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2011 Income Tax

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2011 Income Tax

2011 income tax 33. 2011 income tax   Credit for the Elderly or the Disabled Table of Contents Introduction Useful Items - You may want to see: Are You Eligible for the Credit?Qualified Individual Income Limits How to Claim the CreditCredit Figured for You Credit Figured by You Introduction If you qualify, you may be able to reduce the tax you owe by taking the credit for the elderly or the disabled which is figured on Schedule R (Form 1040A or 1040). 2011 income tax This chapter explains the following. 2011 income tax Who qualifies for the credit for the elderly or the disabled. 2011 income tax How to claim the credit. 2011 income tax You may be able to take the credit for the elderly or the disabled if: You are age 65 or older at the end of 2013, or You retired on permanent and total disability and have taxable disability income. 2011 income tax Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 554 Tax Guide for Seniors Form (and Instruction) Schedule R (Form 1040A or 1040) Credit for the Elderly or the Disabled Are You Eligible for the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. 2011 income tax You are a qualified individual. 2011 income tax Your income is not more than certain limits. 2011 income tax You can use Figure 33-A and Table 33-1 as guides to see if you are eligible for the credit. 2011 income tax Use Figure 33-A first to see if you are a qualified individual. 2011 income tax If you are, go to Table 33-1 to make sure your income is not too high to take the credit. 2011 income tax You can take the credit only if you file Form 1040 or Form 1040A. 2011 income tax You cannot take the credit if you file Form 1040EZ. 2011 income tax Qualified Individual You are a qualified individual for this credit if you are a U. 2011 income tax S. 2011 income tax citizen or resident alien, and either of the following applies. 2011 income tax You were age 65 or older at the end of 2013. 2011 income tax You were under age 65 at the end of 2013 and all three of the following statements are true. 2011 income tax You retired on permanent and total disability (explained later). 2011 income tax You received taxable disability income for 2013. 2011 income tax On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). 2011 income tax Age 65. 2011 income tax   You are considered to be age 65 on the day before your 65th birthday. 2011 income tax Therefore, if you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. 2011 income tax U. 2011 income tax S. 2011 income tax Citizen or Resident Alien You must be a U. 2011 income tax S. 2011 income tax citizen or resident alien (or be treated as a resident alien) to take the credit. 2011 income tax Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. 2011 income tax Exceptions. 2011 income tax   You may be able to take the credit if you are a nonresident alien who is married to a U. 2011 income tax S. 2011 income tax citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. 2011 income tax S. 2011 income tax resident alien. 2011 income tax If you make that choice, both you and your spouse are taxed on your worldwide incomes. 2011 income tax If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. 2011 income tax S. 2011 income tax citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. 2011 income tax S. 2011 income tax resident alien for the entire year. 2011 income tax In that case, you may be allowed to take the credit. 2011 income tax For information on these choices, see chapter 1 of Publication 519, U. 2011 income tax S. 2011 income tax Tax Guide for Aliens. 2011 income tax Married Persons Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. 2011 income tax However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. 2011 income tax Head of household. 2011 income tax   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet certain tests. 2011 income tax See Head of Household in chapter 2 for the tests you must meet. 2011 income tax Under Age 65 If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). 2011 income tax You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the close of the tax year. 2011 income tax Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. 2011 income tax If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. 2011 income tax Permanent and total disability. 2011 income tax    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. 2011 income tax A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. 2011 income tax See Physician's statement , later. 2011 income tax Substantial gainful activity. 2011 income tax   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. 2011 income tax Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. 2011 income tax   Substantial gainful activity is not work you do to take care of yourself or your home. 2011 income tax It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. 2011 income tax However, doing this kind of work may show that you are able to engage in substantial gainful activity. 2011 income tax    The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. 2011 income tax Sheltered employment. 2011 income tax   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. 2011 income tax These qualified locations are in sheltered workshops, hospitals, and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes. 2011 income tax   Compared to commercial employment, pay is lower for sheltered employment. 2011 income tax Therefore, one usually does not look for sheltered employment if he or she can get other employment. 2011 income tax The fact that one has accepted sheltered employment is not proof of the person's ability to engage in substantial gainful activity. 