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Taxslayer Military

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Taxslayer Military

Taxslayer military 3. Taxslayer military   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. Taxslayer military Form 4797. Taxslayer military Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. Taxslayer military Granting the right to remove deposits. Taxslayer military Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. Taxslayer military You must report the income from all the different sources on your tax return, unless it is excluded by law. Taxslayer military Where you report the income on your tax return depends on its source. Taxslayer military This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. Taxslayer military For information on where to report other income, see the Instructions for Form 1040, U. Taxslayer military S. Taxslayer military Individual Income Tax Return. Taxslayer military Accounting method. Taxslayer military   The rules discussed in this chapter assume you use the cash method of accounting. Taxslayer military Under the cash method, you generally include an item of income in gross income in the year you receive it. Taxslayer military See Cash Method in chapter 2. Taxslayer military   If you use an accrual method of accounting, different rules may apply to your situation. Taxslayer military See Accrual Method in chapter 2. Taxslayer military Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. Taxslayer military Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. Taxslayer military Use this schedule to figure the net profit or loss from regular farming operations. Taxslayer military Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. Taxslayer military This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. Taxslayer military It also includes income from the sale of crop shares if you materially participate in producing the crop. Taxslayer military See Rents (Including Crop Shares) , later. Taxslayer military Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. Taxslayer military Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. Taxslayer military Land. Taxslayer military Depreciable farm equipment. Taxslayer military Buildings and structures. Taxslayer military Livestock held for draft, breeding, sport, or dairy purposes. Taxslayer military Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Taxslayer military Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. Taxslayer military Sales of Farm Products Where to report. Taxslayer military    Table 3-1 shows where to report the sale of farm products on your tax return. Taxslayer military Schedule F. Taxslayer military   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. Taxslayer military This includes money and the fair market value of any property or services you receive. Taxslayer military When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). Taxslayer military See chapter 6 for information on the basis of assets. Taxslayer military You generally report these amounts on Schedule F for the year you receive payment. Taxslayer military Example. Taxslayer military In 2012, you bought 20 feeder calves for $11,000 for resale. Taxslayer military You sold them in 2013 for $21,000. Taxslayer military You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. Taxslayer military Form 4797. Taxslayer military   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. Taxslayer military In either case, you should always report these sales on Form 4797 instead of Schedule F. Taxslayer military See Livestock under Ordinary or Capital Gain or Loss in chapter 8. Taxslayer military Animals you do not hold primarily for sale are considered business assets of your farm. Taxslayer military Table 3-1. Taxslayer military Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. Taxslayer military   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. Taxslayer military This applies even if your agent pays you in a later year. Taxslayer military For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. Taxslayer military Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. Taxslayer military You must meet all the following conditions to qualify. Taxslayer military Your principal trade or business is farming. Taxslayer military You use the cash method of accounting. Taxslayer military You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. Taxslayer military The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Taxslayer military Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. Taxslayer military The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. Taxslayer military A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. Taxslayer military See Other Involuntary Conversions in chapter 11. Taxslayer military Usual business practice. Taxslayer military   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. Taxslayer military Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. Taxslayer military If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. Taxslayer military Connection with affected area. Taxslayer military   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. Taxslayer military However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. Taxslayer military This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. Taxslayer military Classes of livestock. Taxslayer military   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Taxslayer military Do not separate animals into classes based on age, sex, or breed. Taxslayer military Amount to be postponed. Taxslayer military   Follow these steps to figure the amount of gain to be postponed for each class of animals. Taxslayer military Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. Taxslayer military For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. Taxslayer military Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. Taxslayer military Example. Taxslayer military You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. Taxslayer military As a result of drought, you sold 135 head during 2012. Taxslayer military You realized $70,200 from the sale. Taxslayer military On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. Taxslayer military The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. Taxslayer military How to postpone gain. Taxslayer military   To postpone gain, attach a statement to your tax return for the year of the sale. Taxslayer military The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. Taxslayer military A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). Taxslayer military Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. Taxslayer military A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. Taxslayer military The number of animals sold in each of the 3 preceding years. Taxslayer military The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. Taxslayer military The total number of animals sold and the number sold because of weather-related conditions during the tax year. Taxslayer military A computation, as described above, of the income to be postponed for each class of livestock. Taxslayer military   Generally, you must file the statement and the return by the due date of the return, including extensions. Taxslayer military However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. Taxslayer military For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxslayer military Attach the statement to the amended return and write “Filed pursuant to section 301. Taxslayer military 9100-2” at the top of the amended return. Taxslayer military File the amended return at the same address you filed the original return. Taxslayer military Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. Taxslayer military Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. Taxslayer military However, if you materially participate in farming operations on the land, the rent is farm income. Taxslayer military See Landlord Participation in Farming in chapter 12. Taxslayer military Pasture income and rental. Taxslayer military   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. Taxslayer military You must enter it as Other income on Schedule F. Taxslayer military If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. Taxslayer military Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. Taxslayer military It does not matter whether you use the cash method of accounting or an accrual method of accounting. Taxslayer military If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. Taxslayer