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2010 Tax Return Form

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2010 Tax Return Form

2010 tax return form 4. 2010 tax return form   Transportation Table of Contents Parking fees. 2010 tax return form Advertising display on car. 2010 tax return form Car pools. 2010 tax return form Hauling tools or instruments. 2010 tax return form Union members' trips from a union hall. 2010 tax return form Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. 2010 tax return form These expenses include the cost of transportation by air, rail, bus, taxi, etc. 2010 tax return form , and the cost of driving and maintaining your car. 2010 tax return form Transportation expenses include the ordinary and necessary costs of all of the following. 2010 tax return form Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. 2010 tax return form Tax home is defined in chapter 1. 2010 tax return form Visiting clients or customers. 2010 tax return form Going to a business meeting away from your regular workplace. 2010 tax return form Getting from your home to a temporary workplace when you have one or more regular places of work. 2010 tax return form These temporary workplaces can be either within the area of your tax home or outside that area. 2010 tax return form Transportation expenses do not include expenses you have while traveling away from home overnight. 2010 tax return form Those expenses are travel expenses discussed in chapter 1 . 2010 tax return form However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. 2010 tax return form See Car Expenses , later. 2010 tax return form Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. 2010 tax return form However, there may be exceptions to this general rule. 2010 tax return form You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. 2010 tax return form Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. 2010 tax return form Illustration of transportation expenses. 2010 tax return form    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. 2010 tax return form You may want to refer to it when deciding whether you can deduct your transportation expenses. 2010 tax return form Temporary work location. 2010 tax return form   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. 2010 tax return form   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. 2010 tax return form   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. 2010 tax return form   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. 2010 tax return form It will not be treated as temporary after the date you determine it will last more than 1 year. 2010 tax return form   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. 2010 tax return form You may have deductible travel expenses as discussed in chapter 1 . 2010 tax return form No regular place of work. 2010 tax return form   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. 2010 tax return form   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. 2010 tax return form   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. 2010 tax return form These are nondeductible commuting expenses. 2010 tax return form Two places of work. 2010 tax return form   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. 2010 tax return form However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. 2010 tax return form   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. 2010 tax return form You cannot deduct them. 2010 tax return form Armed Forces reservists. 2010 tax return form   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. 2010 tax return form You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . 2010 tax return form   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. 2010 tax return form In this case, your transportation generally is a nondeductible commuting expense. 2010 tax return form However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. 2010 tax return form   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. 2010 tax return form   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. 2010 tax return form These expenses are discussed in chapter 1 . 2010 tax return form   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. 2010 tax return form For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. 2010 tax return form Commuting expenses. 2010 tax return form   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. 2010 tax return form These costs are personal commuting expenses. 2010 tax return form You cannot deduct commuting expenses no matter how far your home is from your regular place of work. 2010 tax return form You cannot deduct commuting expenses even if you work during the commuting trip. 2010 tax return form Example. 2010 tax return form You sometimes use your cell phone to make business calls while commuting to and from work. 2010 tax return form Sometimes business associates ride with you to and from work, and you have a business discussion in the car. 2010 tax return form These activities do not change the trip from personal to business. 2010 tax return form You cannot deduct your commuting expenses. 2010 tax return form Parking fees. 2010 tax return form    Fees you pay to park your car at your place of business are nondeductible commuting expenses. 2010 tax return form You can, however, deduct business-related parking fees when visiting a customer or client. 2010 tax return form Advertising display on car. 2010 tax return form   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. 2010 tax return form If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. 2010 tax return form Car pools. 2010 tax return form   You cannot deduct the cost of using your car in a nonprofit car pool. 2010 tax return form Do not include payments you receive from the passengers in your income. 2010 tax return form These payments are considered reimbursements of your expenses. 2010 tax return form However, if you operate a car pool for a profit, you must include payments from passengers in your income. 2010 tax return form You can then deduct your car expenses (using the rules in this publication). 2010 tax return form Hauling tools or instruments. 2010 tax return form   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. 2010 tax return form However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). 2010 tax return form Union members' trips from a union hall. 2010 tax return form   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. 2010 tax return form Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. 2010 tax return form Office in the home. 2010 tax return form   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. 2010 tax return form (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. 2010 tax return form ) Examples of deductible transportation. 2010 tax return form   The following examples show when you can deduct transportation expenses based on the location of your work and your home. 2010 tax return form Example 1. 2010 tax return form You regularly work in an office in the city where you live. 2010 tax return form Your employer sends you to a 1-week training session at a different office in the same city. 2010 tax return form You travel directly from your home to the training location and return each day. 2010 tax return form You can deduct the cost of your daily round-trip transportation between your home and the training location. 2010 tax return form Example 2. 2010 tax return form Your principal place of business is in your home. 2010 tax return form You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. 2010 tax return form Example 3. 2010 tax return form You have no regular office, and you do not have an office in your home. 2010 tax return form In this case, the location of your first business contact inside the metropolitan area is considered your office. 2010 tax return form Transportation expenses between your home and this first contact are nondeductible commuting expenses. 2010 tax return form Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. 2010 tax return form While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. 2010 tax return form Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. 2010 tax return form You generally can use one of the two following methods to figure your deductible expenses. 2010 tax return form Standard mileage rate. 2010 tax return form Actual car expenses. 2010 tax return form If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. 2010 tax return form See Leasing a Car , later. 2010 tax return form In this publication, “car” includes a van, pickup, or panel truck. 2010 tax return form For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. 2010 tax return form Rural mail carriers. 2010 tax return form   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. 2010 tax return form Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. 2010 tax return form   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). 2010 tax return form You must complete Form 2106 and attach it to your Form 1040, U. 2010 tax return form S. 2010 tax return form Individual Income Tax Return. 2010 tax return form   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. 2010 tax return form It is given as an equipment maintenance allowance (EMA) to employees of the U. 2010 tax return form S. 2010 tax return form Postal Service. 2010 tax return form It is at the rate contained in the 1991 collective bargaining agreement. 2010 tax return form Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. 2010 tax return form See your employer for information on your reimbursement. 2010 tax return form    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. 2010 tax return form Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. 2010 tax return form For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. 2010 tax return form If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. 2010 tax return form You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. 2010 tax return form See Choosing the standard mileage rate and Standard mileage rate not allowed, later. 2010 tax return form You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. 2010 tax return form See chapter 6 for more information on reimbursements . 2010 tax return form Choosing the standard mileage rate. 2010 tax return form   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. 2010 tax return form Then, in later years, you can choose to use either the standard mileage rate or actual expenses. 2010 tax return form   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. 2010 tax return form For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. 2010 tax return form   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. 2010 tax return form You cannot revoke the choice. 2010 tax return form However, in later years, you can switch from the standard mileage rate to the actual expenses method. 2010 tax return form If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. 2010 tax return form Example. 2010 tax return form Larry is an employee who occasionally uses his own car for business purposes. 2010 tax return form He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. 2010 tax return form Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. 2010 tax return form   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. 2010 tax return form Standard mileage rate not allowed. 2010 tax return form   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. 2010 tax return form (See Rural mail carriers , earlier. 2010 tax return form ) Note. 2010 tax return form You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. 2010 tax return form Five or more cars. 2010 tax return form   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. 2010 tax return form However, you may be able to deduct your actual expenses for operating each of the cars in your business. 