2011 income tax Physician's statement. 2011 income tax   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. 2011 income tax You can use the statement in the Instructions for Schedule R. 2011 income tax    Figure 33-A. 2011 income tax Are You a Qualified Individual? This image is too large to be displayed in the current screen. 2011 income tax Please click the link to view the image. 2011 income tax Figure 33-A Are You a Qualified Individual?   You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. 2011 income tax Veterans. 2011 income tax   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. 2011 income tax VA Form 21-0172 must be signed by a person authorized by the VA to do so. 2011 income tax You can get this form from your local VA regional office. 2011 income tax Physician's statement obtained in earlier year. 2011 income tax   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. 2011 income tax For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. 2011 income tax If you meet the required conditions, check the box on your Schedule R, Part II, line 2. 2011 income tax   If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked. 2011 income tax Table 33-1. 2011 income tax Income Limits IF your filing status is . 2011 income tax . 2011 income tax . 2011 income tax THEN, even if you qualify (see Figure 33-A ), you CANNOT take the credit if. 2011 income tax . 2011 income tax . 2011 income tax   Your adjusted gross income (AGI)* is equal to or more than. 2011 income tax . 2011 income tax . 2011 income tax     OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. 2011 income tax . 2011 income tax . 2011 income tax   single, head of household, or qualifying widow(er) with dependent child   $17,500     $5,000   married filing jointly and only one spouse qualifies in Figure 33-A   $20,000     $5,000   married filing jointly and both spouses qualify in Figure 33-A   $25,000     $7,500   married filing separately and you lived apart from your spouse for all of 2013   $12,500     $3,750   * AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. 2011 income tax Disability income. 2011 income tax   If you are under age 65, you must also have taxable disability income to qualify for the credit. 2011 income tax Disability income must meet both of the following requirements. 2011 income tax It must be paid under your employer's accident or health plan or pension plan. 2011 income tax It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability. 2011 income tax Payments that are not disability income. 2011 income tax   Any payment you receive from a plan that does not provide for disability retirement is not disability income. 2011 income tax Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. 2011 income tax   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. 2011 income tax Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled. 2011 income tax Income Limits To determine if you can claim the credit, you must consider two income limits. 2011 income tax The first limit is the amount of your adjusted gross income (AGI). 2011 income tax The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. 2011 income tax The limits are shown in Table 33-1. 2011 income tax If your AGI and nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. 2011 income tax See How to Claim the Credit , later. 2011 income tax If either your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you cannot take the credit. 2011 income tax How to Claim the Credit You can figure the credit yourself or the Internal Revenue Service will figure it for you. 2011 income tax Credit Figured for You If you choose to have the IRS figure the credit for you, read the following discussion for the form you will file (Form 1040 or 1040A). 2011 income tax If you want the IRS to figure your tax, see chapter 30. 2011 income tax Form 1040. 2011 income tax   If you want the IRS to figure your credit, see Form 1040 Line Entries under Tax Figured by IRS in chapter 30. 2011 income tax Form 1040A. 2011 income tax   If you want the IRS to figure your credit, see Form 1040A Line Entries under Tax Figured by IRS in chapter 30. 2011 income tax Credit Figured by You If you choose to figure the credit yourself, fill out the front of Schedule R. 2011 income tax Next, fill out Schedule R, Part III. 2011 income tax If you file Form 1040A, enter the amount from Schedule R, line 22, on Form 1040A, line 30. 2011 income tax If you file Form 1040, include the amount from Schedule R, line 22, on line 53; check box c, and enter “Sch R” on the line next to that box. 2011 income tax For a step-by-step discussion about filling out Part III of Schedule R, see Figuring the Credit Yourself in Publication 524. 2011 income tax Limit on credit. 2011 income tax   The amount of the credit you can claim is generally limited to the amount of your tax. 2011 income tax Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited. 2011 income tax Prev  Up 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Page Last Reviewed or Updated: 31-Mar-2014

The 2011 Income Tax

2011 income tax 2. 2011 income tax   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. 2011 income tax The pay may be in cash, property, or services. 2011 income tax It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. 2011 income tax For information about deducting employment taxes, see chapter 5. 2011 income tax You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. 2011 income tax Empowerment zone employment credit (Form 8844). 2011 income tax Indian employment credit (Form 8845). 2011 income tax Work opportunity credit (Form 5884). 2011 income tax Credit for employer differential wage payments (Form 8932). 2011 income tax Reduce your deduction for employee wages by the amount of employment credits you claim. 2011 income tax For more information about these credits, see the form on which the credit is claimed. 2011 income tax Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. 2011 income tax Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. 2011 income tax These and other requirements that apply to all business expenses are explained in chapter 1. 2011 income tax In addition, the pay must meet both of the following tests. 2011 income tax Test 1. 2011 income tax It must be reasonable. 2011 income tax Test 2. 2011 income tax It must be for services performed. 2011 income tax The form or method of figuring the pay does not affect its deductibility. 2011 income tax For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. 2011 income tax Test 1—Reasonableness You must be able to prove that the pay is reasonable. 2011 income tax Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. 2011 income tax If the pay is excessive, the excess pay is disallowed as a deduction. 2011 income tax Factors to consider. 2011 income tax   Determine the reasonableness of pay by the facts and circumstances. 2011 income tax Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. 2011 income tax   To determine if pay is reasonable, also consider the following items and any other pertinent facts. 2011 income tax The duties performed by the employee. 2011 income tax The volume of business handled. 2011 income tax The character and amount of responsibility. 2011 income tax The complexities of your business. 2011 income tax The amount of time required. 2011 income tax The cost of living in the locality. 2011 income tax The ability and achievements of the individual employee performing the service. 2011 income tax The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. 2011 income tax Your policy regarding pay for all your employees. 2011 income tax The history of pay for each employee. 2011 income tax Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. 2011 income tax Employee-shareholder salaries. 2011 income tax   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. 2011 income tax The excessive part of the salary would not be allowed as a salary deduction by the corporation. 2011 income tax For more information on corporate distributions to shareholders, see Publication 542, Corporations. 2011 income tax Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. 2011 income tax For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. 2011 income tax Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. 2011 income tax If you give property to an employee as an employee achievement award, your deduction may be limited. 2011 income tax Achievement awards. 2011 income tax   An achievement award is an item of tangible personal property that meets all the following requirements. 2011 income tax It is given to an employee for length of service or safety achievement. 2011 income tax It is awarded as part of a meaningful presentation. 2011 income tax It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. 2011 income tax Length-of-service award. 2011 income tax    An award will qualify as a length-of-service award only if either of the following applies. 2011 income tax The employee receives the award after his or her first 5 years of employment. 2011 income tax The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. 2011 income tax Safety achievement award. 2011 income tax    An award for safety achievement will qualify as an achievement award unless one of the following applies. 2011 income tax It is given to a manager, administrator, clerical employee, or other professional employee. 2011 income tax During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). 2011 income tax Deduction limit. 2011 income tax   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. 2011 income tax $400 for awards that are not qualified plan awards. 2011 income tax $1,600 for all awards, whether or not qualified plan awards. 2011 income tax   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. 2011 income tax   A highly compensated employee is an employee who meets either of the following tests. 2011 income tax The employee was a 5% owner at any time during the year or the preceding year. 2011 income tax The employee received more than $115,000 in pay for the preceding year. 2011 income tax You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. 2011 income tax   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. 2011 income tax To figure this average cost, ignore awards of nominal value. 2011 income tax Deduct achievement awards as a nonwage business expense on your return or business schedule. 2011 income tax You may not owe employment taxes on the value of some achievement awards you provide to an employee. 2011 income tax See Publication 15-B. 2011 income tax Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. 2011 income tax However, the total bonuses, salaries, and other pay must be reasonable for the services performed. 2011 income tax If the bonus is paid in property, see Property , later. 2011 income tax Gifts of nominal value. 2011 income tax    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. 2011 income tax Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. 2011 income tax For more information on this deduction limit, see Meals and lodging , later. 2011 income tax Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. 2011 income tax Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. 2011 income tax For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. 2011 income tax Fringe Benefits A fringe benefit is a form of pay for the performance of services. 2011 income tax You can generally deduct the cost of fringe benefits. 2011 income tax You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. 2011 income tax You also may not owe employment taxes on the value of the fringe benefits. 2011 income tax See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. 2011 income tax Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. 2011 income tax Certain fringe benefits are discussed next. 2011 income tax See Publication 15-B for more details on these and other fringe benefits. 2011 income tax Meals and lodging. 2011 income tax   You can usually deduct the cost of furnishing meals and lodging to your employees. 2011 income tax Deduct the cost in whatever category the expense falls. 2011 income tax For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. 2011 income tax If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. 2011 income tax Deduction limit on meals. 2011 income tax   You can generally deduct only 50% of the cost of furnishing meals to your employees. 2011 income tax However, you can deduct the full cost of the following meals. 2011 income tax Meals whose value you include in an employee's wages. 2011 income tax Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. 2011 income tax This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. 2011 income tax Meals you furnish to your employees at the work site when you operate a restaurant or catering service. 2011 income tax Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. 2011 income tax Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). 2011 income tax This does not include meals you furnish on vessels primarily providing luxury water transportation. 2011 income tax Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. 2011 income tax This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. 2011 income tax Employee benefit programs. 2011 income tax   Employee benefit programs include the following. 2011 income tax Accident and health plans. 2011 income tax Adoption assistance. 2011 income tax Cafeteria plans. 2011 income tax Dependent care assistance. 2011 income tax Education assistance. 2011 income tax Life insurance coverage. 2011 income tax Welfare benefit funds. 2011 income tax   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. 2011 income tax For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. 2011 income tax ). 2011 income tax Life insurance coverage. 2011 income tax   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. 2011 income tax See Regulations section 1. 2011 income tax 264-1 for more information. 2011 income tax Welfare benefit funds. 2011 income tax   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. 2011 income tax Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. 2011 income tax   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. 2011 income tax If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. 2011 income tax   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. 2011 income tax The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. 2011 income tax The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. 2011 income tax These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. 2011 income tax   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. 2011 income tax Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. 2011 income tax However, if the employee performs no services, treat the amount you advanced as a loan. 2011 income tax If the employee does not repay the loan, treat it as income to the employee. 2011 income tax Below-market interest rate loans. 2011 income tax   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. 2011 income tax See Below-Market Loans in chapter 4. 2011 income tax Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. 2011 income tax The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. 2011 income tax You can claim the deduction only for the tax year in which your employee includes the property's value in income. 2011 income tax Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. 2011 income tax You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. 2011 income tax Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. 2011 income tax These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. 2011 income tax Restricted property. 2011 income tax   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. 2011 income tax However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. 2011 income tax    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. 2011 income tax This means that the recipient is not likely to have to give up his or her rights in the property in the future. 2011 income tax Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. 2011 income tax However, your deduction may be limited. 2011 income tax If you make the payment under an accountable plan, deduct it in the category of the expense paid. 2011 income tax For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. 2011 income tax If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. 2011 income tax See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. 2011 income tax Sick and Vacation Pay Sick pay. 2011 income tax   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. 2011 income tax However, your deduction is limited to amounts not compensated by insurance or other means. 2011 income tax Vacation pay. 2011 income tax   Vacation pay is an employee benefit. 2011 income tax It includes amounts paid for unused vacation leave. 2011 income tax You can deduct vacation pay only in the tax year in which the employee actually receives it. 2011 income tax This rule applies regardless of whether you use the cash or accrual method of accounting. 2011 income tax Prev  Up  Next   Home   More Online Publications