military See Landlord Participation in Farming in chapter 12. Taxslayer military Report the rental income on Schedule F. Taxslayer military If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). Taxslayer military The income is not included in self-employment income. Taxslayer military Crop shares you use to feed livestock. Taxslayer military   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. Taxslayer military You must include the fair market value of the crop shares in income at that time. Taxslayer military You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. Taxslayer military Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. Taxslayer military See  chapter 12. Taxslayer military Crop shares you give to others (gift). Taxslayer military   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. Taxslayer military You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. Taxslayer military Example. Taxslayer military A tenant farmed part of your land under a crop-share arrangement. Taxslayer military The tenant harvested and delivered the crop in your name to an elevator company. Taxslayer military Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. Taxslayer military They sell their crop shares in the following year and the elevator company makes payments directly to your children. Taxslayer military In this situation, you are considered to have received rental income and then made a gift of that income. Taxslayer military You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. Taxslayer military Crop share loss. Taxslayer military   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. Taxslayer military See Publication 925 for information on these rules. Taxslayer military Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. Taxslayer military However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. Taxslayer military See Cost-Sharing Exclusion (Improvements) , later. Taxslayer military Report the agricultural program payment on the appropriate line of Schedule F, Part I. Taxslayer military Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. Taxslayer military However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Taxslayer military Claim the deduction on Schedule F for the year of repayment or reduction. Taxslayer military Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. Taxslayer military However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. Taxslayer military You do not need approval from the IRS to adopt this method of reporting CCC loans. Taxslayer military Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. Taxslayer military However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. Taxslayer military For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. Taxslayer military Revenue Procedure 2008-52, 2008-36 I. Taxslayer military R. Taxslayer military B. Taxslayer military 587, is available at  www. Taxslayer military irs. Taxslayer military gov/irb/2008-36_IRB/ar09. Taxslayer military html. Taxslayer military You can request income tax withholding from CCC loan payments you receive. Taxslayer military Use Form W-4V, Voluntary Withholding Request. Taxslayer military See chapter 16 for information about ordering the form. Taxslayer military To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. Taxslayer military Attach a statement to your return showing the details of the loan. Taxslayer military You must file the statement and the return by the due date of the return, including extensions. Taxslayer military If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxslayer military Attach the statement to the amended return and write “Filed pursuant to section 301. Taxslayer military 9100-2” at the top of the return. Taxslayer military File the amended return at the same address you filed the original return. Taxslayer military When you make this election, the amount you report as income becomes your basis in the commodity. Taxslayer military See chapter 6 for information on the basis of assets. Taxslayer military If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. Taxslayer military If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. Taxslayer military If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. Taxslayer military If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. Taxslayer military Form 1099-A. Taxslayer military   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. Taxslayer military “CCC” should be shown in box 6. Taxslayer military The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. Taxslayer military Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. Taxslayer military If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. Taxslayer military Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. Taxslayer military Market gain should be reported as follows. Taxslayer military If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. Taxslayer military However, adjust the basis of the commodity for the amount of the market gain. Taxslayer military If you did not include the CCC loan in income in the year received, include the market gain in your income. Taxslayer military The following examples show how to report market gain. Taxslayer military Example 1. Taxslayer military Mike Green is a cotton farmer. Taxslayer military He uses the cash method of accounting and files his tax return on a calendar year basis. Taxslayer military He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. Taxslayer military In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. Taxslayer military 00 per pound). Taxslayer military In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. Taxslayer military 50 per pound (lower than the loan amount). Taxslayer military Later in 2013, he sold the cotton for $2,500. Taxslayer military The market gain on the redemption was $. Taxslayer military 50 ($2. Taxslayer military 00 – $1. Taxslayer military 50) per pound. Taxslayer military Mike realized total market gain of $500 ($. Taxslayer military 50 x 1,000 pounds). Taxslayer military How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. Taxslayer military Included CCC loan. Taxslayer military   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. Taxslayer military The $500 market gain is not recognized on the redemption. Taxslayer military He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Taxslayer military   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. Taxslayer military His gain from the sale is $1,000 ($2,500 – $1,500). Taxslayer military He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. Taxslayer military Excluded CCC loan. Taxslayer military   Mike has income of $500 from market gain in 2013. Taxslayer military He reports it on Schedule F, lines 4a and 4b. Taxslayer military His basis in the cotton is zero, so his gain from its sale is $2,500. Taxslayer military He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. Taxslayer military Example 2. Taxslayer military The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. Taxslayer military Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. Taxslayer military In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. Taxslayer military How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. Taxslayer military Included CCC loan. Taxslayer military   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. Taxslayer military The $500 market gain is not recognized on the redemption. Taxslayer military Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. Taxslayer military   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. Taxslayer military Mike has no gain or loss on its sale to the cotton buyer for that amount. Taxslayer military Excluded CCC loan. Taxslayer military   As in Example 1, Mike has income of $500 from market gain in 2013. Taxslayer military He reports it on Schedule F, lines 4a and 4b. Taxslayer military His basis in the cotton is zero, so his gain from its sale is $1,500. Taxslayer military He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. Taxslayer military Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. Taxslayer military You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. Taxslayer military Cost-share payments you receive may qualify for the cost-sharing exclusion. Taxslayer military See Cost-Sharing Exclusion (Improvements) , later. Taxslayer military CRP payments are reported to you on Form 1099-G. Taxslayer military Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Taxslayer military See the instructions for Schedule