previous year tax return Your cost also includes amounts you pay for the following items. Previous year tax return Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). Previous year tax return  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. Previous year tax return Loans with low or no interest. Previous year tax return   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Previous year tax return You generally have unstated interest if your interest rate is less than the applicable federal rate. Previous year tax return For more information, see Unstated Interest and Original Issue Discount in Publication 537. Previous year tax return Purchase of a business. Previous year tax return   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. Previous year tax return Allocate the price among the various assets, including any section 197 intangibles. Previous year tax return See Allocating the Basis, later. Previous year tax return Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Previous year tax return If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. Previous year tax return You must adjust the basis of stocks for certain events that occur after purchase. Previous year tax return See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. Previous year tax return Identifying stock or bonds sold. Previous year tax return   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Previous year tax return If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Previous year tax return For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Previous year tax return Mutual fund shares. Previous year tax return   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. Previous year tax return For more information, see Publication 550. Previous year tax return Real Property Real property, also called real estate, is land and generally anything built on or attached to it. Previous year tax return If you buy real property, certain fees and other expenses become part of your cost basis in the property. Previous year tax return Real estate taxes. Previous year tax return   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Previous year tax return You cannot deduct them as taxes. Previous year tax return   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Previous year tax return Do not include that amount in the basis of the property. Previous year tax return If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Previous year tax return Settlement costs. Previous year tax return   Your basis includes the settlement fees and closing costs for buying property. Previous year tax return You cannot include in your basis the fees and costs for getting a loan on property. Previous year tax return A fee for buying property is a cost that must be paid even if you bought the property for cash. Previous year tax return   The following items are some of the settlement fees or closing costs you can include in the basis of your property. Previous year tax return Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Previous year tax return   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Previous year tax return   The following items are some settlement fees and closing costs you cannot include in the basis of the property. Previous year tax return Casualty insurance premiums. Previous year tax return Rent for occupancy of the property before closing. Previous year tax return Charges for utilities or other services related to occupancy of the property before closing. Previous year tax return Charges connected with getting a loan. Previous year tax return The following are examples of these charges. Previous year tax return Points (discount points, loan origination fees). Previous year tax return Mortgage insurance premiums. Previous year tax return Loan assumption fees. Previous year tax return Cost of a credit report. Previous year tax return Fees for an appraisal required by a lender. Previous year tax return Fees for refinancing a mortgage. Previous year tax return If these costs relate to business property, items (1) through (3) are deductible as business expenses. Previous year tax return Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. Previous year tax return Points. Previous year tax return   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Previous year tax return Generally, you deduct the points over the term of the loan. Previous year tax return For more information on how to deduct points, see Points in chapter 4 of Publication 535. Previous year tax return Points on home mortgage. Previous year tax return   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. Previous year tax return If certain requirements are met, you can deduct the points in full for the year in which they are paid. Previous year tax return Reduce the basis of your home by any seller-paid points. Previous year tax return For more information, see Points in Publication 936, Home Mortgage Interest Deduction. Previous year tax return Assumption of mortgage. Previous year tax return   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Previous year tax return Example. Previous year tax return If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. Previous year tax return Constructing assets. Previous year tax return   If you build property or have assets built for you, your expenses for this construction are part of your basis. Previous year tax return Some of these expenses include the following costs. Previous year tax return Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Previous year tax return In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. Previous year tax return You must include them in the asset's basis. Previous year tax return Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. Previous year tax return    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Previous year tax return Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. Previous year tax return If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. Previous year tax return In certain circumstances, you may be subject to the uniform capitalization rules, next. Previous year tax return Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. Previous year tax return Activities subject to the rules. Previous year tax return   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. Previous year tax return Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. Previous year tax return However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. Previous year tax return   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Previous year tax return Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. Previous year tax return Tangible personal property includes films, sound recordings, video tapes, books, or similar property. Previous year tax return    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. Previous year tax return To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. Previous year tax return You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Previous year tax return   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. Previous year tax return Example. Previous year tax return If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. Previous year tax return The nondeductible part of the cost is not subject to the uniform capitalization rules. Previous year tax return More information. Previous year tax return   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. Previous year tax return Exceptions. Previous year tax return   The following are not subject to the uniform capitalization rules. Previous year tax return Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. Previous year tax return For other exceptions to the uniform capitalization rules, see section 1. Previous year tax return 263A-1(b) of the regulations. Previous year tax return   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. Previous year tax return Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. Previous year tax return The basis of an intangible asset is usually the cost to buy or create it. Previous year tax return If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. Previous year tax return The basis of certain intangibles can be amortized. Previous year tax return See chapter 8 of Publication 535 for information on the amortization of these costs. Previous year tax return Patents. Previous year tax return   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. Previous year tax return If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. Previous year tax return The value of the inventor's time spent on an invention is not part of the basis. Previous year tax return Copyrights. Previous year tax return   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. Previous year tax return Do not include the value of your time as the author, or any other person's time you did not pay for. Previous year tax return Franchises, trademarks, and trade names. Previous year tax return   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. Previous year tax return Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. Previous year tax return You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Previous year tax return See Trade or Business Acquired below. Previous year tax return Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. Previous year tax return If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Previous year tax return However, see Trade or Business Acquired, next. Previous year tax return Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. Previous year tax return Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. Previous year tax return Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. Previous year tax return Certificates of deposit, U. Previous year tax return S. Previous year tax return Government securities, foreign currency, and actively traded personal property, including stock and securities. Previous year tax return Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. Previous year tax return Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. Previous year tax return All other assets except section 197 intangibles, goodwill, and going concern value. Previous year tax return Section 197 intangibles except goodwill and going concern value. Previous year tax return Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Previous year tax return Agreement. Previous year tax return   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. Previous year tax return This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Previous year tax return Reporting requirement. Previous year tax return   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Previous year tax return Use Form 8594 to provide this information. Previous year tax return The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Previous year tax return More information. Previous year tax return   See Sale of a Business in chapter 2 of Publication 544 for more information. Previous year tax return Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. Previous year tax return Figure the basis of each asset by multiplying the lump sum by a fraction. Previous year tax return The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Previous year tax return If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. Previous year tax return Demolition of building. Previous year tax return   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. Previous year tax return Do not claim the costs as a current deduction. Previous year tax return Modification of building. Previous year tax return   A modification of a building will not be treated as a demolition if the following conditions are satisfied. Previous year tax return 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. Previous year tax return   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. Previous year tax return   If these conditions are met, add the costs of the modifications to the basis of the building. Previous year tax return Subdivided lots. Previous year tax return   If you buy a tract of land and subdivide it, you must determine the basis of each lot. Previous year tax return This is necessary because you must figure the gain or loss on the sale of each individual lot. Previous year tax return As a result, you do not recover your entire cost in the tract until you have sold all of the lots. Previous year tax return   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. Previous year tax return The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. Previous year tax return Future improvement costs. Previous year tax return   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. Previous year tax return See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. Previous year tax return Use of erroneous cost basis. Previous year tax return   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. Previous year tax return Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. Previous year tax return Example. Previous year tax return You bought a tract of land to which you assigned a cost of $15,000. Previous year tax return You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. Previous year tax return You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. Previous year tax return Several years later you determine that your original basis in the tract was $22,500 and not $15,000. Previous year tax return You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. Previous year tax return You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). Previous year tax return You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. Previous year tax return Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. Previous year tax return The result of these adjustments to the basis is the adjusted basis. Previous year tax return Increases to Basis Increase the basis of any property by all items properly added to a capital account. Previous year tax return These include the cost of any improvements having a useful life of more than 1 year. Previous year tax return Rehabilitation expenses also increase basis. Previous year tax return However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. Previous year tax return If you have to recapture any of the credit, increase your basis by the recaptured amount. Previous year tax return If you make additions or improvements to business property, keep separate accounts for them. Previous year tax return Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. Previous year tax return For more information, see Publication 946. Previous year tax return The following items increase the basis of property. Previous year tax return The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. Previous year tax return Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. Previous year tax return Do not deduct them as taxes. Previous year tax return However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. Previous year tax return Example. Previous year tax return Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. Previous year tax return Add the assessment to your property's basis. Previous year tax return In this example, the assessment is a depreciable asset. Previous year tax return Deducting vs. Previous year tax return Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. Previous year tax return For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. Previous year tax return However, you can choose either to deduct or to capitalize certain other costs. Previous year tax return If you capitalize these costs, include them in your basis. Previous year tax return If you deduct them, do not include them in your basis. Previous year tax return See Uniform Capitalization Rules earlier. Previous year tax return The costs you can choose to deduct or to capitalize include the following. Previous year tax return Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. Previous year tax return If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Previous year tax return For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. Previous year tax return Table 1. Previous year tax return Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. Previous year tax return Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. Previous year tax return Some of these items are discussed next. Previous year tax return Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. Previous year tax return You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. Previous year tax return To make this determination, compare the repaired property to the property before the casualty. Previous year tax return For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. Previous year tax return Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. Previous year tax return It reduces the basis of the affected part of the property. Previous year tax return If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Previous year tax return Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. Previous year tax return For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. Previous year tax return Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. Previous year tax return This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. Previous year tax return If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. Previous year tax return Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Previous year tax return For more information about the section 179 deduction, see Publication 946. Previous year tax return Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. Previous year tax return Reduce the basis of the property for which you received the subsidy by the excluded amount. Previous year tax return For more information on this subsidy, see Publication 525. Previous year tax return Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Previous year tax return If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Previous year tax return If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Previous year tax return Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. Previous year tax return If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. Previous year tax return In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. Previous year tax return For information on figuring depreciation, see Publication 946. Previous year tax return If you are claiming depreciation on a business vehicle, see Publication 463. Previous year tax return If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. Previous year tax return Include the excess depreciation in your gross income and add it to your basis in the property. Previous year tax return For information on the computation of excess depreciation, see chapter 4 in Publication 463. Previous year tax return Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Previous year tax return A debt includes any indebtedness for which you are liable or which attaches to property you hold. Previous year tax return You can exclude canceled debt from income in the following situations. Previous year tax return Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). Previous year tax return If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Previous year tax return However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. Previous year tax return For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. Previous year tax return For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. Previous year tax return For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. Previous year tax return Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. Previous year tax return For more information on the rules for the sale of a home, see Publication 523. Previous year tax return Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. Previous year tax return This also applies to amounts you received under an employer's adoption assistance program and excluded from income. Previous year tax return For more information Form 8839, Qualified Adoption Expenses. Previous year tax return Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. Previous year tax return You must reduce your basis in that property by the credit claimed. Previous year tax return For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. Previous year tax return Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. Previous year tax return You also paid commissions of $2,000 and title search and legal fees of $600. Previous year tax return You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. Previous year tax return Immediately you spent $20,000 in remodeling the building before you placed it in service. Previous year tax return You were allowed depreciation of $14,526 for the years 2005 through 2009. Previous year tax return In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. Previous year tax return You claimed a deduction for this loss. Previous year tax return You spent $5,500 to repair the damages and extend the useful life of the building. Previous year tax return The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. Previous year tax return It is not affected by any of the above adjustments. Previous year tax return Basis Other Than Cost There are many times when you cannot use cost as basis. Previous year tax return In these cases, the fair market value or the adjusted basis of property may be used. Previous year tax return Adjusted basis is discussed earlier. Previous year tax return Fair market value (FMV). Previous year tax return   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Previous year tax return Sales of similar property on or about the same date may be helpful in figuring the property's FMV. Previous year tax return Property Received for Services If you receive property for services, include the property's FMV in income. Previous year tax return The amount you include in income becomes your basis. Previous year tax return If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Previous year tax return Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. Previous year tax return If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Previous year tax return Your basis in the property is its FMV (your purchase price plus the amount you include in income). Previous year tax return If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. Previous year tax return However, your basis in the property is still its FMV. Previous year tax return See Employee Discounts in Publication 15-B. Previous year tax return Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. Previous year tax return Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. Previous year tax return There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. Previous year tax return When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. Previous year tax return Example. Previous year tax return Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. Previous year tax return The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. Previous year tax return You do not report any income until you have completed the 5 years of service that satisfy the condition. Previous year tax return Fair market value. Previous year tax return   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. Previous year tax return Example. Previous year tax return You received stock from your employer for services you performed. Previous year tax return If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. Previous year tax return At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. Previous year tax return This is a restriction that by its terms will never end and you must consider it when you figure the FMV. Previous year tax return Election. Previous year tax return   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. Previous