2010 tax return form See Actual Car Expenses , later, for information on how to figure your deduction. 2010 tax return form   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. 2010 tax return form   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. 2010 tax return form Example 1. 2010 tax return form Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. 2010 tax return form She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. 2010 tax return form Example 2. 2010 tax return form Tony and his employees use his four pickup trucks in his landscaping business. 2010 tax return form During the year, he traded in two of his old trucks for two newer ones. 2010 tax return form Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. 2010 tax return form Example 3. 2010 tax return form Chris owns a repair shop and an insurance business. 2010 tax return form He and his employees use his two pickup trucks and van for the repair shop. 2010 tax return form Chris alternates using his two cars for the insurance business. 2010 tax return form No one else uses the cars for business purposes. 2010 tax return form Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. 2010 tax return form Example 4. 2010 tax return form Maureen owns a car and four vans that are used in her housecleaning business. 2010 tax return form Her employees use the vans, and she uses the car to travel to various customers. 2010 tax return form Maureen cannot use the standard mileage rate for the car or the vans. 2010 tax return form This is because all five vehicles are used in Maureen's business at the same time. 2010 tax return form She must use actual expenses for all vehicles. 2010 tax return form Interest. 2010 tax return form   If you are an employee, you cannot deduct any interest paid on a car loan. 2010 tax return form This applies even if you use the car 100% for business as an employee. 2010 tax return form   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. 2010 tax return form For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). 2010 tax return form You cannot deduct the part of the interest expense that represents your personal use of the car. 2010 tax return form    If you use a home equity loan to purchase your car, you may be able to deduct the interest. 2010 tax return form See Publication 936, Home Mortgage Interest Deduction, for more information. 2010 tax return form Personal property taxes. 2010 tax return form   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. 2010 tax return form You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. 2010 tax return form   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). 2010 tax return form If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). 2010 tax return form Parking fees and tolls. 2010 tax return form   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 2010 tax return form (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 2010 tax return form ) Sale, trade-in, or other disposition. 2010 tax return form   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. 2010 tax return form See Disposition of a Car , later. 2010 tax return form Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. 2010 tax return form If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. 2010 tax return form Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. 2010 tax return form Continue to keep records, as explained later in chapter 5 . 2010 tax return form Business and personal use. 2010 tax return form   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. 2010 tax return form You can divide your expense based on the miles driven for each purpose. 2010 tax return form Example. 2010 tax return form You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. 2010 tax return form You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. 2010 tax return form Employer-provided vehicle. 2010 tax return form   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. 2010 tax return form You cannot use the standard mileage rate. 2010 tax return form See Vehicle Provided by Your Employer in chapter 6. 2010 tax return form Interest on car loans. 2010 tax return form   If you are an employee, you cannot deduct any interest paid on a car loan. 2010 tax return form This interest is treated as personal interest and is not deductible. 2010 tax return form If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. 2010 tax return form Taxes paid on your car. 2010 tax return form   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. 2010 tax return form Enter the amount paid on line 7 of Schedule A (Form 1040). 2010 tax return form Sales taxes. 2010 tax return form   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. 2010 tax return form Fines and collateral. 2010 tax return form   You cannot deduct fines you pay or collateral you forfeit for traffic violations. 2010 tax return form Casualty and theft losses. 2010 tax return form   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. 2010 tax return form See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. 2010 tax return form Depreciation and section 179 deductions. 2010 tax return form   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. 2010 tax return form Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. 2010 tax return form However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. 2010 tax return form Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. 2010 tax return form The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. 2010 tax return form   Generally, there are limits on these deductions. 2010 tax return form Special rules apply if you use your car 50% or less in your work or business. 2010 tax return form   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. 2010 tax return form   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. 2010 tax return form Car defined. 2010 tax return form   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. 2010 tax return form Its unloaded gross vehicle weight must not be more than 6,000 pounds. 2010 tax return form A car includes any part, component, or other item physically attached to it or usually included in the purchase price. 2010 tax return form   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. 2010 tax return form Qualified nonpersonal use vehicles. 2010 tax return form   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. 2010 tax return form They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. 2010 tax return form Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. 2010 tax return form More information. 2010 tax return form   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. 2010 tax return form Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. 2010 tax return form If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. 2010 tax return form There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. 2010 tax return form See Depreciation Limits, later. 2010 tax return form You can claim the section 179 deduction only in the year you place the car in service. 2010 tax return form For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. 2010 tax return form Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. 2010 tax return form A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. 2010 tax return form Example. 2010 tax return form In 2012, you bought a new car and used it for personal purposes. 2010 tax return form In 2013, you began to use it for business. 2010 tax return form Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. 2010 tax return form However, you can claim a depreciation deduction for the business use of the car starting in 2013. 2010 tax return form See Depreciation Deduction , later. 2010 tax return form More than 50% business use requirement. 2010 tax return form   You must use the property more than 50% for business to claim any section 179 deduction. 2010 tax return form If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. 2010 tax return form The result is the cost of the property that can qualify for the section 179 deduction. 2010 tax return form Example. 2010 tax return form Peter purchased a car in April 2013 for $24,500 and used it 60% for business. 2010 tax return form Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). 2010 tax return form But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. 2010 tax return form Limits. 2010 tax return form   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. 2010 tax return form Limit on the amount of the section 179 deduction. 2010 tax return form   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. 2010 tax return form   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. 2010 tax return form If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. 2010 tax return form   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. 2010 tax return form   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. 2010 tax return form   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. 2010 tax return form You must allocate the dollar limit (after any reduction) between you. 2010 tax return form   For more information on the above section 179 deduction limits, see Publication 946. 2010 tax return form Limit for sport utility and certain other vehicles. 2010 tax return form   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. 2010 tax return form This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. 2010 tax return form However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. 2010 tax return form    Limit on total section 179, special depreciation allowance, and depreciation deduction. 2010 tax return form   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. 2010 tax return form The limit is reduced if your business use of the car is less than 100%. 2010 tax return form See Depreciation Limits , later, for more information. 2010 tax return form Example. 2010 tax return form In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. 2010 tax return form However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). 2010 tax return form Cost of car. 2010 tax return form   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. 2010 tax return form For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. 2010 tax return form Your cost includes only the cash you paid. 2010 tax return form Basis of car for depreciation. 2010 tax return form   The amount of the section 179 deduction reduces your basis in your car. 2010 tax return form If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. 2010 tax return form The resulting amount is the basis in your car you use to figure your depreciation deduction. 2010 tax return form When to choose. 2010 tax return form   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. 2010 tax return form How to choose. 2010 tax return form    Employees use Form 2106 to make this choice and report the section 179 deduction. 2010 tax return form All others use Form 4562. 2010 tax return form   File the appropriate form with either of the following. 2010 tax return form Your original tax return filed for the year the property was placed in service (whether or not you file it timely). 2010 tax return form An amended return filed within the time prescribed by law. 2010 tax return form An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. 2010 tax return form The amended return must also include any resulting adjustments to taxable income. 2010 tax return form    You must keep records that show the specific identification of each piece of qualifying section 179 property. 2010 tax return form These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. 2010 tax return form Revoking an election. 2010 tax return form   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. 2010 tax return form Recapture of section 179 deduction. 2010 tax return form   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. 2010 tax return form If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. 