SE (Form 1040). Taxslayer military Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. Taxslayer military You generally include them in the year you receive them. Taxslayer military Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. Taxslayer military You can request income tax withholding from crop disaster payments you receive from the federal government. Taxslayer military Use Form W-4V, Voluntary Withholding Request. Taxslayer military See chapter 16 for information about ordering the form. Taxslayer military Election to postpone reporting until the following year. Taxslayer military   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. Taxslayer military You use the cash method of accounting. Taxslayer military You receive the crop insurance proceeds in the same tax year the crops are damaged. Taxslayer military You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. Taxslayer military   Deferral is not permitted for proceeds received from revenue insurance policies. Taxslayer military   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. Taxslayer military Check the box on line 8c and attach a statement to your tax return. Taxslayer military The statement must include your name and address and contain the following information. Taxslayer military A statement that you are making an election under IRC section 451(d) and Regulations section 1. Taxslayer military 451-6. Taxslayer military The specific crop or crops physically destroyed or damaged. Taxslayer military A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. Taxslayer military The cause of the physical destruction or damage and the date or dates it occurred. Taxslayer military The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. Taxslayer military The name of each insurance carrier from whom you received payments. Taxslayer military   One election covers all crops representing a single trade or business. Taxslayer military If you have more than one farming business, make a separate election for each one. Taxslayer military For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. Taxslayer military   An election is binding for the year unless the IRS approves your request to change it. Taxslayer military To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. Taxslayer military Ogden Submission Processing Center P. Taxslayer military O. Taxslayer military Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. Taxslayer military These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. Taxslayer military They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. Taxslayer military Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. Taxslayer military You must include these benefits in income in the year you receive them. Taxslayer military You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. Taxslayer military Report the benefits on Schedule F, Part I, as agricultural program payments. Taxslayer military You can usually take a current deduction for the same amount as a feed expense. Taxslayer military Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. Taxslayer military A payment is any economic benefit you get as a result of an improvement. Taxslayer military However, this exclusion applies only to that part of a payment that meets all three of the following tests. Taxslayer military It was for a capital expense. Taxslayer military You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. Taxslayer military You must include the payment for a deductible expense in income, and you can take any offsetting deduction. Taxslayer military See chapter 5 for information on deducting soil and water conservation expenses. Taxslayer military It does not substantially increase your annual income from the property for which it is made. Taxslayer military An increase in annual income is substantial if it is more than the greater of the following amounts. Taxslayer military 10% of the average annual income derived from the affected property before receiving the improvement. Taxslayer military $2. Taxslayer military 50 times the number of affected acres. Taxslayer military The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Taxslayer military Qualifying programs. Taxslayer military   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. Taxslayer military The rural clean water program authorized by the Federal Water Pollution Control Act. Taxslayer military The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. Taxslayer military The water bank program authorized by the Water Bank Act. Taxslayer military The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. Taxslayer military The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. Taxslayer military The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. Taxslayer military The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. Taxslayer military Certain small watershed programs, listed later. Taxslayer military Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. Taxslayer military Several state programs have been approved. Taxslayer military For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). Taxslayer military Small watershed programs. Taxslayer military   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. Taxslayer military The programs under the Watershed Protection and Flood Prevention Act. Taxslayer military The flood prevention projects under the Flood Control Act of 1944. Taxslayer military The Emergency Watershed Protection Program under the Flood Control Act of 1950. Taxslayer military Certain programs under the Colorado River Basin Salinity Control Act. Taxslayer military The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. Taxslayer military The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Taxslayer military The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. Taxslayer military The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Taxslayer military The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. Taxslayer military The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. Taxslayer military The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. Taxslayer military The Conservation Security Program authorized by the Food Security Act of 1985. Taxslayer military The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. Taxslayer military Income realized. Taxslayer military   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). Taxslayer military Value of the improvement. Taxslayer military   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. Taxslayer military The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. Taxslayer military Any government payments under a program not listed earlier. Taxslayer military Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. Taxslayer military Any government payment to you for rent or for your services. Taxslayer military The denominator of the fraction is the total cost of the improvement. Taxslayer military Excludable portion. Taxslayer military   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. Taxslayer military 10% of the prior average annual income from the affected acreage. Taxslayer military The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. Taxslayer military $2. Taxslayer military 50 times the number of affected acres. Taxslayer military The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. Taxslayer military You may need to consult your tax advisor for assistance. Taxslayer military Example. Taxslayer military One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. Taxslayer military The total cost of the improvement was $500,000. Taxslayer military The USDA paid $490,000. Taxslayer military You paid $10,000. Taxslayer military The value of the cost-sharing improvement is $15,000. Taxslayer military The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. Taxslayer military The excludable portion is the greater amount, $1,550. Taxslayer military You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. Taxslayer military   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Taxslayer military Any payment excluded from income is not part of your basis. Taxslayer military In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. Taxslayer military   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. Taxslayer military How to report the exclusion. Taxslayer military   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. Taxslayer military The statement must include the following information. Taxslayer military The dollar amount of the cost funded by the