year tax return If you make this choice, the substantially vested rules do not apply. Previous year tax return Your basis is the amount you paid plus the amount you included in income. Previous year tax return   See the discussion of Restricted Property in Publication 525 for more information. Previous year tax return Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Previous year tax return A taxable gain or deductible loss is also known as a recognized gain or loss. Previous year tax return If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. Previous year tax return A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. Previous year tax return Example. Previous year tax return You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. Previous year tax return You must report a taxable gain of $3,000 for the land. Previous year tax return The tractor has a basis of $6,000. Previous year tax return Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. Previous year tax return Similar or related property. Previous year tax return   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. Previous year tax return However, make the following adjustments. Previous year tax return Decrease the basis by the following. Previous year tax return Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. Previous year tax return Increase the basis by the following. Previous year tax return Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. Previous year tax return Money or property not similar or related. Previous year tax return   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. Previous year tax return Example. Previous year tax return The state condemned your property. Previous year tax return The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. Previous year tax return You realized a gain of $5,000 ($31,000 − $26,000). Previous year tax return You bought replacement property similar in use to the converted property for $29,000. Previous year tax return You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Previous year tax return Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Previous year tax return The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. Previous year tax return   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Previous year tax return Example. Previous year tax return The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. Previous year tax return Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. Previous year tax return More information. Previous year tax return   For more information about condemnations, see Involuntary Conversions in Publication 544. Previous year tax return For more information about casualty and theft losses, see Publication 547. Previous year tax return Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Previous year tax return If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Previous year tax return A nontaxable gain or loss is also known as an unrecognized gain or loss. Previous year tax return Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Previous year tax return To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Previous year tax return There must also be an exchange of like-kind property. Previous year tax return For more information, see Like-Kind Exchanges in Publication 544. Previous year tax return The basis of the property you receive is the same as the basis of the property you gave up. Previous year tax return Example. Previous year tax return You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. Previous year tax return Your basis in the new property is the same as the basis of the old ($50,000). Previous year tax return Exchange expenses. Previous year tax return   Exchange expenses are generally the closing costs you pay. Previous year tax return They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. Previous year tax return Add them to the basis of the like-kind property received. Previous year tax return Property plus cash. Previous year tax return   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. Previous year tax return Example. Previous year tax return You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. Previous year tax return Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). Previous year tax return Special rules for related persons. Previous year tax return   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Previous year tax return Each person must report any gain or loss not recognized on the original exchange. Previous year tax return Each person reports it on the tax return filed for the year in which the later disposition occurs. Previous year tax return If this rule applies, the basis of the property received in the original exchange will be its fair market value. Previous year tax return   These rules generally do not apply to the following kinds of property dispositions. Previous year tax return Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. Previous year tax return Related persons. Previous year tax return   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. Previous year tax return   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. Previous year tax return ), see Nondeductible Loss in chapter 2 of Publication 544. Previous year tax return Exchange of business property. Previous year tax return   Exchanging the assets of one business for the assets of another business is a multiple property exchange. Previous year tax return For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Previous year tax return Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. Previous year tax return The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. Previous year tax return Decrease the basis by the following amounts. Previous year tax return Any money you receive, and Any loss you recognize on the exchange. Previous year tax return Increase the basis by the following amounts. Previous year tax return Any additional costs you incur, and Any gain you recognize on the exchange. Previous year tax return If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Previous year tax return Example. Previous year tax return You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. Previous year tax return You realized a gain of $200 ($6,200 − $6,000). Previous year tax return This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). Previous year tax return You include all the gain in income (recognized gain) because the gain is less than the cash received. Previous year tax return Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. Previous year tax return   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Previous year tax return The rest is the basis of the like property. Previous year tax return Example. Previous year tax return You had an adjusted basis of $15,000 in real estate you held for investment. Previous year tax return You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. Previous year tax return The truck is unlike property. Previous year tax return You realized a gain of $1,500 ($16,500 − $15,000). Previous year tax return This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). Previous year tax return You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Previous year tax return Your basis in the properties you received is figured as follows. Previous year tax return Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). Previous year tax return This is the truck's FMV. Previous year tax return The rest ($12,500) is the basis of the real estate. Previous year tax return Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Previous year tax return Example. Previous year tax return You are a salesperson and you use one of your cars 100% for business. Previous year tax return You have used this car in your sales activities for 2 years and have depreciated it. Previous year tax return Your adjusted basis in the car is $22,600 and its FMV is $23,100. Previous year tax return You are interested in a new car, which sells for $28,000. Previous year tax return If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). Previous year tax return However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. Previous year tax return Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). Previous year tax return Your basis for depreciating the new car is $27,500, the same as if you traded the old car. Previous year tax return Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. Previous year tax return The first is an exchange of like-kind property. Previous year tax return The second is personal-use property on which gain is recognized and loss is not recognized. Previous year tax return First, figure your adjusted basis in the property as if you transferred two separate properties. Previous year tax return Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. Previous year tax return Deduct the depreciation you took or could have taken from the adjusted basis of the business part. Previous year tax return Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. Previous year tax return The business part of the property is permitted to be exchanged tax free. Previous year tax return However, you must recognize any gain from the exchange of the nonbusiness part. Previous year tax return You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. Previous year tax return The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. Previous year tax return If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. Previous year tax return For more information, see Publication 523. Previous year tax return Trade of car used partly in business. Previous year tax return   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. Previous year tax return   For information on figuring your basis for depreciation, see Publication 463. Previous year tax return Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. Previous year tax return However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. Previous year tax return This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Previous year tax return If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. Previous year tax return Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Previous year tax return For more information on these bonds, see Publication 550. Previous year tax return At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. Previous year tax return For more information, see Publication 504, Divorced or Separated Individuals. Previous year tax return Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Previous year tax return FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Previous year tax return Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. Previous year tax return Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). Previous year tax return If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. Previous year tax return Example. Previous year tax return You received an acre of land as a gift. Previous year tax return At the time of the gift, the land had an FMV of $8,000. Previous year tax return The donor's adjusted basis was $10,000. Previous year tax return After you received the land, no events occurred to increase or decrease your basis. Previous year tax return If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. Previous year tax return If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. Previous year tax return If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Previous year tax return For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. Previous year tax return If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. Previous year tax return Business property. Previous year tax return   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Previous year tax return FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Previous year tax return Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Previous year tax return Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. Previous year tax return See Adjusted Basis earlier. Previous year tax return Gift received before 1977. Previous year tax return   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. Previous year tax return However, do not increase your basis above the FMV of the gift at the time it was given to you. Previous year tax return Example 1. Previous year tax return You were given a house in 1976 with an FMV of $21,000. Previous year tax return The donor's adjusted basis was $20,000. Previous year tax return The donor paid a gift tax of $500. Previous year tax return Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. Previous year tax return Example 2. Previous year tax return If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. Previous year tax return This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. Previous year tax return Gift received after 1976. Previous year tax return   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. Previous year tax return Figure the increase by multiplying the gift tax paid by a fraction. Previous year tax return The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Previous year tax return   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. Previous year tax return The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Previous year tax return For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Previous year tax return Example. Previous year tax return In 2010, you received a gift of property from your mother that had an FMV of $50,000. Previous year tax return Her adjusted basis was $20,000. Previous year tax return The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). Previous year tax return She paid a gift tax of $9,000. Previous year tax return Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . Previous year tax return 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. Previous year tax return See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Previous year tax return If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. Previous year tax return The FMV of the property at the date of the individual's death. Previous year tax return The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. Previous year tax return For information on the alternate valuation date, see the Instructions for Form 706. Previous year tax return The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. Previous year tax return This method is discussed later. Previous year tax return The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Previous year tax return For information on a qualified conservation easement, see the Instructions for Form 706. Previous year tax return If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Previous year tax return For more information, see the Instructions for Form 706. Previous year tax return Appreciated property. Previous year tax return   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Previous year tax return Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. Previous year tax return Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. Previous year tax return Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Previous year tax return When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Previous year tax return For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. Previous year tax return For example, you and your spouse owned community property that had a basis of $80,000. Previous year tax return When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Previous year tax return The FMV of the community interest was $100,000. Previous year tax return The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Previous year tax return The basis of the other half to your spouse's heirs is also $50,000. Previous year tax return For more information on community property, see Publication 555, Community Property. Previous year tax return Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. Previous year tax return Example. Previous year tax return John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. Previous year tax return John furnished two-thirds of the purchase price and Jim furnished one-third. Previous year tax return Depreciation deductions allowed before John's death were $12,000. Previous year tax return Under local law, each had a half interest in the income from the property. Previous year tax return At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. Previous year tax return Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. Previous year tax return This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. Previous year tax return If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. Previous year tax return Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. Previous year tax return It does not matter how much each spouse contributed to the purchase price. Previous year tax return Also, it does not matter which spouse dies first. Previous year tax return A qualified joint interest is any interest in property held by husband and wife as either of the following. Previous year tax return Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. Previous year tax return Basis. Previous year tax return   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. Previous year tax return Decrease the cost by any deductions allowed to you for depreciation and depletion. Previous year tax return Increase the reduced cost by your basis in the half you inherited. Previous year tax return Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. Previous year tax return If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. Previous year tax return If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. Previous year tax return Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Previous year tax return Special-use valuation. Previous year tax return   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. Previous year tax return Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Previous year tax return Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. Previous year tax return Figure all FMVs without regard to the special-use valuation. Previous year tax return   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Previous year tax return This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. Previous year tax return   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. Previous year tax return If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Previous year tax return The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. Previous year tax return   You make the election by filing with Form 706-A a statement that does all of the following. Previous year tax return Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. Previous year tax return   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. Previous year tax return Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Previous year tax return An example of changing property held for personal use to business use would be renting out your former main home. Previous year tax return Basis for depreciation. Previous year tax return   The basis for depreciation is the lesser of the following amounts. Previous year tax return The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Previous year tax return Example. Previous year tax return Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. Previous year tax return You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Previous year tax return Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Previous year tax return Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Previous year tax return On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Previous year tax return The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). Previous year tax return Sale of property. Previous year tax return   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. Previous year tax return Gain. Previous year tax return   The basis for figuring a gain is your adjusted basis when you sell the property. Previous year tax return Example. Previous year tax return Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Previous year tax return Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Previous year tax return Loss. Previous year tax return   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Previous year tax return Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. Previous year tax return Example. Previous year tax return Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Previous year tax return In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. Previous year tax return Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). Previous year tax return How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Previous year tax return By selecting the method that is best for you, you will have quick and easy access to tax help. Previous year tax return Contacting your Taxpayer Advocate. Previous year tax return   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Previous year tax return We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. Previous year tax return Here are seven things every taxpayer should know about TAS. Previous year tax return TAS is your voice at the IRS. Previous year tax return Our service is free, confidential, and tailored to meet your needs. Previous year tax return You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. Previous year tax return We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. Previous year tax return This includes businesses as well as individuals. Previous year tax return Our employees know the IRS and how to navigate it. Previous year tax return If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. Previous year tax return We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. Previous year tax return You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. Previous year tax return irs. Previous year tax return gov/advocate. Previous year tax return You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Previous year tax return You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. Previous year tax return taxtoolkit. Previous year tax return irs. Previous year tax return gov. Previous year tax return You can get updates on hot tax topics by visiting our YouTube channel at www. Previous year tax return youtube. Previous year tax return com/tasnta and our Facebook page at www. Previous year tax return facebook. Previous year tax return com/YourVoiceAtIRS, or by following our tweets at www. Previous year tax return twitter. Previous year tax return com/YourVoiceAtIRS. Previous year tax return Low Income Taxpayer Clinics (LITCs). Previous year tax return   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. Previous year tax return LITCs are independent from the IRS. Previous year tax return Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. Previous year tax return If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. Previous year tax return For more information, see Publication 4134, Low Income Taxpayer Clinic List. Previous year tax return This publication is available at IRS. Previous year tax return gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. Previous year tax return Free tax services. Previous year tax return   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Previous year tax return Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Previous year tax return The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Previous year tax return The majority of the information and services listed in this publication are available to you free of charge. Previous year tax return If there is a fee associated with a resource or service, it is listed in the publication. Previous year tax return   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d