2010 tax return form Any section 179 deduction claimed on the car is included in calculating the excess depreciation. 2010 tax return form For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. 2010 tax return form Dispositions. 2010 tax return form   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. 2010 tax return form You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). 2010 tax return form For information on the disposition of a car, see Disposition of a Car , later. 2010 tax return form Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. 2010 tax return form The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). 2010 tax return form The special depreciation allowance applies only for the first year the car is placed in service. 2010 tax return form To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). 2010 tax return form Combined depreciation. 2010 tax return form   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). 2010 tax return form For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). 2010 tax return form See Depreciation Limits , later in this chapter. 2010 tax return form Qualified car. 2010 tax return form   To be a qualified car (including trucks and vans), the car must meet all of the following tests. 2010 tax return form You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. 2010 tax return form Election not to claim the special depreciation allowance. 2010 tax return form   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. 2010 tax return form If you make this election, it applies to all 5-year property placed in service during the year. 2010 tax return form   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. 2010 tax return form    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. 2010 tax return form Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. 2010 tax return form This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. 2010 tax return form You generally need to know the following things about the car you intend to depreciate. 2010 tax return form Your basis in the car. 2010 tax return form The date you place the car in service. 2010 tax return form The method of depreciation and recovery period you will use. 2010 tax return form Basis. 2010 tax return form   Your basis in a car for figuring depreciation is generally its cost. 2010 tax return form This includes any amount you borrow or pay in cash, other property, or services. 2010 tax return form   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). 2010 tax return form However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). 2010 tax return form For one of these situations see Exception under Methods of depreciation, later. 2010 tax return form   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. 2010 tax return form Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . 2010 tax return form Placed in service. 2010 tax return form   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. 2010 tax return form Depreciation begins when the car is placed in service for use in your work or business or for the production of income. 2010 tax return form   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. 2010 tax return form Car placed in service and disposed of in the same year. 2010 tax return form   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. 2010 tax return form Methods of depreciation. 2010 tax return form   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). 2010 tax return form MACRS is discussed later in this chapter. 2010 tax return form Exception. 2010 tax return form   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. 2010 tax return form You must use straight line depreciation over the estimated remaining useful life of the car. 2010 tax return form   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. 2010 tax return form The rate per mile varies depending on the year(s) you used the standard mileage rate. 2010 tax return form For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. 2010 tax return form   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . 2010 tax return form You must use your adjusted basis in your car to figure your depreciation deduction. 2010 tax return form For additional information on the straight line method of depreciation, see Publication 946. 2010 tax return form More-than-50%-use test. 2010 tax return form   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. 2010 tax return form You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. 2010 tax return form   If your business use is 50% or less, you must use the straight line method to depreciate your car. 2010 tax return form This is explained later under Car Used 50% or Less for Business . 2010 tax return form Qualified business use. 2010 tax return form   A qualified business use is any use in your trade or business. 2010 tax return form It does not include use for the production of income (investment use). 2010 tax return form However, you do combine your business and investment use to compute your depreciation deduction for the tax year. 2010 tax return form Use of your car by another person. 2010 tax return form   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. 2010 tax return form It is directly connected with your business. 2010 tax return form It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). 2010 tax return form It results in a payment of fair market rent. 2010 tax return form This includes any payment to you for the use of your car. 2010 tax return form Business use changes. 2010 tax return form   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. 2010 tax return form See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. 2010 tax return form    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. 2010 tax return form Use for more than one purpose. 2010 tax return form   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. 2010 tax return form You do this on the basis of mileage. 2010 tax return form Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. 2010 tax return form Change from personal to business use. 2010 tax return form   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. 2010 tax return form In this case, you figure the percentage of business use for the year as follows. 2010 tax return form Determine the percentage of business use for the period following the change. 2010 tax return form Do this by dividing business miles by total miles driven during that period. 2010 tax return form Multiply the percentage in (1) by a fraction. 2010 tax return form The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. 2010 tax return form Example. 2010 tax return form You use a car only for personal purposes during the first 6 months of the year. 2010 tax return form During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. 2010 tax return form This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. 2010 tax return form Your business use for the year is 40% (80% × 6/12). 2010 tax return form Limits. 2010 tax return form   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. 2010 tax return form The maximum amount you can claim depends on the year in which you placed your car in service. 2010 tax return form You have to reduce the maximum amount if you did not use the car exclusively for business. 2010 tax return form See Depreciation Limits , later. 2010 tax return form Unadjusted basis. 2010 tax return form   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . 2010 tax return form Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. 2010 tax return form   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. 2010 tax return form Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. 2010 tax return form Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. 2010 tax return form Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. 2010 tax return form 1, 2006), and alternative motor vehicle credit. 2010 tax return form   See Form 8910 for information on the alternative motor vehicle credit. 2010 tax return form If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. 2010 tax return form See Car Used 50% or Less for Business, later, for more information. 2010 tax return form If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. 2010 tax return form Improvements. 2010 tax return form   A major improvement to a car is treated as a new item of 5-year recovery property. 2010 tax return form It is treated as placed in service in the year the improvement is made. 2010 tax return form It does not matter how old the car is when the improvement is added. 2010 tax return form Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. 2010 tax return form However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. 2010 tax return form Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. 2010 tax return form See Depreciation Limits , later. 2010 tax return form Car trade-in. 2010 tax return form   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. 2010 tax return form You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. 2010 tax return form If you make this election, you treat the old car as disposed of at the time of the trade-in. 2010 tax return form The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. 2010 tax return form You then figure your depreciation deduction for the new car beginning with the date you placed it in service. 2010 tax return form You make this election by completing Form 2106, Part II, Section D. 2010 tax return form This method is explained later, beginning at Effect of trade-in on basis . 2010 tax return form If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. 2010 tax return form You must apply two depreciation limits (see Depreciation Limits , later). 2010 tax return form The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. 2010 tax return form The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. 2010 tax return form You must use Form 4562 to compute your depreciation deduction. 2010 tax return form You cannot use Form 2106, Part II, Section D. 2010 tax return form This method is explained in Publication 946. 2010 tax return form   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). 2010 tax return form Otherwise, you must use the method described in (2). 2010 tax return form Effect of trade-in on basis. 2010 tax return form   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. 2010 tax return form For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. 2010 tax return form 168(i)-6(d)(3). 2010 tax return form Traded car used only for business. 2010 tax return form   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. 2010 tax return form Example. 2010 tax return form Paul trades in a car that has an adjusted basis of $5,000 for a new car. 2010 tax return form In addition, he pays cash of $20,000 for the new car. 2010 tax return form His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). 2010 tax return form Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. 2010 tax return form Traded car used partly in business. 2010 tax return form   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. 2010 tax return form This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. 2010 tax return form (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. 2010 tax return form See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. 2010 tax return form )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. 2010 tax return form Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. 2010 tax return form For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. 2010 tax return form Modified Accelerated Cost Recovery System (MACRS). 2010 tax return form   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. 2010 tax return form   The maximum amount you can deduct is limited, depending on the year you placed your car in service. 2010 tax return form See Depreciation Limits , later. 