government payment. Taxslayer military The value of the improvement. Taxslayer military The amount you are excluding. Taxslayer military   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. Taxslayer military Recapture. Taxslayer military   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. Taxslayer military In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. Taxslayer military You must report the recapture on Form 4797. Taxslayer military See Section 1255 property under Other Gains in chapter 9. Taxslayer military Electing not to exclude payments. Taxslayer military   You can elect not to exclude all or part of any payments you receive under these programs. Taxslayer military If you make this election for all of these payments, none of the above restrictions and rules apply. Taxslayer military You must make this election by the due date, including extensions, for filing your return. Taxslayer military In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. Taxslayer military If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxslayer military Write “Filed pursuant to section 301. Taxslayer military 9100-2” at the top of the amended return and file it at the same address you filed the original return. Taxslayer military Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. Taxslayer military You must include these payments on Schedule F, lines 4a and 4b. Taxslayer military The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. Taxslayer military You must include these payments on Schedule F, lines 6a and 6b. Taxslayer military The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. Taxslayer military Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. Taxslayer military As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. Taxslayer military If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Taxslayer military If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. Taxslayer military Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. Taxslayer military Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. Taxslayer military The gain or loss is capital or ordinary depending on how you used the quota. Taxslayer military See Capital or ordinary gain or loss , later. Taxslayer military Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. Taxslayer military Adjusted basis. Taxslayer military   The adjusted basis of your quota is determined differently depending on how you obtained the quota. Taxslayer military The basis of a quota derived from an original grant by the federal government is zero. Taxslayer military The basis of a purchased quota is the purchase price. Taxslayer military The basis of a quota received as a gift is generally the same as the donor's basis. Taxslayer military However, under certain circumstances, the basis is increased by the amount of gift taxes paid. Taxslayer military If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. Taxslayer military The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. Taxslayer military Reduction of basis. Taxslayer military   You are required to reduce the basis of your tobacco quota by the following amounts. Taxslayer military Deductions you took for amortization, depletion, or depreciation. Taxslayer military Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. Taxslayer military The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). Taxslayer military Amount treated as interest. Taxslayer military   You must reduce your tobacco quota buyout program payment by the amount treated as interest. Taxslayer military The interest is reportable as ordinary income. Taxslayer military If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. Taxslayer military   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. Taxslayer military You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. Taxslayer military For more information, see Notice 2005-57, 2005-32 I. Taxslayer military R. Taxslayer military B. Taxslayer military 267, available at www. Taxslayer military irs. Taxslayer military gov/irb/2005-32_IRB/ar13. Taxslayer military html. Taxslayer military Installment method. Taxslayer military   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. Taxslayer military Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. Taxslayer military See chapter 10 for more information. Taxslayer military Capital or ordinary gain or loss. Taxslayer military   Whether your gain or loss is ordinary or capital depends on how you used the quota. Taxslayer military Quota used in the trade or business of farming. Taxslayer military   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. Taxslayer military See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. Taxslayer military Quota held for investment. Taxslayer military   If you held the quota for investment purposes, any gain or loss is capital gain or loss. Taxslayer military The same result also applies if you held the quota for the production of income, though not connected with a trade or business. Taxslayer military Gain treated as ordinary income. Taxslayer military   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. Taxslayer military Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. Taxslayer military The cost of acquiring a quota. Taxslayer military Amounts for amortization, depletion, or depreciation. Taxslayer military Amounts to reflect a reduction in the quota pounds. Taxslayer military   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. Taxslayer military Self-employment income. Taxslayer military   The tobacco quota buyout payments are not self-employment income. Taxslayer military Income averaging for farmers. Taxslayer military   The gain or loss resulting from the quota payments does not qualify for income averaging. Taxslayer military A tobacco quota is considered an interest in land. Taxslayer military Income averaging is not available for gain or loss arising from the sale or other disposition of land. Taxslayer military Involuntary conversion. Taxslayer military   The buyout of the tobacco quota is not an involuntary conversion. Taxslayer military Form 1099-S. Taxslayer military   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. Taxslayer military The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. Taxslayer military Like-kind exchange of quota. Taxslayer military   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. Taxslayer military See Notice 2005-57 for more information. Taxslayer military Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. Taxslayer military Taxation of payments to tobacco growers. Taxslayer military   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. Taxslayer military Individuals will generally report the payments as an Agricultural program payment on Schedule F. Taxslayer military If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. Taxslayer military Self-employment income. Taxslayer military   Payments to growers generally represent self-employment income. Taxslayer military If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. Taxslayer military Income averaging for farmers. Taxslayer military   Payments to growers who are individuals qualify for farm income averaging. Taxslayer military Form 1099-G. Taxslayer military   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. Taxslayer military Other Payments You must include most other government program payments in income. Taxslayer military Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. Taxslayer military How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. Taxslayer military Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. Taxslayer military You must also capitalize the full cost of the improvement. Taxslayer military Since you have included the payments in income, they do not reduce your basis. Taxslayer military However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. Taxslayer military National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. Taxslayer military You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. Taxslayer military If you produce a tobacco crop, report the payments as income from farming on your Schedule F. Taxslayer military If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. Taxslayer military Payment to More Than One Person The USDA reports program payments to the IRS. Taxslayer military It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). Taxslayer military If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. Taxslayer military You should file Form 1099-G to report the identity of the actual