2010 tax return form Recovery period. 2010 tax return form   Under MACRS, cars are classified as 5-year property. 2010 tax return form You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. 2010 tax return form This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. 2010 tax return form Depreciation deduction for certain Indian reservation property. 2010 tax return form   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. 2010 tax return form The recovery that applies for a business-use car is 3 years instead of 5 years. 2010 tax return form However, the depreciation limits, discussed later, will still apply. 2010 tax return form   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. 2010 tax return form Depreciation methods. 2010 tax return form   You can use one of the following methods to depreciate your car. 2010 tax return form The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. 2010 tax return form The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. 2010 tax return form The straight line method (SL) over a 5-year recovery period. 2010 tax return form    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. 2010 tax return form This is because the chart has the switch to the straight line method built into its rates. 2010 tax return form   Before choosing a method, you may wish to consider the following facts. 2010 tax return form Using the straight line method provides equal yearly deductions throughout the recovery period. 2010 tax return form Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. 2010 tax return form MACRS depreciation chart. 2010 tax return form   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . 2010 tax return form Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. 2010 tax return form A similar chart appears in the Instructions for Form 2106. 2010 tax return form    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. 2010 tax return form   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. 2010 tax return form You file your return on a fiscal year basis. 2010 tax return form You file your return for a short tax year (less than 12 months). 2010 tax return form During the year, all of the following conditions apply. 2010 tax return form You placed some property in service from January through September. 2010 tax return form You placed some property in service from October through December. 2010 tax return form Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. 2010 tax return form   You placed qualified property in service on an Indian reservation. 2010 tax return form Depreciation in future years. 2010 tax return form   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. 2010 tax return form However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. 2010 tax return form In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. 2010 tax return form See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. 2010 tax return form    In future years, do not use the chart in this edition of the publication. 2010 tax return form Instead, use the chart in the publication or the form instructions for those future years. 2010 tax return form Disposition of car during recovery period. 2010 tax return form   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. 2010 tax return form See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. 2010 tax return form How to use the 2013 chart. 2010 tax return form   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. 2010 tax return form Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. 2010 tax return form If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. 2010 tax return form    Your deduction cannot be more than the maximum depreciation limit for cars. 2010 tax return form See Depreciation Limits, later. 2010 tax return form Example. 2010 tax return form Phil bought a used truck in February 2012 to use exclusively in his landscape business. 2010 tax return form He paid $9,200 for the truck with no trade-in. 2010 tax return form Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. 2010 tax return form Phil used the MACRS depreciation chart in 2012 to find his percentage. 2010 tax return form The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. 2010 tax return form He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. 2010 tax return form In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. 2010 tax return form His records show that the business use of his truck was 90% in 2013. 2010 tax return form Phil used Table 4-1 to find his percentage. 2010 tax return form Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. 2010 tax return form He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. 2010 tax return form Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. 2010 tax return form The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. 2010 tax return form The maximum amount you can deduct each year depends on the year you place the car in service. 2010 tax return form These limits are shown in the following tables. 2010 tax return form   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 2010 tax return form 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 2010 tax return form 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 2010 tax return form 4$7,660 if you acquired the car before 5/6/2003. 2010 tax return form $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. 2010 tax return form 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. 2010 tax return form Trucks and vans. 2010 tax return form   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. 2010 tax return form A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. 2010 tax return form For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. 2010 tax return form Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. 2010 tax return form 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. 2010 tax return form Car used less than full year. 2010 tax return form   The depreciation limits are not reduced if you use a car for less than a full year. 2010 tax return form This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. 2010 tax return form However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. 2010 tax return form See Reduction for personal use , next. 2010 tax return form Reduction for personal use. 2010 tax return form   The depreciation limits are reduced based on your percentage of personal use. 2010 tax return form If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. 2010 tax return form Section 179 deduction. 2010 tax return form   The section 179 deduction is treated as a depreciation deduction. 2010 tax return form If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. 2010 tax return form Example. 2010 tax return form On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. 2010 tax return form He used it 80% for his business, and he chooses to take a section 179 deduction for the car. 2010 tax return form The car is not qualified property for purposes of the special depreciation allowance. 2010 tax return form Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. 2010 tax return form This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). 2010 tax return form Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). 2010 tax return form He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. 2010 tax return form Jack has reached his maximum depreciation deduction for 2013. 2010 tax return form For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. 2010 tax return form Deductions in years after the recovery period. 2010 tax return form   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. 2010 tax return form If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. 2010 tax return form Unrecovered basis. 2010 tax return form   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. 2010 tax return form The recovery period. 2010 tax return form   For 5-year property, your recovery period is 6 calendar years. 2010 tax return form A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. 2010 tax return form   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. 2010 tax return form You determine your unrecovered basis in the 7th year after you placed the car in service. 2010 tax return form How to treat unrecovered basis. 2010 tax return form   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. 2010 tax return form The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. 2010 tax return form For example, no deduction is allowed for a year you use your car 100% for personal purposes. 2010 tax return form Example. 2010 tax return form In April 2007, Bob bought and placed in service a car he used exclusively in his business. 2010 tax return form The car cost $31,500. 2010 tax return form Bob did not claim a section 179 deduction or the special depreciation allowance for the car. 2010 tax return form He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). 2010 tax return form For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. 2010 tax return form Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. 2010 tax return form      MACRS     Deprec. 2010 tax return form Year % Amount Limit Allowed 2007 20. 2010 tax return form 00 $6,300 $3,060 $ 3,060 2008 32. 2010 tax return form 00 10,080 4,900 4,900 2009 19. 2010 tax return form 20 6,048 2,850 2,850 2010 11. 2010 tax return form 52 3,629 1,775 1,775 2011 11. 2010 tax return form 52 3,629 1,775 1,775 2012 5. 2010 tax return form 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. 2010 tax return form   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). 2010 tax return form If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. 2010 tax return form   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. 2010 tax return form However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. 2010 tax return form For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. 2010 tax return form Table 4-1. 2010 tax return form 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. 2010 tax return form ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. 2010 tax return form   First, using the left column, find the date you first placed the car in service in 2013. 2010 tax return form Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. 2010 tax return form For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. 2010 tax return form Refer back to the MACRS Depreciation Chart for the year you placed the car in service. 2010 tax return form (See Car Used 50% or Less for Business . 2010 tax return form )  Multiply the unadjusted basis of your car by your business use percentage. 2010 tax return form Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. 2010 tax return form (Also see Depreciation Limits . 2010 tax return form )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. 2010 tax return form 1—Sept. 2010 tax return form 30 percentage instead of the Oct. 2010 tax return form 1—Dec. 2010 tax return form 31 percentage for your car. 2010 tax return form               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. 2010 tax return form If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. 2010 tax return form 1—Sept. 2010 tax return form 30 for figuring depreciation for your car. 2010 tax return form See Which Convention Applies? in chapter 4 of Publication 946 for more details. 2010 tax return form               Example. 2010 tax return form You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. 2010 tax return form You
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Return Transcript

Tax Return Transcripts show most line items from your tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules. This transcript does not reflect any changes you, your representative or the IRS made after you filed your return. In many cases, a Return Transcript will meet the requirements of lending institutions offering mortgages and student loans.

Page Last Reviewed or Updated: 10-Jan-2014

The 2010 Tax Return Form

2010 tax return form Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. 2010 tax return form Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. 2010 tax return form Method 2. 2010 tax return form How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. 2010 tax return form In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. 2010 tax return form You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. 2010 tax return form Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. 2010 tax return form If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. 2010 tax return form These wages must be included on line 7 of Form 1040. 2010 tax return form See Form 8919 for more information. 2010 tax return form Childcare providers. 2010 tax return form   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. 2010 tax return form If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. 2010 tax return form You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. 2010 tax return form Babysitting. 2010 tax return form   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. 2010 tax return form Bankruptcy. 2010 tax return form   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. 2010 tax return form Your W-2 will show your total wages and withheld income tax for the year. 2010 tax return form On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. 2010 tax return form Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. 2010 tax return form If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. 2010 tax return form   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. 2010 tax return form For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. 2010 tax return form   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. 2010 tax return form The statement must show the allocation and describe the method used to make the allocation. 2010 tax return form For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. 2010 tax return form R. 2010 tax return form B. 2010 tax return form 596, available at www. 2010 tax return form irs. 2010 tax return form gov/irb/2006-40_IRB/ar12. 2010 tax return form html. 2010 tax return form Miscellaneous Compensation This section discusses many types of employee compensation. 2010 tax return form The subjects are arranged in alphabetical order. 2010 tax return form Advance commissions and other earnings. 2010 tax return form   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. 2010 tax return form    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. 2010 tax return form If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. 2010 tax return form See Repayments , later. 2010 tax return form Allowances and reimbursements. 2010 tax return form    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. 2010 tax return form If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. 2010 tax return form Back pay awards. 2010 tax return form   Include in income amounts you are awarded in a settlement or judgment for back pay. 2010 tax return form These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. 2010 tax return form They should be reported to you by your employer on Form W-2. 2010 tax return form Bonuses and awards. 2010 tax return form    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. 2010 tax return form These include prizes such as vacation trips for meeting sales goals. 2010 tax return form If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. 2010 tax return form However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. 2010 tax return form Employee achievement award. 2010 tax return form   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. 2010 tax return form However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. 2010 tax return form Your employer can tell you whether your award is a qualified plan award. 2010 tax return form Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. 2010 tax return form   However, the exclusion does not apply to the following awards. 2010 tax return form A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. 2010 tax return form A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. 2010 tax return form Example. 2010 tax return form Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. 2010 tax return form Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. 2010 tax return form However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. 2010 tax return form Differential wage payments. 2010 tax return form   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. 2010 tax return form These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. 2010 tax return form The payments are reported as wages on Form W-2. 2010 tax return form Government cost-of-living allowances. 2010 tax return form   Most payments received by U. 2010 tax return form S. 2010 tax return form Government civilian employees for working abroad are taxable. 2010 tax return form However, certain cost-of-living allowances are tax free. 2010 tax return form Publication 516, U. 2010 tax return form S. 2010 tax return form Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. 2010 tax return form Nonqualified deferred compensation plans. 2010 tax return form   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. 2010 tax return form This amount is shown on Form W-2, box 12, using code Y. 2010 tax return form This amount is not included in your income. 2010 tax return form   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. 2010 tax return form This amount is included in your wages shown on Form W-2, box 1. 2010 tax return form It is also shown on Form W-2, box 12, using code Z. 2010 tax return form Nonqualified deferred compensation plans of nonqualified entities. 2010 tax return form   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. 2010 tax return form For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. 2010 tax return form A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. 2010 tax return form Note received for services. 2010 tax return form   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. 2010 tax return form When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. 2010 tax return form Do not include that part again in your income. 2010 tax return form Include the rest of the payment in your income in the year of payment. 2010 tax return form   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. 2010 tax return form Severance pay. 2010 tax return form   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. 2010 tax return form Accrued leave payment. 2010 tax return form   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. 2010 tax return form   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. 2010 tax return form You can reduce gross wages by the amount you repaid in the same tax year in which you received it. 2010 tax return form Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. 2010 tax return form Outplacement services. 2010 tax return form   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. 2010 tax return form    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). 2010 tax return form Sick pay. 2010 tax return form   Pay you receive from your employer while you are sick or injured is part of your salary or wages. 2010 tax return form In addition, you must include in your income sick pay benefits received from any of the following payers. 2010 tax return form A welfare fund. 2010 tax return form A state sickness or disability fund. 2010 tax return form An association of employers or employees. 2010 tax return form An insurance company, if your employer paid for the plan. 2010 tax return form However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. 2010 tax return form For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. 2010 tax return form Social security and Medicare taxes paid by employer. 2010 tax return form   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. 2010 tax return form The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. 2010 tax return form However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. 2010 tax return form Stock appreciation rights. 2010 tax return form   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. 2010 tax return form When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. 2010 tax return form You include the cash payment in income in the year you use the right. 2010 tax return form Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. 2010 tax return form Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. 2010 tax return form See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. 2010 tax return form Recipient of fringe benefit. 2010 tax return form   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. 2010 tax return form You are considered to be the recipient even if it is given to another person, such as a member of your family. 2010 tax return form An example is a car your employer gives to your spouse for services you perform. 2010 tax return form The car is considered to have been provided to you and not to your spouse. 2010 tax return form   You do not have to be an employee of the provider to be a recipient of a fringe benefit. 2010 tax return form If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. 2010 tax return form Provider of benefit. 2010 tax return form   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. 2010 tax return form The provider can be a client or customer of an independent contractor. 2010 tax return form Accounting period. 2010 tax return form   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. 2010 tax return form Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. 2010 tax return form The general rule: benefits are reported for a full calendar year (January 1–December 31). 2010 tax return form The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. 2010 tax return form For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. 2010 tax return form Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. 2010 tax return form   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). 2010 tax return form Form W-2. 2010 tax return form   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. 2010 tax return form Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). 2010 tax return form However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). 2010 tax return form Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. 2010 tax return form Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . 2010 tax return form For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. 2010 tax return form Long-term care coverage. 2010 tax return form   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. 2010 tax return form However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. 2010 tax return form This amount will be reported as wages in box 1 of your Form W-2. 2010 tax return form Archer MSA contributions. 2010 tax return form    Contributions by your employer to your Archer MSA generally are not included in your income. 2010 tax return form Their total will be reported in box 12 of Form W-2, with code R. 2010 tax return form You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 2010 tax return form File the form with your return. 