recipient to the IRS. Taxslayer military You should also give this information to the recipient. Taxslayer military You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. Taxslayer military Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. Taxslayer military However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. Taxslayer military See chapter 16 for information about ordering Form 1099-G. Taxslayer military Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). Taxslayer military If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. Taxslayer military Form 1099-PATR. Taxslayer military   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. Taxslayer military Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. Taxslayer military For information on the alternative minimum tax, see the Instructions for Form 6251. Taxslayer military Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. Taxslayer military They include the following items. Taxslayer military Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). Taxslayer military The stated dollar value of qualified written notices of allocation. Taxslayer military The fair market value of other property. Taxslayer military Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. Taxslayer military You must reduce the cost or other basis of these items by the amount of such patronage dividends received. Taxslayer military Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. Taxslayer military If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. Taxslayer military Qualified written notice of allocation. Taxslayer military   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. Taxslayer military A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. Taxslayer military The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. Taxslayer military You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. Taxslayer military Signing and giving a written agreement to the cooperative. Taxslayer military Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. Taxslayer military The cooperative must notify you in writing of this bylaw and give you a copy. Taxslayer military Endorsing and cashing a qualified check paid as part of the same patronage dividend. Taxslayer military You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. Taxslayer military Qualified check. Taxslayer military   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. Taxslayer military It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. Taxslayer military It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. Taxslayer military Loss on redemption. Taxslayer military   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. Taxslayer military The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. Taxslayer military Nonqualified notice of allocation. Taxslayer military   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. Taxslayer military Your basis in the notice is zero. Taxslayer military You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Taxslayer military Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. Taxslayer military However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. Taxslayer military   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. Taxslayer military For example, if it represents interest income, report it on your return as interest. Taxslayer military Buying or selling capital assets or depreciable property. Taxslayer military   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. Taxslayer military You must, however, reduce the basis of these assets by the dividends. Taxslayer military This reduction is taken into account as of the first day of the tax year in which the dividends are received. Taxslayer military If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. Taxslayer military   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. Taxslayer military Example. Taxslayer military On July 1, 2012, Mr. Taxslayer military Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. Taxslayer military The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). Taxslayer military Mr. Taxslayer military Brown files his return on a calendar year basis. Taxslayer military For 2012, he claimed a depreciation deduction of $311, using the 10. Taxslayer military 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). Taxslayer military On July 2, 2013, the cooperative association paid Mr. Taxslayer military Brown a $300 cash patronage dividend for buying the machine. Taxslayer military Mr. Taxslayer military Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. Taxslayer military Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. Taxslayer military 38% × 1. Taxslayer military 5 = 23. Taxslayer military 07% Depreciation deduction for 2013 ($2,289 × 23. Taxslayer military 07%) $528 Exceptions. Taxslayer military   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. Taxslayer military If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. Taxslayer military If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). Taxslayer military   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. Taxslayer military Personal purchases. Taxslayer military   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). Taxslayer military This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. Taxslayer military Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. Taxslayer military A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. Taxslayer military These allocations can be paid in money, other property, or qualified certificates. Taxslayer military Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. Taxslayer military Qualified certificates. Taxslayer military   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. Taxslayer military The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. Taxslayer military If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. Taxslayer military Nonqualified certificates. Taxslayer military   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Taxslayer military Your basis in the certificate is zero. Taxslayer military You must include in income any amount you receive from its sale, redemption, or other disposition. Taxslayer military Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. Taxslayer military Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. Taxslayer military For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Taxslayer military General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. Taxslayer military Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. Taxslayer military It is excluded from taxable income (see Exclusions , later). Taxslayer military Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. Taxslayer military If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. Taxslayer military Election to defer income from discharge of indebtedness. Taxslayer military   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. Taxslayer military Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. Taxslayer military See IRC section 108(i) and Publication 4681 for details. Taxslayer military Form 1099-C. Taxslayer military   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Taxslayer military The amount of debt canceled is shown in box 2. Taxslayer military Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Taxslayer military These exceptions apply before the exclusions discussed below. Taxslayer military Price reduced after purchase. Taxslayer military   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. Taxslayer military Reduce your basis in the property by the amount of the reduction in the debt. Taxslayer military The rules that apply to bankruptcy and insolvency are explained below under Exclusions . Taxslayer military Deductible debt. Taxslayer military   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. Taxslayer military This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. Taxslayer military Example. Taxslayer military You get accounting services for your farm on credit. Taxslayer military Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. Taxslayer military Your accountant forgives part of the amount you owe for the accounting services. Taxslayer military How you treat the canceled debt depends on your method of accounting. Taxslayer military Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Taxslayer military Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Taxslayer military Exclusions Do not include canceled debt in income in the following situations. Taxslayer military The cancellation takes place in a bankruptcy case under title 11 of the U. Taxslayer military S. Taxslayer military Code. Taxslayer military The cancellation takes place when you are insolvent. Taxslayer military The canceled debt is a qualified farm debt. Taxslayer military The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). Taxslayer military See Publication 334, Tax Guide for Small Business, chapter 5. Taxslayer military The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. Taxslayer military The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. Taxslayer military If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. Taxslayer military If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. Taxslayer military See Form 982 , later, for information on how to claim an exclusion for a canceled debt. Taxslayer military Debt. Taxslayer military   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. Taxslayer military Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. Taxslayer military Bankruptcy. Taxslayer military   A bankruptcy case is a case under title 11 of the U. Taxslayer military S. Taxslayer military Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. Taxslayer military   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. Taxslayer military Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . Taxslayer military Insolvency. Taxslayer military   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. Taxslayer military   You can exclude canceled debt from gross income up to the amount by which you are insolvent. Taxslayer military If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. Taxslayer military Otherwise, you include the difference in gross income. Taxslayer military Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . Taxslayer military You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. Taxslayer military Example. Taxslayer military You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. Taxslayer military Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. Taxslayer military Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). Taxslayer military You can exclude this amount from income. Taxslayer military The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. Taxslayer military If not, you must include it in income. Taxslayer military Reduction of tax attributes. Taxslayer military   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. Taxslayer military Order of reduction. Taxslayer military   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. Taxslayer military Net operating loss (NOL). Taxslayer military Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. Taxslayer military Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. Taxslayer military General business credit carryover. Taxslayer military Reduce the credit carryover to or from the tax year of the debt cancellation. Taxslayer military Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. Taxslayer military Minimum tax credit. Taxslayer military Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. Taxslayer military Reduce the credit 331/3 cents for each dollar of excluded canceled debt. Taxslayer military Capital loss. Taxslayer military Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. Taxslayer military Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. Taxslayer military Basis. Taxslayer military Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. Taxslayer military Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. Taxslayer military Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. Taxslayer military Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. Taxslayer military Inventory and accounts and notes receivable. Taxslayer military Other property. Taxslayer military Reduce the basis one dollar for each dollar of excluded canceled debt. Taxslayer military However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. Taxslayer military For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. Taxslayer military 1017-1(b)(2). Taxslayer military Also see Electing to reduce the basis of depreciable property
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The Taxslayer Military

Taxslayer military 3. Taxslayer military   Credit for Withholding and Estimated Tax for 2013 Table of Contents Introduction Topics - This chapter discusses: WithholdingForm W-2 Form W-2G The 1099 Series Form Not Correct Form Received After Filing Separate Returns Fiscal Years (FY) Estimated TaxSeparate Returns Divorced Taxpayers Excess Social Security or Railroad Retirement Tax WithholdingJoint returns. Taxslayer military Worksheet for Nonrailroad Employees Worksheets for Railroad Employees Introduction 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. Taxslayer military Also take credit for the estimated tax you paid for 2013. Taxslayer military These credits are subtracted from your total tax. Taxslayer military Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. Taxslayer military If the total of your withholding and your estimated tax payments for any payment period is less than the amount you needed to pay by the due date for that period, you may be charged a penalty, even if the total of these credits is more than your tax for the year. Taxslayer military Topics - This chapter discusses: How to take credit for withholding, How to take credit for estimated taxes you paid, and How to take credit for excess social security, Medicare, or railroad retirement tax withholding. Taxslayer military Withholding If you had income tax withheld during 2013, you generally should be sent a statement by January 31, 2014, showing your income and the tax withheld. Taxslayer military Depending on the source of your income, you will receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. Taxslayer military Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. Taxslayer military You should receive a separate Form W-2 from each employer you worked for. Taxslayer military 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. Taxslayer military However, your employer must provide or send it to you by January 31, 2014. Taxslayer military 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. Taxslayer military If you have not received your Form W-2 by January 31, contact your employer or payer to request a copy. Taxslayer military If you still do not get the form by February 15, the IRS can help you by requesting the form from your employer. Taxslayer military The phone number for the IRS is listed in chapter 5. Taxslayer military You will be asked for the following information. Taxslayer military Your name, address, city and state, zip code, and social security number. Taxslayer military Your employer's name, address, city, state, zip code, and the employer's identification number (if known). Taxslayer military An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. Taxslayer military The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible. Taxslayer military 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. Taxslayer military Total the federal income tax withheld (shown in box 2 of all Forms W-2 received) and enter that amount on the appropriate line of your tax return. Taxslayer military In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. Taxslayer military Your sick pay may be combined with other wages in one Form W-2 or you may receive a separate Form W-2 for sick pay. Taxslayer military If you file a paper tax return, attach Copy B of Form W-2 to your return. Taxslayer military Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. Taxslayer military If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. Taxslayer military Report the amounts you won on line 21 of Form 1040. Taxslayer military Take credit for the tax withheld on line 62 of Form 1040. Taxslayer military If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. Taxslayer military Gambling losses can be deducted on Schedule A (Form 1040) as a miscellaneous itemized deduction. Taxslayer military However, you cannot deduct more than the gambling winnings you report on Form 1040. Taxslayer military File Form W-2G with your income tax return only if it shows any federal income tax withheld in box 2. Taxslayer military The 1099 Series Most forms in the 1099 series are not filed with your return. Taxslayer military In general, these forms should be furnished to you by January 31, 2014. Taxslayer military Unless instructed to file any of these forms with your return, keep them for your records. Taxslayer military There are several different forms in this series, including: Form 1099-B, Proceeds From Broker and Barter Exchange Transactions; Form 1099-C, Cancellation of Debt; 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 (Under Sections 529 and 530); Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Taxslayer military ; Form SSA-1099, Social Security Benefit Statement; and Form RRB-1099, Payments by the Railroad Retirement Board. Taxslayer military 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. Taxslayer military See the instructions to these forms for details. Taxslayer military Reporting your withholding. Taxslayer military   Report on your tax return all federal income tax withholding shown on your Form 1099, Form SSA-1099, and/or Form RRB-1099. Taxslayer military Include the amount withheld in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. Taxslayer military Form 1099-R. Taxslayer military   Attach Form 1099-R to your paper return if federal income tax withholding is shown in box 4. Taxslayer military Do not attach any other Form 1099. Taxslayer military Form Not Correct If you receive a form with incorrect information, you should ask the payer for a corrected form. Taxslayer military Call the telephone number or write to the address given for the payer on the form. Taxslayer military The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. Taxslayer military A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. Taxslayer military In certain situations, you will receive two forms in place of the original incorrect form. Taxslayer military 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). Taxslayer military One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. Taxslayer military This form will have an “X” in the “CORRECTED” box at the top of the form. Taxslayer military The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). Taxslayer military 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, report the income and take credit for any income tax withheld by filing Form 1040X, Amended U. Taxslayer military S. Taxslayer military Individual Income Tax Return. Taxslayer military Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. Taxslayer military Do not include any amount withheld from your spouse's income. Taxslayer military However, different rules may apply if you live in a community property state. Taxslayer military Community property states. Taxslayer military   The following are community property states. Taxslayer military Arizona. Taxslayer military California. Taxslayer military Idaho. Taxslayer military Louisiana. Taxslayer military Nevada. Taxslayer military New Mexico. Taxslayer military Texas. Taxslayer military Washington. Taxslayer military Wisconsin. Taxslayer military Generally, if you live in a community property state and file a separate return, you and your spouse each must report half of all community income in addition to your own separate income. Taxslayer military If you are required to report half of all community income, you are entitled to take credit for half of all taxes withheld on the community income. Taxslayer military If you were divorced during the year, each of you generally must report half the community income and can take credit for half the withholding on that community income for the period before the divorce. Taxslayer military   For more information on these rules, and some exceptions, see Publication 555, Community Property. Taxslayer military Fiscal Years (FY) 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, described below, to determine your credit for federal income tax withholding. Taxslayer military Fiscal year withholding. Taxslayer military    You can claim credit on your tax return only for the tax withheld during the calendar year (CY) ending within your fiscal year. Taxslayer military You cannot claim credit for any of the tax withheld during the calendar year beginning in your fiscal year. Taxslayer military You will be able to claim credit for that withholding on your return for your next fiscal year. Taxslayer military   The Form W-2 or 1099 you receive for the calendar year that ends during your fiscal year will show the tax withheld and the income you received during that calendar year. Taxslayer military   Although you take credit for all the withheld tax shown on the form, report only the part of the income shown on the form that you received during your fiscal year. Taxslayer military Add to that the income you received during the rest of your fiscal year. Taxslayer military Example. Taxslayer military Miles Hanson files his return for a fiscal year ending June 30, 2013. Taxslayer military In January 2013, he received a Form W-2 that showed that his wages for 2012 were $31,200 and that his income tax withheld was $3,380. Taxslayer military His records show that he had received $15,000 of the wages by June 30, 2012, and $16,200 from July 1 through December 31, 2012. Taxslayer military See Table 3-1 . Taxslayer military On his return for the fiscal year ending June 30, 2013, Miles will report the $16,200 he was paid in July through December of 2012, plus the $18,850 he was paid during the rest of the fiscal year, January 1, 2013, through June 30, 2013. Taxslayer military However, he takes credit for all $3,380 that was withheld during 2012. Taxslayer military On his return for the fiscal year ending June 30, 2012, he reported the $15,000 he was paid in January through June 2012, but took no credit for the tax withheld during that time. Taxslayer military On his return for the fiscal year ending June 30, 2014, he will take the credit for any tax withheld during 2013 but not for any tax withheld during 2014. Taxslayer military Table 3-1. Taxslayer military Example for Fiscal Year Ending June 30, 2013—Miles Hanson Date Form W-2 Miles' records Tax return for FY ending 6/30/20121 Tax return for FY ending 6/30/2013 Wages With- holding Wages With- holding Wages With- holding Wages With- holding CY 20122 $31,200 $3,380             1/1/2012 –  6/30/2012     $15,000 $1,600 $15,000       7/1/2012 –  12/31/2012     $16,200 $1,780     $16,200 $3,380 CY 2013 $37,700 $4,316 3             1/1/2013 –  6/30/2013     $18,850 $2,158     $18,850   7/1/2013 –  12/31/2013     $18,850 4 $2,158         1Miles' tax return for FY ending 6/30/2012 also included his wages for 7/1–12/31/2011 and the withholding shown on his 2011 Form W-2. Taxslayer military  2Calendar year (January 1 – December 31). Taxslayer military   3Withholding shown on 2013 Form W-2 ($4,316) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which calendar year 2013 ends. Taxslayer military   4Wages for 7/1–12/31/2013 ($18,850) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which the wages were received. Taxslayer military Backup withholding. Taxslayer military   If income tax has been withheld under the backup withholding rule, take credit for it on your tax return for the fiscal year in which you received the income. Taxslayer military Example. Taxslayer military Emily Smith's records show that she received income in November 2013 and February 2014 from which there was backup withholding ($100 and $50, respectively). Taxslayer military Emily takes credit for the entire $150 of backup withholding on her tax return for the fiscal year ending September 30, 2014. Taxslayer military Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. Taxslayer military Include any overpayment from 2012 that you had credited to your 2013 estimated tax. Taxslayer military You must use Form 1040 or Form 1040A if you paid estimated tax. Taxslayer military You cannot file Form 1040EZ. Taxslayer military If you were a beneficiary of an estate or trust, you should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Taxslayer military , from the fiduciary. Taxslayer military If you have estimated taxes credited to you from the estate or trust (from Schedule K-1 (Form 1041)), you must report the estimated taxes on Schedule E (Form 1040). Taxslayer military On the dotted line next to the entry space for line 37 of Schedule E (Form 1040), enter “ES payment claimed” and the amount. Taxslayer military However, do not include this amount in the total on line 37. Taxslayer military Instead, enter the amount on Form 1040, line 63. Taxslayer military This estimated tax payment for 2013 is treated as being made by you on January 15, 2014. Taxslayer military Name changed. Taxslayer military   If you changed your name, and you made estimated tax payments using your former name, attach a 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 The social security number under which you made the payments. Taxslayer military  The statement should cover payments you made jointly with your spouse as well as any you made separately. Taxslayer military   Be sure to report the change to your local Social Security Administration office before filing your 2014 tax return. Taxslayer military This prevents delays in processing your return and issuing refunds. Taxslayer military It also safeguards your future social security benefits. Taxslayer military For more information, call the Social Security Administration at 1-800-772-1213. Taxslayer military 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. Taxslayer military If you made joint estimated tax payments, you must decide how to divide the payments between your returns. Taxslayer military 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. Taxslayer military 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. Taxslayer military Example. Taxslayer military James and Evelyn Brown made joint estimated tax payments for 2013 totaling $3,000. Taxslayer military They file separate 2013 Forms 1040. Taxslayer military James' tax is $4,000 and Evelyn's is $1,000. Taxslayer military If they do not agree on how to divide the $3,000, they must divide it proportionately between their returns. Taxslayer military Because James' tax ($4,000) is 80% of the total tax ($5,000), his share of the estimated tax is $2,400 (80% of $3,000). Taxslayer military The balance, $600 (20% of $3,000), is Evelyn's share. Taxslayer military 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. Taxslayer military 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. Taxslayer military See Example earlier under Separate Returns. Taxslayer military 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 at the top of page 1 of Form 1040 or Form 1040A. Taxslayer military If you divorced and remarried in 2013, enter your present spouse's SSN in that space. Taxslayer military Enter your former spouse's SSN, followed by “DIV,” under Payments to the left of Form 1040, line 63, or in the blank space to the left of Form 1040A, line 37. Taxslayer military Excess Social Security or Railroad Retirement Tax Withholding Most employers must withhold social security tax from your wages. Taxslayer military In some cases, however, the federal government and state and local governments do not have to withhold social security tax from their employees' wages. Taxslayer military If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. Taxslayer military Two or more employers. Taxslayer military   If you worked for two or more employers in 2013, too much social security tax or tier 1 RRTA tax may have been withheld from your pay. Taxslayer military You may be able to claim the excess as a credit against your income tax when you file your return. Taxslayer military Table 3-2 shows the maximum amount that should have been withheld for any of these taxes for 2013. Taxslayer military Figure the excess withholding on the appropriate worksheet. Taxslayer military    Table 3-2. Taxslayer military Maximum Social Security and RRTA Withholding for 2013 Type of tax Maximum wages subject to tax Tax rate Maximum tax to be withheld Social security $113,700 6. Taxslayer military 2% $7,049. Taxslayer military 40 Tier 1 RRTA $113,700 6. Taxslayer military 2% $7,049. Taxslayer military 40 Tier 2 RRTA $84,300 4. Taxslayer military 4% $3,709. Taxslayer military 20 Joint returns. Taxslayer military   If you are filing a joint return, you and your spouse must figure any excess social security or tier 1 RRTA separately. Taxslayer military Note. Taxslayer military All wages are subject to Medicare tax withholding. Taxslayer military Employer's error. Taxslayer military   If you had only one employer and he or she withheld too much social security, Medicare, or tier 1 RRTA tax, ask the employer to refund the excess amount to you. Taxslayer military If the employer refuses to refund the overcollection, ask for a statement indicating the amount of the overcollection to support your claim. Taxslayer military File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Taxslayer military Worksheet for Nonrailroad Employees If you did not work for a railroad during 2013, figure the excess social security withholding on Worksheet 3-1. Taxslayer military Note. Taxslayer military If you worked for both a railroad employer and a nonrailroad employer, use Worksheet 3-2, to figure excess social security and tier 1 RRTA tax. Taxslayer military Where to claim credit for excess social security withholding. Taxslayer military   If you file Form 1040, enter the excess on line 69. Taxslayer military   If you file Form 1040A, include the excess in the total on line 41. Taxslayer military Write “Excess SST” and show the amount of the credit in the space to the left of the line. Taxslayer military   You cannot claim excess social security tax withholding on Form 1040EZ. Taxslayer military Worksheets for Railroad Employees If you worked for a railroad during 2013, figure your excess withholding on Worksheet 3-2 and 3-3, as appropriate. Taxslayer military Where to claim credit for excess tier 1 RRTA withholding. Taxslayer military   If you file Form 1040, enter the excess on line 69. Taxslayer military   If you file Form 1040A, include the excess in the total on line 41. Taxslayer military Write “Excess SST” and show the amount of the credit in the space to the left of the line. Taxslayer military   You cannot claim excess tier 1 RRTA withholding on Form 1040EZ. Taxslayer military How to claim refund of excess tier 2 RRTA. Taxslayer military   To claim a refund of tier 2 tax, use Form 843. Taxslayer military Be sure to attach a copy of all of your Forms W-2. Taxslayer military   See Worksheet 3-3 and the Instructions for Form 843, for more details. Taxslayer military Worksheet 3-1. Taxslayer military Excess Social Security—Nonrailroad Employees 1. Taxslayer military Add all social security tax withheld (but not more than  $7,049. Taxslayer military 40 for each employer). Taxslayer military This tax should be shown  in box 4 of your Forms W-2. Taxslayer military Enter the total here 1. Taxslayer military   2. Taxslayer military Enter any uncollected social security tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Taxslayer military   3. Taxslayer military Add lines 1 and 2. Taxslayer military If $7,049. Taxslayer military 40 or less, stop here. Taxslayer military You cannot claim the credit 3. Taxslayer military   4. Taxslayer military Social security limit 4. Taxslayer military $7,049. Taxslayer military 40 5. Taxslayer military Excess. Taxslayer military Subtract line 4 from line 3 5. Taxslayer military   Worksheet 3-2. Taxslayer military Excess Social Security and Tier 1 RRTA—Railroad Employees 1. Taxslayer military Add all social security and tier 1 RRTA tax withheld (but not more than $7,049. Taxslayer military 40 for each employer). Taxslayer military Social security tax should be shown in box 4 and tier 1 RRTA should be shown  in box 14 of your Forms W-2. Taxslayer military Enter the total here 1. Taxslayer military   2. Taxslayer military Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Taxslayer military   3. Taxslayer military Add lines 1 and 2. Taxslayer military If $7,049. Taxslayer military 40 or less, stop here. Taxslayer military You cannot claim the credit 3. Taxslayer military   4. Taxslayer military Social security and tier 1 RRTA tax limit 4. Taxslayer military $7,049. Taxslayer military 40 5. Taxslayer military Excess. Taxslayer military Subtract line 4 from line 3 5. Taxslayer military   Worksheet 3-3. Taxslayer military Excess Tier 2 RRTA—Railroad Employees 1. Taxslayer military Add all tier 2 RRTA tax withheld (but not more than $3,709. Taxslayer military 20 for each employer). Taxslayer military Box 14 of your Forms W-2 should show tier 2 RRTA tax. Taxslayer military Enter the total here 1. Taxslayer military   2. Taxslayer military Enter any uncollected tier 2 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Taxslayer military   3. Taxslayer military Add lines 1 and 2. Taxslayer military If $3,709. Taxslayer military 20 or less, stop here. Taxslayer military You cannot claim the credit. Taxslayer military 3. Taxslayer military   4. Taxslayer military Tier 2 RRTA tax limit 4. Taxslayer military $3,709. Taxslayer military 20 5. Taxslayer military Excess. Taxslayer military Subtract line 4 from line 3. Taxslayer military 5. Taxslayer military   Prev  Up  Next   Home   More Online Publications