2010 tax return form Health flexible spending arrangement (health FSA). 2010 tax return form   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. 2010 tax return form   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. 2010 tax return form The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. 2010 tax return form For more information, see Notice 2012-40, 2012-26 I. 2010 tax return form R. 2010 tax return form B. 2010 tax return form 1046, available at www. 2010 tax return form irs. 2010 tax return form gov/irb/2012-26 IRB/ar09. 2010 tax return form html. 2010 tax return form Health reimbursement arrangement (HRA). 2010 tax return form   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. 2010 tax return form Health savings accounts (HSA). 2010 tax return form   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. 2010 tax return form Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. 2010 tax return form Contributions made by your employer are not included in your income. 2010 tax return form Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. 2010 tax return form Distributions not used for qualified medical expenses are included in your income. 2010 tax return form See Publication 969 for the requirements of an HSA. 2010 tax return form   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. 2010 tax return form The contributions are treated as a distribution of money and are not included in the partner's gross income. 2010 tax return form Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. 2010 tax return form In both situations, the partner can deduct the contribution made to the partner's HSA. 2010 tax return form   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. 2010 tax return form The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. 2010 tax return form Qualified HSA funding distribution. 2010 tax return form   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. 2010 tax return form See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. 2010 tax return form Failure to maintain eligibility. 2010 tax return form   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. 2010 tax return form If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. 2010 tax return form This income is also subject to an additional 10% tax. 2010 tax return form Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. 2010 tax return form See Instructions for Form 8839, Qualified Adoption Expenses, for more information. 2010 tax return form Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. 2010 tax return form They also are included as social security and Medicare wages in boxes 3 and 5. 2010 tax return form However, they are not included as wages in box 1. 2010 tax return form To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. 2010 tax return form File the form with your return. 2010 tax return form Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. 2010 tax return form The gym must be used primarily by employees, their spouses, and their dependent children. 2010 tax return form If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. 2010 tax return form De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. 2010 tax return form In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. 2010 tax return form Also see Employee Discounts , later. 2010 tax return form Holiday gifts. 2010 tax return form   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. 2010 tax return form However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. 2010 tax return form Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. 2010 tax return form Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. 2010 tax return form The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). 2010 tax return form Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. 2010 tax return form Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. 2010 tax return form To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. 2010 tax return form See the Instructions for Form 2441 for more information. 2010 tax return form Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. 2010 tax return form For more information, see Publication 970. 2010 tax return form Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. 2010 tax return form The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. 2010 tax return form However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). 2010 tax return form The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. 2010 tax return form For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. 2010 tax return form (Ask your employer for this percentage. 2010 tax return form ) For a discount on services, 20%. 2010 tax return form Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. 2010 tax return form If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). 2010 tax return form Qualified retirement planning services paid for you by your employer may be excluded from your income. 2010 tax return form For more information, see Retirement Planning Services , later. 2010 tax return form Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. 2010 tax return form However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. 2010 tax return form For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. 2010 tax return form If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. 2010 tax return form Also, it is shown separately in box 12 with code C. 2010 tax return form Group-term life insurance. 2010 tax return form   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. 2010 tax return form Permanent benefits. 2010 tax return form   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. 2010 tax return form Your employer should be able to tell you the amount to include in your income. 2010 tax return form Accidental death benefits. 2010 tax return form   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. 2010 tax return form Former employer. 2010 tax return form   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. 2010 tax return form Also, it is shown separately in box 12 with code C. 2010 tax return form Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. 2010 tax return form You must pay these taxes with your income tax return. 2010 tax return form Include them on line 60, Form 1040, and follow the instructions forline 60. 2010 tax return form For more information, see the Instructions for Form 1040. 2010 tax return form Two or more employers. 2010 tax return form   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. 2010 tax return form If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. 2010 tax return form You must figure how much to include in your income. 2010 tax return form Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. 2010 tax return form Figuring the taxable cost. 2010 tax return form    Use the following worksheet to figure the amount to include in your income. 2010 tax return form   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. 2010 tax return form However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . 2010 tax return form Worksheet 1. 2010 tax return form Figuring the Cost of Group-Term Life Insurance To Include in Income 1. 2010 tax return form Enter the total amount of your insurance coverage from your employer(s) 1. 2010 tax return form   2. 2010 tax return form Limit on exclusion for employer-provided group-term life insurance coverage 2. 2010 tax return form 50,000 3. 2010 tax return form Subtract line 2 from line 1 3. 2010 tax return form   4. 2010 tax return form Divide line 3 by $1,000. 2010 tax return form Figure to the nearest tenth 4. 2010 tax return form   5. 2010 tax return form Go to Table 1. 2010 tax return form Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. 2010 tax return form   6. 2010 tax return form Multiply line 4 by line 5 6. 2010 tax return form     7. 2010 tax return form Enter the number of full months of coverage at this cost 7. 2010 tax return form   8. 2010 tax return form Multiply line 6 by line 7 8. 2010 tax return form   9. 2010 tax return form Enter the premiums you paid per month 9. 2010 tax return form       10. 2010 tax return form Enter the number of months you paid the  premiums 10. 2010 tax return form       11. 2010 tax return form Multiply line 9 by line 10. 2010 tax return form 11. 2010 tax return form   12. 2010 tax return form Subtract line 11 from line 8. 2010 tax return form Include this amount in your income as wages 12. 2010 tax return form   Table 1. 2010 tax return form Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . 2010 tax return form 05     25 through 29 . 2010 tax return form 06     30 through 34 . 2010 tax return form 08     35 through 39 . 2010 tax return form 09     40 through 44 . 2010 tax return form 10     45 through 49 . 2010 tax return form 15     50 through 54 . 2010 tax return form 23     55 through 59 . 2010 tax return form 43     60 through 64 . 2010 tax return form 66     65 through 69 1. 2010 tax return form 27     70 and older 2. 2010 tax return form 06   Example. 2010 tax return form You are 51 years old and work for employers A and B. 2010 tax return form Both employers provide group-term life insurance coverage for you for the entire year. 2010 tax return form Your coverage is $35,000 with employer A and $45,000 with employer B. 2010 tax return form You pay premiums of $4. 2010 tax return form 15 a month under the employer B group plan. 2010 tax return form You figure the amount to include in your income as follows. 2010 tax return form   Worksheet 1. 2010 tax return form Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. 2010 tax return form Enter the total amount of your insurance coverage from your employer(s) 1. 2010 tax return form 80,000 2. 2010 tax return form Limit on exclusion for employer-provided group-term life insurance coverage 2. 2010 tax return form 50,000 3. 2010 tax return form Subtract line 2 from line 1 3. 2010 tax return form 30,000 4. 2010 tax return form Divide line 3 by $1,000. 2010 tax return form Figure to the nearest tenth 4. 2010 tax return form 30. 2010 tax return form 0 5. 2010 tax return form Go to Table 1. 2010 tax return form Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. 2010 tax return form . 2010 tax return form 23 6. 2010 tax return form Multiply line 4 by line 5 6. 2010 tax return form 6. 2010 tax return form 90 7. 2010 tax return form Enter the number of full months of coverage at this cost. 2010 tax return form 7. 2010 tax return form 12 8. 2010 tax return form Multiply line 6 by line 7 8. 2010 tax return form 82. 2010 tax return form 80 9. 2010 tax return form Enter the premiums you paid per month 9. 2010 tax return form 4. 2010 tax return form 15     10. 2010 tax return form Enter the number of months you paid the premiums 10. 2010 tax return form 12     11. 2010 tax return form Multiply line 9 by line 10. 2010 tax return form 11. 2010 tax return form 49. 2010 tax return form 80 12. 2010 tax return form Subtract line 11 from line 8. 2010 tax return form Include this amount in your income as wages 12. 2010 tax return form 33. 2010 tax return form 00 The total amount to include in income for the cost of excess group-term life insurance is $33. 2010 tax return form Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. 2010 tax return form You must add it to the wages shown on your Forms W-2 and include the total on your return. 2010 tax return form Entire cost excluded. 2010 tax return form   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. 2010 tax return form You are permanently and totally disabled and have ended your employment. 2010 tax return form Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. 2010 tax return form A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. 2010 tax return form (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. 2010 tax return form ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. 2010 tax return form Entire cost taxed. 2010 tax return form   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. 2010 tax return form The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. 2010 tax return form You are a key employee and your employer's plan discriminates in favor of key employees. 2010 tax return form Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. 2010 tax return form The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. 2010 tax return form The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. 2010 tax return form (You must accept it in order to be able to properly perform your duties. 2010 tax return form ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. 2010 tax return form See De Minimis (Minimal) Benefits , earlier. 2010 tax return form Faculty lodging. 2010 tax return form   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. 2010 tax return form However, the lodging must be qualified campus lodging, and you must pay an adequate rent. 2010 tax return form Academic health center. 2010 tax return form   This is an organization that meets the following conditions. 2010 tax return form Its principal purpose or function is to provide medical or hospital care or medical education or research. 2010 tax return form It receives payments for graduate medical education under the Social Security Act. 2010 tax return form One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. 2010 tax return form Qualified campus lodging. 2010 tax return form   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. 2010 tax return form The lodging must be located on or near a campus of the educational institution or academic health center. 2010 tax return form Adequate rent. 2010 tax return form   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. 2010 tax return form If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. 2010 tax return form   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. 2010 tax return form Example. 2010 tax return form Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. 2010 tax return form The house is appraised at $200,000. 2010 tax return form The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. 2010 tax return form Carl pays an annual rent of $11,000. 2010 tax return form Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). 2010 tax return form If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). 2010 tax return form Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. 2010 tax return form See Publication 521 for more information. 2010 tax return form No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). 2010 tax return form In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. 2010 tax return form Example. 2010 tax return form You are employed as a flight attendant for a company that owns both an airline and a hotel chain. 2010 tax return form Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. 2010 tax return form The value of the personal flight is not included in your income. 2010 tax return form However, the value of the hotel room is included in your income because you do not work in the hotel business. 2010 tax return form Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. 2010 tax return form Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. 2010 tax return form You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. 2010 tax return form Also, see Financial Counseling Fees , earlier. 2010 tax return form Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. 2010 tax return form A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. 2010 tax return form Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. 2010 tax return form However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. 2010 tax return form Exclusion limit. 2010 tax return form   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. 2010 tax return form   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. 2010 tax return form   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. 2010 tax return form   If the benefits have a value that is more than these limits, the excess must be included in your income. 2010 tax return form You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. 2010 tax return form Commuter highway vehicle. 2010 tax return form   This is a highway vehicle that seats at least six adults (not including the driver). 2010 tax return form At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). 2010 tax return form Transit pass. 2010 tax return form   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. 2010 tax return form Qualified parking. 2010 tax return form   This is parking provided to an employee at or near the employer's place of business. 2010 tax return form It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. 2010 tax return form It does not include parking at or near the employee's home. 2010 tax return form Qualified bicycle commuting. 2010 tax return form   This is reimbursement based on the number of qualified bicycle commuting months for the year. 2010 tax return form A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. 2010 tax return form The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. 2010 tax return form Tuition Reduction You can exclude a qualified tuition reduction from your income. 2010 tax return form This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. 2010 tax return form For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. 2010 tax return form Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. 2010 tax return form For more information, see Publication 970. 2010 tax return form Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. 2010 tax return form Example. 2010 tax return form You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. 2010 tax return form The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. 2010 tax return form Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. 2010 tax return form For an exception, see Group-Term Life Insurance , earlier. 2010 tax return form General valuation rule. 2010 tax return form   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. 2010 tax return form If you pay fair market value for a fringe benefit, no amount is included in your income. 2010 tax return form Fair market value. 2010 tax return form   The fair market value of a fringe benefit is determined by all the facts and circumstances. 2010 tax return form It is the amount you would have to pay a third party to buy or lease the benefit. 2010 tax return form This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. 2010 tax return form Employer-provided vehicles. 2010 tax return form   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. 2010 tax return form   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. 2010 tax return form An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. 2010 tax return form The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. 2010 tax return form Flights on employer-provided aircraft. 2010 tax return form   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. 2010 tax return form   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. 2010 tax return form The division must be based on all the facts, including which employee or employees control the use of the aircraft. 2010 tax return form Special valuation rules. 2010 tax return form   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. 2010 tax return form If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. 2010 tax return form You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. 2010 tax return form   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. 2010 tax return form The special valuation rules are the following. 2010 tax return form The automobile lease rule. 2010 tax return form The vehicle cents-per-mile rule. 2010 tax return form The commuting rule. 2010 tax return form The unsafe conditions commuting rule. 2010 tax return form The employer-operated eating-facility rule. 2010 tax return form   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 2010 tax return form    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. 2010 tax return form 61-21(g) and 1. 2010 tax return form 61-21(h) of the regulations. 2010 tax return form Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. 2010 tax return form (Your employer can tell you whether your retirement plan is qualified. 2010 tax return form ) However, the cost of life insurance coverage included in the plan may have to be included. 2010 tax return form See Group-Term Life Insurance , earlier, under Fringe Benefits. 2010 tax return form If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. 2010 tax return form However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. 2010 tax return form For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. 2010 tax return form S. 2010 tax return form Civil Service Retirement Benefits, if you are a federal employee or retiree). 2010 tax return form Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. 2010 tax return form The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. 2010 tax return form An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. 2010 tax return form However, it is included in wages subject to social security and Medicare taxes. 2010 tax return form Elective deferrals include elective contributions to the following retirement plans. 2010 tax return form Cash or deferred arrangements (section 401(k) plans). 2010 tax return form The Thrift Savings Plan for federal employees. 2010 tax return form Salary reduction simplified employee pension plans (SARSEP). 2010 tax return form Savings incentive match plans for employees (SIMPLE plans). 2010 tax return form Tax-sheltered annuity plans (403(b) plans). 2010 tax return form Section 501(c)(18)(D) plans. 2010 tax return form (But see Reporting by employer , later. 2010 tax return form ) Section 457 plans. 2010 tax return form Qualified automatic contribution arrangements. 2010 tax return form   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. 2010 tax return form You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. 2010 tax return form The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. 2010 tax return form   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. 2010 tax return form Overall limit on deferrals. 2010 tax return form   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. 2010 tax return form The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. 2010 tax return form Amounts deferred under specific plan limits are part of the overall limit on deferrals. 2010 tax return form   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. 2010 tax return form However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. 2010 tax return form Catch-up contributions. 2010 tax return form   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. 2010 tax return form For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. 2010 tax return form   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. 2010 tax return form SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. 2010 tax return form Section 457 plans, see Limit for deferrals under section 457 plans , later. 2010 tax return form Limit for deferrals under SIMPLE plans. 2010 tax return form   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. 2010 tax return form Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. 2010 tax return form Limit for tax-sheltered annuities. 2010 tax return form   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. 2010 tax return form However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. 2010 tax return form $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. 2010 tax return form   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. 2010 tax return form   For more information, see Publication 571. 2010 tax return form Limit for deferral under section 501(c)(18) plans. 2010 tax return form   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. 2010 tax return form Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. 2010 tax return form Limit for deferrals under section 457 plans. 2010 tax return form   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. 2010 tax return form However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. 2010 tax return form See Increased limit , later. 2010 tax return form Includible compensation. 2010 tax return form   This is the pay you received for the year from the employer who maintained the section 457 plan. 2010 tax return form In most cases, it includes all the following payments. 2010 tax return form Wages and salaries. 2010 tax return form Fees for professional services. 2010 tax return form The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. 2010 tax return form Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. 2010 tax return form Commissions and tips. 2010 tax return form Fringe benefits. 2010 tax return form Bonuses. 2010 tax return form Employer contributions (elective deferrals) to: The section 457 plan. 2010 tax return form Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. 2010 tax return form A salary reduction simplified employee pension (SARSEP). 2010 tax return form A tax-sheltered annuity (section 403(b) plan). 2010 tax return form A savings incentive match plan for employees (SIMPLE plan). 2010 tax return form A section 125 cafeteria plan. 2010 tax return form   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. 2010 tax return form Your wages as defined for income tax withholding purposes. 2010 tax return form Your wages as reported in box 1 of Form W-2. 2010 tax return form Your wages that are subject to social security withholding (including elective deferrals). 2010 tax return form Increased limit. 2010 tax return form   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). 2010 tax return form Catch-up contributions. 2010 tax return form   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. 2010 tax return form If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. 2010 tax return form However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. 2010 tax return form Designated Roth contributions. 2010 tax return form   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. 2010 tax return form Designated Roth contributions are treated as elective deferrals, except that they are included in income. 2010 tax return form Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. 2010 tax return form   Qualified distributions from a Roth plan are not included in income. 2010 tax return form In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. 2010 tax return form Reporting by employer. 2010 tax return form   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. 2010 tax return form Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. 2010 tax return form Section 501(c)(18)(D) contributions. 2010 tax return form   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. 2010 tax return form The amount you contributed should be identified with code “H” in box 12. 2010 tax return form You may deduct the amount deferred subject to the limits that apply. 2010 tax return form Include your deduction in the total on Form 1040, line 36. 2010 tax return form Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. 2010 tax return form Designated Roth contributions. 2010 tax return form    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. 2010 tax return form Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. 2010 tax return form Excess deferrals. 2010 tax return form   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. 2010 tax return form If the plan permits, the excess amount will be distributed to you. 2010 tax return form If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. 2010 tax return form You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. 2010 tax return form The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. 2010 tax return form   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. 2010 tax return form File Form 1040 to add the excess deferral amount to your wages on line 7. 2010 tax return form Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. 2010 tax return form Excess not distributed. 2010 tax return form   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. 2010 tax return form Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. 2010 tax return form Excess distributed to you. 2010 tax return form   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. 2010 tax return form If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. 2010 tax return form Any income on the excess deferral taken out is taxable in the tax year in which you take it out. 2010 tax return form If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. 2010 tax return form    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. 2010 tax return form Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. 2010 tax return form If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. 2010 tax return form Add the excess deferral amount to your wages on your 2013 tax return. 2010 tax return form If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. 2010 tax return form Do not add this amount to your wages on your 2013 return. 2010 tax return form If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. 2010 tax return form If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. 2010 tax return form S. 2010 tax return form Individual Income Tax Return. 2010 tax return form If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. 2010 tax return form If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. 2010 tax return form Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. 2010 tax return form Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. 2010 tax return form Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. 2010 tax return form ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 2010 tax return form It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 2010 tax return form Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. 2010 tax return form If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. 2010 tax return form You must include the excess contributions in your income as wages on Form 1040, line 7. 2010 tax return form You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. 2010 tax return form If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. 2010 tax return form The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. 2010 tax return form You should receive a Form 1099-R for the year the excess contributions are distributed to you. 2010 tax return form Add the distribution to your wages for that year. 2010 tax return form Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 2010 tax return form It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 2010 tax return form Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. 2010 tax return form Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. 2010 tax return form A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. 2010 tax return form A corrective payment consisting of your after-tax contributions is not taxable. 2010 tax return form If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. 2010 tax return form Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. 2010 tax return form Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. 2010 tax return form Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 2010 tax return form It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 2010 tax return form Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. 2010 tax return form The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. 2010 tax return form Your employer can tell you which kind of option you hold. 2010 tax return form Nonstatutory Stock Options Grant of option. 2010 tax return form   If you are granted a nonstatutory stock option, you may have income when you receive the option. 2010 tax return form The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. 2010 tax return form The fair market value of an option can be readily determined if it is actively traded on an established market. 2010 tax return form    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. 2010 tax return form You can transfer the option. 2010 tax return form You can exercise the option immediately in full. 2010 tax return form The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. 2010 tax return form The fair market value of the option privilege can be readily determined. 2010 tax return form The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. 2010 tax return form For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. 2010 tax return form The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. 2010 tax return form If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. 2010 tax return form For more information on the excise tax, see Internal Revenue Code section 4985. 2010 tax return form Option with readily determinable value. 2010 tax return form   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. 2010 tax return form See Restricted Property , later, for rules on how much income to include and when to include it. 2010 tax return form However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. 2010 tax return form Option without readily determinable value. 2010 tax return form   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. 2010 tax return form    Exercise or transfer of option. 2010 tax return form   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. 2010 tax return form Option with readily determinable value. 2010 tax return form   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. 2010 tax return form Option without readily determinable value. 2010 tax return form   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope