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2012 Form 1040

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2012 Form 1040

2012 form 1040 4. 2012 form 1040   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. 2012 form 1040 Loan secured by benefits. 2012 form 1040 Waiver of survivor benefits. 2012 form 1040 Waiver of 30-day waiting period before annuity starting date. 2012 form 1040 Involuntary cash-out of benefits not more than dollar limit. 2012 form 1040 Exception for certain loans. 2012 form 1040 Exception for QDRO. 2012 form 1040 SIMPLE and safe harbor 401(k) plan exception. 2012 form 1040 Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. 2012 form 1040 Installment percentage. 2012 form 1040 Extended period for making contributions. 2012 form 1040 ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. 2012 form 1040 Caution: Form 5500-EZ not required. 2012 form 1040 Form 5500. 2012 form 1040 Electronic filing of Forms 5500 and 5500-SF. 2012 form 1040 Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. 2012 form 1040 dol. 2012 form 1040 gov/ebsa/pdf/2013-5500. 2012 form 1040 pdf www. 2012 form 1040 dol. 2012 form 1040 gov/ebsa/pdf/2013-5500-SF. 2012 form 1040 pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2012 form 1040 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2012 form 1040 1040 U. 2012 form 1040 S. 2012 form 1040 Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. 2012 form 1040 For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. 2012 form 1040 For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. 2012 form 1040 R. 2012 form 1040 10 plans. 2012 form 1040 A sole proprietor or a partnership can set up one of these plans. 2012 form 1040 A common-law employee or a partner cannot set up one of these plans. 2012 form 1040 The plans described here can also be set up and maintained by employers that are corporations. 2012 form 1040 All the rules discussed here apply to corporations except where specifically limited to the self-employed. 2012 form 1040 The plan must be for the exclusive benefit of employees or their beneficiaries. 2012 form 1040 These qualified plans can include coverage for a self-employed individual. 2012 form 1040 As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2012 form 1040 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2012 form 1040 Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. 2012 form 1040 You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. 2012 form 1040 Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. 2012 form 1040 It provides benefits to a participant largely based on the amount contributed to that participant's account. 2012 form 1040 Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. 2012 form 1040 A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. 2012 form 1040 Profit-sharing plan. 2012 form 1040   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). 2012 form 1040 A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. 2012 form 1040 An employer may even make no contribution to the plan for a given year. 2012 form 1040   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. 2012 form 1040   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). 2012 form 1040 Money purchase pension plan. 2012 form 1040   Contributions to a money purchase pension plan are fixed and are not based on your business profits. 2012 form 1040 For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. 2012 form 1040 This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. 2012 form 1040 Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. 2012 form 1040 Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. 2012 form 1040 Actuarial assumptions and computations are required to figure these contributions. 2012 form 1040 Generally, you will need continuing professional help to have a defined benefit plan. 2012 form 1040 Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. 2012 form 1040 Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. 2012 form 1040 The following is a brief overview of important qualification rules that generally have not yet been discussed. 2012 form 1040 It is not intended to be all-inclusive. 2012 form 1040 See Setting Up a Qualified Plan , later. 2012 form 1040 Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. 2012 form 1040 A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. 2012 form 1040 Plan assets must not be diverted. 2012 form 1040   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. 2012 form 1040 As a general rule, the assets cannot be diverted to the employer. 2012 form 1040 Minimum coverage requirement must be met. 2012 form 1040   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. 2012 form 1040 50 employees, or The greater of: 40% of all employees, or Two employees. 2012 form 1040 If there is only one employee, the plan must benefit that employee. 2012 form 1040 Contributions or benefits must not discriminate. 2012 form 1040   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. 2012 form 1040 Contributions and benefits must not be more than certain limits. 2012 form 1040   Your plan must not provide for contributions or benefits that are more than certain limits. 2012 form 1040 The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. 2012 form 1040 These limits are discussed later in this chapter under Contributions. 2012 form 1040 Minimum vesting standard must be met. 2012 form 1040   Your plan must satisfy certain requirements regarding when benefits vest. 2012 form 1040 A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. 2012 form 1040 A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. 2012 form 1040 Special rules apply to forfeited benefit amounts. 2012 form 1040 In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. 2012 form 1040   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. 2012 form 1040 Forfeitures must be used instead to reduce employer contributions. 2012 form 1040 Participation. 2012 form 1040   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. 2012 form 1040 Has reached age 21. 2012 form 1040 Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). 2012 form 1040 A plan cannot exclude an employee because he or she has reached a specified age. 2012 form 1040 Leased employee. 2012 form 1040   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. 2012 form 1040 These rules include those in all the following areas. 2012 form 1040 Nondiscrimination in coverage, contributions, and benefits. 2012 form 1040 Minimum age and service requirements. 2012 form 1040 Vesting. 2012 form 1040 Limits on contributions and benefits. 2012 form 1040 Top-heavy plan requirements. 2012 form 1040 Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. 2012 form 1040 Benefit payment must begin when required. 2012 form 1040   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. 2012 form 1040 The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. 2012 form 1040 The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. 2012 form 1040 The plan year in which the participant separates from service. 2012 form 1040 Early retirement. 2012 form 1040   Your plan can provide for payment of retirement benefits before the normal retirement age. 2012 form 1040 If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. 2012 form 1040 Satisfies the service requirement for the early retirement benefit. 2012 form 1040 Separates from service with a nonforfeitable right to an accrued benefit. 2012 form 1040 The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. 2012 form 1040 Required minimum distributions. 2012 form 1040   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. 2012 form 1040 See Required Distributions , under Distributions, later. 2012 form 1040 Survivor benefits. 2012 form 1040   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. 2012 form 1040 A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. 2012 form 1040 A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. 2012 form 1040   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. 2012 form 1040 The participant does not choose benefits in the form of a life annuity. 2012 form 1040 The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. 2012 form 1040 The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. 2012 form 1040 Loan secured by benefits. 2012 form 1040   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. 2012 form 1040 Waiver of survivor benefits. 2012 form 1040   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. 2012 form 1040 The plan also must allow the participant to withdraw the waiver. 2012 form 1040 The spouse's consent must be witnessed by a plan representative or notary public. 2012 form 1040 Waiver of 30-day waiting period before annuity starting date. 2012 form 1040    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. 2012 form 1040   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. 2012 form 1040 Involuntary cash-out of benefits not more than dollar limit. 2012 form 1040   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. 2012 form 1040   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. 2012 form 1040 If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. 2012 form 1040   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. 2012 form 1040   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. 2012 form 1040 A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. 2012 form 1040 See Section 402(f) Notice under Distributions, later, for more details. 2012 form 1040 Consolidation, merger, or transfer of assets or liabilities. 2012 form 1040   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. 2012 form 1040 (if the plan had then terminated). 2012 form 1040 Benefits must not be assigned or alienated. 2012 form 1040   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. 2012 form 1040 Exception for certain loans. 2012 form 1040   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. 2012 form 1040 A disqualified person is defined later in this chapter under Prohibited Transactions. 2012 form 1040 Exception for QDRO. 2012 form 1040   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. 2012 form 1040   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. 2012 form 1040 Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. 2012 form 1040 No benefit reduction for social security increases. 2012 form 1040   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. 2012 form 1040 This rule also applies to plans supplementing the benefits provided by other federal or state laws. 2012 form 1040 Elective deferrals must be limited. 2012 form 1040   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. 2012 form 1040 See Limit on Elective Deferrals later in this chapter. 2012 form 1040 Top-heavy plan requirements. 2012 form 1040   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. 2012 form 1040   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. 2012 form 1040 Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. 2012 form 1040   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. 2012 form 1040 These qualification requirements for top-heavy plans are explained in section 416 and its regulations. 2012 form 1040 SIMPLE and safe harbor 401(k) plan exception. 2012 form 1040   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. 2012 form 1040 QACAs (discussed later) also are not subject to top-heavy requirements. 2012 form 1040 Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. 2012 form 1040 First you adopt a written plan. 2012 form 1040 Then you invest the plan assets. 2012 form 1040 You, the employer, are responsible for setting up and maintaining the plan. 2012 form 1040 If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. 2012 form 1040 If you have employees, see Participation, under Qualification Rules, earlier. 2012 form 1040 Set-up deadline. 2012 form 1040   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). 2012 form 1040 Credit for startup costs. 2012 form 1040   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. 2012 form 1040 For more information, see Credit for startup costs under Reminders, earlier. 2012 form 1040 Adopting a Written Plan You must adopt a written plan. 2012 form 1040 The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. 2012 form 1040 Or it can be an individually designed plan. 2012 form 1040 Written plan requirement. 2012 form 1040   To qualify, the plan you set up must be in writing and must be communicated to your employees. 2012 form 1040 The plan's provisions must be stated in the plan. 2012 form 1040 It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. 2012 form 1040 Master or prototype plans. 2012 form 1040   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. 2012 form 1040 Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). 2012 form 1040 Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. 2012 form 1040 Under a prototype plan, a separate trust or custodial account is established for each employer. 2012 form 1040 Plan providers. 2012 form 1040   The following organizations generally can provide IRS-approved master or prototype plans. 2012 form 1040 Banks (including some savings and loan associations and federally insured credit unions). 2012 form 1040 Trade or professional organizations. 2012 form 1040 Insurance companies. 2012 form 1040 Mutual funds. 2012 form 1040 Individually designed plan. 2012 form 1040   If you prefer, you can set up an individually designed plan to meet specific needs. 2012 form 1040 Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. 2012 form 1040 You may need professional help for this. 2012 form 1040 See Rev. 2012 form 1040 Proc. 2012 form 1040 2014-6, 2014-1 I. 2012 form 1040 R. 2012 form 1040 B. 2012 form 1040 198, available at www. 2012 form 1040 irs. 2012 form 1040 gov/irb/2014-1_IRB/ar10. 2012 form 1040 html, as annually updated, that may help you decide whether to apply for approval. 2012 form 1040 Internal Revenue Bulletins are available on the IRS website at IRS. 2012 form 1040 gov They are also available at most IRS offices and at certain libraries. 2012 form 1040 User fee. 2012 form 1040   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. 2012 form 1040 At least one of them must be a non-highly compensated employee participating in the plan. 2012 form 1040 The fee does not apply to requests made by the later of the following dates. 2012 form 1040 The end of the 5th plan year the plan is in effect. 2012 form 1040 The end of any remedial amendment period for the plan that begins within the first 5 plan years. 2012 form 1040 The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. 2012 form 1040   For more information about whether the user fee applies, see Rev. 2012 form 1040 Proc. 2012 form 1040 2014-8, 2014-1 I. 2012 form 1040 R. 2012 form 1040 B. 2012 form 1040 242, available at www. 2012 form 1040 irs. 2012 form 1040 gov/irb/2014-1_IRB/ar12. 2012 form 1040 html, as may be annually updated; Notice 2003-49, 2003-32 I. 2012 form 1040 R. 2012 form 1040 B. 2012 form 1040 294, available at www. 2012 form 1040 irs. 2012 form 1040 gov/irb/2003-32_IRB/ar13. 2012 form 1040 html; and Notice 2011-86, 2011-45 I. 2012 form 1040 R. 2012 form 1040 B. 2012 form 1040 698, available at www. 2012 form 1040 irs. 2012 form 1040 gov/irb/2011-45_IRB/ar11. 2012 form 1040 html. 2012 form 1040 Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. 2012 form 1040 You can establish a trust or custodial account to invest the funds. 2012 form 1040 You, the trust, or the custodial account can buy an annuity contract from an insurance company. 2012 form 1040 Life insurance can be included only if it is incidental to the retirement benefits. 2012 form 1040 You set up a trust by a legal instrument (written document). 2012 form 1040 You may need professional help to do this. 2012 form 1040 You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. 2012 form 1040 You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. 2012 form 1040 If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. 2012 form 1040 Other plan requirements. 2012 form 1040   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. 2012 form 1040 Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. 2012 form 1040 Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. 2012 form 1040 For information on this funding requirement, see section 412 and its regulations. 2012 form 1040 Quarterly installments of required contributions. 2012 form 1040   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. 2012 form 1040 If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. 2012 form 1040 Due dates. 2012 form 1040   The due dates for the installments are 15 days after the end of each quarter. 2012 form 1040 For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). 2012 form 1040 Installment percentage. 2012 form 1040   Each quarterly installment must be 25% of the required annual payment. 2012 form 1040 Extended period for making contributions. 2012 form 1040   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. 2012 form 1040 Contributions A qualified plan is generally funded by your contributions. 2012 form 1040 However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. 2012 form 1040 See Employee Contributions and Elective Deferrals later. 2012 form 1040 Contributions deadline. 2012 form 1040   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. 2012 form 1040 Self-employed individual. 2012 form 1040   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. 2012 form 1040 Your net earnings must be from your personal services, not from your investments. 2012 form 1040 If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. 2012 form 1040 Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. 2012 form 1040 There are also limits on the amount you can deduct. 2012 form 1040 See Deduction Limits , later. 2012 form 1040 Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. 2012 form 1040 The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. 2012 form 1040 Defined benefit plan. 2012 form 1040   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. 2012 form 1040 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. 2012 form 1040 $205,000 ($210,000 for 2014). 2012 form 1040 Defined contribution plan. 2012 form 1040   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. 2012 form 1040 100% of the participant's compensation. 2012 form 1040 $51,000 ($52,000 for 2014). 2012 form 1040   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. 2012 form 1040 Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. 2012 form 1040 Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. 2012 form 1040 Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. 2012 form 1040 See Regulations sections 1. 2012 form 1040 401(k)-2 and 1. 2012 form 1040 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2012 form 1040 When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. 2012 form 1040 But you can apply them to the previous year if all the following requirements are met. 2012 form 1040 You make them by the due date of your tax return for the previous year (plus extensions). 2012 form 1040 The plan was established by the end of the previous year. 2012 form 1040 The plan treats the contributions as though it had received them on the last day of the previous year. 2012 form 1040 You do either of the following. 2012 form 1040 You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. 2012 form 1040 You deduct the contributions on your tax return for the previous year. 2012 form 1040 A partnership shows contributions for partners on Form 1065. 2012 form 1040 Employer's promissory note. 2012 form 1040   Your promissory note made out to the plan is not a payment that qualifies for the deduction. 2012 form 1040 Also, issuing this note is a prohibited transaction subject to tax. 2012 form 1040 See Prohibited Transactions , later. 2012 form 1040 Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2012 form 1040 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2012 form 1040 Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. 2012 form 1040 Defined contribution plans. 2012 form 1040   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. 2012 form 1040 If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. 2012 form 1040 See Deduction Limit for Self-Employed Individuals , later. 2012 form 1040   When figuring the deduction limit, the following rules apply. 2012 form 1040 Elective deferrals (discussed later) are not subject to the limit. 2012 form 1040 Compensation includes elective deferrals. 2012 form 1040 The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). 2012 form 1040 Defined benefit plans. 2012 form 1040   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. 2012 form 1040 Consequently, an actuary must figure your deduction limit. 2012 form 1040    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. 2012 form 1040 Table 4–1. 2012 form 1040 Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. 2012 form 1040 Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. 2012 form 1040 Compensation is your net earnings from self-employment, defined in chapter 1. 2012 form 1040 This definition takes into account both the following items. 2012 form 1040 The deduction for the deductible part of your self-employment tax. 2012 form 1040 The deduction for contributions on your behalf to the plan. 2012 form 1040 The deduction for your own contributions and your net earnings depend on each other. 2012 form 1040 For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. 2012 form 1040 To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. 2012 form 1040 Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. 2012 form 1040 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. 2012 form 1040 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. 2012 form 1040 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. 2012 form 1040 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. 2012 form 1040 ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. 2012 form 1040 Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. 2012 form 1040 For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. 2012 form 1040 However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. 2012 form 1040 See Deduction Limit for Self-Employed Individuals, earlier. 2012 form 1040 The amount you carry over and deduct may be subject to the excise tax discussed next. 2012 form 1040 Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. 2012 form 1040 Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. 2012 form 1040 In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. 2012 form 1040 Special rule for self-employed individuals. 2012 form 1040   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. 2012 form 1040 Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. 2012 form 1040 See Minimum Funding Requirement , earlier. 2012 form 1040 Reporting the tax. 2012 form 1040   You must report the tax on your nondeductible contributions on Form 5330. 2012 form 1040 Form 5330 includes a computation of the tax. 2012 form 1040 See the separate instructions for completing the form. 2012 form 1040 Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. 2012 form 1040 A plan with this type of arrangement is popularly known as a “401(k) plan. 2012 form 1040 ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. 2012 form 1040 ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. 2012 form 1040 In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. 2012 form 1040 A profit-sharing plan. 2012 form 1040 A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. 2012 form 1040 Partnership. 2012 form 1040   A partnership can have a 401(k) plan. 2012 form 1040 Restriction on conditions of participation. 2012 form 1040   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. 2012 form 1040 Matching contributions. 2012 form 1040   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. 2012 form 1040 For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. 2012 form 1040 Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. 2012 form 1040 Nonelective contributions. 2012 form 1040   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. 2012 form 1040 These are called nonelective contributions. 2012 form 1040 Employee compensation limit. 2012 form 1040   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. 2012 form 1040 This limit is $260,000 in 2014. 2012 form 1040 SIMPLE 401(k) plan. 2012 form 1040   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. 2012 form 1040 A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. 2012 form 1040 For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. 2012 form 1040 Distributions. 2012 form 1040   Certain rules apply to distributions from 401(k) plans. 2012 form 1040 See Distributions From 401(k) Plans , later. 2012 form 1040 Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. 2012 form 1040 This limit applies without regard to community property laws. 2012 form 1040 Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. 2012 form 1040 For 2013 and 2014, the basic limit on elective deferrals is $17,500. 2012 form 1040 This limit applies to all salary reduction contributions and elective deferrals. 2012 form 1040 If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. 2012 form 1040 Catch-up contributions. 2012 form 1040   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. 2012 form 1040 The catch-up contribution limit for 2013 and 2014 is $5,500. 2012 form 1040 Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). 2012 form 1040 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. 2012 form 1040 The catch-up contribution limit. 2012 form 1040 The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 2012 form 1040 Treatment of contributions. 2012 form 1040   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. 2012 form 1040 Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. 2012 form 1040 Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. 2012 form 1040 Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. 2012 form 1040 Forfeiture. 2012 form 1040   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. 2012 form 1040 Reporting on Form W-2. 2012 form 1040   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. 2012 form 1040 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. 2012 form 1040 You must also include them in box 12. 2012 form 1040 Mark the “Retirement plan” checkbox in box 13. 2012 form 1040 For more information, see the Form W-2 instructions. 2012 form 1040 Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. 2012 form 1040 Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. 2012 form 1040 These contributions are elective deferrals. 2012 form 1040 An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). 2012 form 1040 For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. 2012 form 1040 Eligible automatic contribution arrangement. 2012 form 1040   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. 2012 form 1040 This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). 2012 form 1040 There is no required deferral percentage. 2012 form 1040 Withdrawals. 2012 form 1040   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. 2012 form 1040 The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. 2012 form 1040 The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. 2012 form 1040   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. 2012 form 1040 The additional 10% tax on early distributions will not apply to the distribution. 2012 form 1040 Notice requirement. 2012 form 1040   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. 2012 form 1040 The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. 2012 form 1040 The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. 2012 form 1040 The notice also must explain how contributions will be invested in the absence of an investment election by the employee. 2012 form 1040 Qualified automatic contribution arrangement. 2012 form 1040    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. 2012 form 1040 It contains an automatic enrollment feature, and mandatory employer contributions are required. 2012 form 1040 If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). 2012 form 1040 Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. 2012 form 1040 Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. 2012 form 1040 In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). 2012 form 1040 If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. 2012 form 1040 It must be applied uniformly. 2012 form 1040 It must not exceed 10%. 2012 form 1040 It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. 2012 form 1040 It must increase to at least 4% in the following plan year. 2012 form 1040 It must increase to at least 5% in the following plan year. 2012 form 1040 It must increase to at least 6% in subsequent plan years. 2012 form 1040 Matching or nonelective contributions. 2012 form 1040   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. 2012 form 1040 Matching contributions. 2012 form 1040 You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. 2012 form 1040 An amount equal to 100% of elective deferrals, up to 1% of compensation. 2012 form 1040 An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. 2012 form 1040 Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. 2012 form 1040 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2012 form 1040 Nonelective contributions. 2012 form 1040 You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. 2012 form 1040 Vesting requirements. 2012 form 1040   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. 2012 form 1040 These contributions are subject to special withdrawal restrictions, discussed later. 2012 form 1040 Notice requirements. 2012 form 1040   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. 2012 form 1040 The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. 2012 form 1040 The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. 2012 form 1040 Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. 2012 form 1040 The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. 2012 form 1040 Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. 2012 form 1040 He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. 2012 form 1040 The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. 2012 form 1040 Excess withdrawn by April 15. 2012 form 1040   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. 2012 form 1040 However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. 2012 form 1040 The distribution is not subject to the additional 10% tax on early distributions. 2012 form 1040   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. 2012 form 1040   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. 2012 form 1040 Excess not withdrawn by April 15. 2012 form 1040   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. 2012 form 1040 In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. 2012 form 1040 Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. 2012 form 1040 Reporting corrective distributions on Form 1099-R. 2012 form 1040   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. 2012 form 1040 For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. 2012 form 1040 Tax on excess contributions of highly compensated employees. 2012 form 1040   The law provides tests to detect discrimination in a plan. 2012 form 1040 If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. 2012 form 1040 Report the tax on Form 5330. 2012 form 1040 The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. 2012 form 1040 Also, the ACP test does not apply to these plans if certain additional requirements are met. 2012 form 1040   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. 2012 form 1040 Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. 2012 form 1040   See Regulations sections 1. 2012 form 1040 401(k)-2 and 1. 2012 form 1040 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2012 form 1040    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. 2012 form 1040 Safe harbor 401(k) plan. 2012 form 1040 If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. 2012 form 1040 For your plan to be a safe harbor plan, you must meet the following conditions. 2012 form 1040 Matching or nonelective contributions. 2012 form 1040 You must make matching or nonelective contributions according to one of the following formulas. 2012 form 1040 Matching contributions. 2012 form 1040 You must make matching contributions according to the following rules. 2012 form 1040 You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. 2012 form 1040 You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. 2012 form 1040 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2012 form 1040 Nonelective contributions. 2012 form 1040 You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. 2012 form 1040 These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. 2012 form 1040 Notice requirement. 2012 form 1040 You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. 2012 form 1040 The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. 2012 form 1040 Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. 2012 form 1040 Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. 2012 form 1040 However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. 2012 form 1040 Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. 2012 form 1040 Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. 2012 form 1040 Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. 2012 form 1040 An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. 2012 form 1040 The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. 2012 form 1040 Rollover. 2012 form 1040   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. 2012 form 1040 For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. 2012 form 1040 R. 2012 form 1040 B. 2012 form 1040 872, available at www. 2012 form 1040 irs. 2012 form 1040 gov/irb/2010-51_IRB/ar11. 2012 form 1040 html, and Notice 2013-74. 2012 form 1040 A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. 2012 form 1040 Rollover amounts do not apply toward the annual deferral limit. 2012 form 1040 Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. 2012 form 1040 See the Form W-2 and 1099-R instructions for detailed information. 2012 form 1040 Distributions Amounts paid to plan participants from a qualified plan are called distributions. 2012 form 1040 Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. 2012 form 1040 Also, certain loans may be treated as distributions. 2012 form 1040 See Loans Treated as Distributions in Publication 575. 2012 form 1040 Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). 2012 form 1040 These distribution rules apply individually to each qualified plan. 2012 form 1040 You cannot satisfy the requirement for one plan by taking a distribution from another. 2012 form 1040 The plan must provide that these rules override any inconsistent distribution options previously offered. 2012 form 1040 Minimum distribution. 2012 form 1040   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. 2012 form 1040 This minimum is figured by dividing the account balance by the applicable life expectancy. 2012 form 1040 The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. 2012 form 1040 For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. 2012 form 1040 Required beginning date. 2012 form 1040   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. 2012 form 1040   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. 2012 form 1040 Calendar year in which he or she reaches age 70½. 2012 form 1040 Calendar year in which he or she retires from employment with the employer maintaining the plan. 2012 form 1040 However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. 2012 form 1040   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. 2012 form 1040 For more information, see Tax on Excess Accumulation in Publication 575. 2012 form 1040 Distributions after the starting year. 2012 form 1040   The distribution required to be made by April 1 is treated as a distribution for the starting year. 2012 form 1040 (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. 2012 form 1040 ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. 2012 form 1040 If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). 2012 form 1040 Distributions after participant's death. 2012 form 1040   See Publication 575 for the special rules covering distributions made after the death of a participant. 2012 form 1040 Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. 2012 form 1040 The employee retires, dies, becomes disabled, or otherwise severs employment. 2012 form 1040 The plan ends and no other defined contribution plan is established or continued. 2012 form 1040 In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. 2012 form 1040 For the rules on hardship distributions, including the limits on them, see Regulations section 1. 2012 form 1040 401(k)-1(d). 2012 form 1040 The employee becomes eligible for a qualified reservist distribution (defined next). 2012 form 1040 Certain distributions listed above may be subject to the tax on early distributions discussed later. 2012 form 1040 Qualified reservist distributions. 2012 form 1040   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. 2012 form 1040 All or part of a qualified reservist distribution can be recontributed to an IRA. 2012 form 1040 The additional 10% tax on early distributions does not apply to a qualified reservist distribution. 2012 form 1040 Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. 2012 form 1040 Since most recipients have no cost basis, a distribution is generally fully taxable. 2012 form 1040 An exception is a distribution that is properly rolled over as discussed under Rollover, next. 2012 form 1040 The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. 2012 form 1040 See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. 2012 form 1040 Note. 2012 form 1040 A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. 2012 form 1040 Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. 2012 form 1040 See Qualified distributions under Qualified Roth Contribution Program, earlier. 2012 form 1040 Rollover. 2012 form 1040   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. 2012 form 1040 However, it may be subject to withholding as discussed under Withholding requirement, later. 2012 form 1040 A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. 2012 form 1040 Eligible rollover distribution. 2012 form 1040   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. 2012 form 1040 A required minimum distribution. 2012 form 1040 See Required Distributions , earlier. 2012 form 1040 Any of a series of substantially equal payments made at least once a year over any of the following periods. 2012 form 1040 The employee's life or life expectancy. 2012 form 1040 The joint lives or life expectancies of the employee and beneficiary. 2012 form 1040 A period of 10 years or longer. 2012 form 1040 A hardship distribution. 2012 form 1040 The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. 2012 form 1040 See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. 2012 form 1040 Loans treated as distributions. 2012 form 1040 Dividends on employer securities. 2012 form 1040 The cost of any life insurance coverage provided under a qualified retirement plan. 2012 form 1040 Similar items designated by the IRS in published guidance. 2012 form 1040 See, for example, the Instructions for Forms 1099-R and 5498. 2012 form 1040 Rollover of nontaxable amounts. 2012 form 1040   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. 2012 form 1040 If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. 2012 form 1040 If the rollover is to an IRA, the transfer can be made by any rollover method. 2012 form 1040 Note. 2012 form 1040 A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. 2012 form 1040 If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). 2012 form 1040 More information. 2012 form 1040   For more information about rollovers, see Rollovers in Pubs. 2012 form 1040 575 and 590. 2012 form 1040 Withholding requirement. 2012 form 1040   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. 2012 form 1040 Exceptions. 2012 form 1040   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. 2012 form 1040   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. 2012 form 1040 Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). 2012 form 1040 However, the participant can choose not to have tax withheld from these distributions. 2012 form 1040 If the participant does not make this choice, the following withholding rules apply. 2012 form 1040 For periodic distributions, withholding is based on their treatment as wages. 2012 form 1040 For nonperiodic distributions, 10% of the taxable part is withheld. 2012 form 1040 Estimated tax payments. 2012 form 1040   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. 2012 form 1040 For more information, see Withholding Tax and Estimated Tax in Publication 575. 2012 form 1040 Section 402(f) Notice. 2012 form 1040   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. 2012 form 1040 That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. 2012 form 1040 That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. 2012 form 1040 That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. 2012 form 1040 Certain other rules that may be applicable. 2012 form 1040   Notice 2009-68, 2009-39 I. 2012 form 1040 R. 2012 form 1040 B. 2012 form 1040 423, available at www. 2012 form 1040 irs. 2012 form 1040 gov/irb/2009-39_IRB/ar14. 2012 form 1040 html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. 2012 form 1040 If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. 2012 form 1040 Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. 2012 form 1040 Timing of notice. 2012 form 1040   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. 2012 form 1040 Method of notice. 2012 form 1040   The written notice must be provided individually to each distributee of an eligible rollover distribution. 2012 form 1040 Posting of the notice is not sufficient. 2012 form 1040 However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. 2012 form 1040 See Regulations section 1. 2012 form 1040 401(a)-21. 2012 form 1040 Tax on failure to give notice. 2012 form 1040   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. 2012 form 1040 The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. 2012 form 1040 Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. 2012 form 1040 This tax applies to the amount received that the employee must include in income. 2012 form 1040 Exceptions. 2012 form 1040   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. 2012 form 1040 Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. 2012 form 1040 Made due to the employee having a qualifying disability. 2012 form 1040 Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. 2012 form 1040 (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. 2012 form 1040 ) Made to an employee after separation from service if the separation occurred during o
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Federal Motor Carrier Safety Administration (FMCSA)

The FMCSA provides information about your rights when moving across state lines (interstate moves). Consumers should submit household goods commercial complaints or dangerous safety violations involving a commercial truck or bus to this agency.

Contact the Agency or Department

Website: Federal Motor Carrier Safety Administration (FMCSA) (Interstate moving information)

Contact In-Person: Field Offices

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Phone Number: 202-366-2519

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1-888-368-7238

TTY: 1-800-877-8339

The 2012 Form 1040

2012 form 1040 22. 2012 form 1040   Taxes Table of Contents IntroductionIndian tribal government. 2012 form 1040 Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. 2012 form 1040 Real Estate TaxesReal estate taxes for prior years. 2012 form 1040 Examples. 2012 form 1040 Form 1099-S. 2012 form 1040 Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct Introduction This chapter discusses which taxes you can deduct if you itemize deductions on Schedule A (Form 1040). 2012 form 1040 It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. 2012 form 1040 This chapter covers the following topics. 2012 form 1040 Income taxes (federal, state, local, and foreign). 2012 form 1040 General sales taxes (state and local). 2012 form 1040 Real estate taxes (state, local, and foreign). 2012 form 1040 Personal property taxes (state and local). 2012 form 1040 Taxes and fees you cannot deduct. 2012 form 1040 Use Table 22-1 as a guide to determine which taxes you can deduct. 2012 form 1040 The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. 2012 form 1040 Business taxes. 2012 form 1040   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. 2012 form 1040 For information on these taxes, see Publication 535, Business Expenses. 2012 form 1040 State or local taxes. 2012 form 1040   These are taxes imposed by the 50 states, U. 2012 form 1040 S. 2012 form 1040 possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. 2012 form 1040 Indian tribal government. 2012 form 1040   An Indian tribal government recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a state for purposes of claiming a deduction for taxes. 2012 form 1040 Income taxes, real estate taxes, and personal property taxes imposed by that Indian tribal government (or by any of its subdivisions that are treated as political subdivisions of a state) are deductible. 2012 form 1040 General sales taxes. 2012 form 1040   These are taxes imposed at one rate on retail sales of a broad range of classes of items. 2012 form 1040 Foreign taxes. 2012 form 1040   These are taxes imposed by a foreign country or any of its political subdivisions. 2012 form 1040 Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 530 Tax Information for Homeowners Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule E (Form 1040) Supplemental Income and Loss 1116 Foreign Tax Credit Tests To Deduct Any Tax The following two tests must be met for you to deduct any tax. 2012 form 1040 The tax must be imposed on you. 2012 form 1040 You must pay the tax during your tax year. 2012 form 1040 The tax must be imposed on you. 2012 form 1040   In general, you can deduct only taxes imposed on you. 2012 form 1040   Generally, you can deduct property taxes only if you are an owner of the property. 2012 form 1040 If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return. 2012 form 1040 You must pay the tax during your tax year. 2012 form 1040   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. 2012 form 1040 If you pay your taxes by check, the day you mail or deliver the check is the date of payment, provided the check is honored by the financial institution. 2012 form 1040 If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment. 2012 form 1040 If you contest a tax liability and are a cash basis taxpayer, you can deduct the tax only in the year you actually pay it (or transfer money or other property to provide for satisfaction of the contested liability). 2012 form 1040 See Publication 538, Accounting Periods and Methods, for details. 2012 form 1040    If you use an accrual method of accounting, see Publication 538 for more information. 2012 form 1040 Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. 2012 form 1040 State and Local Income Taxes You can deduct state and local income taxes. 2012 form 1040 However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. 2012 form 1040 See General Sales Taxes , later. 2012 form 1040 Exception. 2012 form 1040    You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income. 2012 form 1040 For example, you cannot deduct the part of a state's income tax that is on a cost-of-living allowance exempt from federal income tax. 2012 form 1040 What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. 2012 form 1040 Withheld taxes. 2012 form 1040   You can deduct state and local income taxes withheld from your salary in the year they are withheld. 2012 form 1040 Your Form(s) W-2 will show these amounts. 2012 form 1040 Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. 2012 form 1040 Estimated tax payments. 2012 form 1040   You can deduct estimated tax payments you made during the year to a state or local government. 2012 form 1040 However, you must have a reasonable basis for making the estimated tax payments. 2012 form 1040 Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. 2012 form 1040 For example, you made an estimated state income tax payment. 2012 form 1040 However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. 2012 form 1040 You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. 2012 form 1040 Refund applied to taxes. 2012 form 1040   You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2013 estimated state or local income taxes. 2012 form 1040    Do not reduce your deduction by either of the following items. 2012 form 1040 Any state or local income tax refund (or credit) you expect to receive for 2013. 2012 form 1040 Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. 2012 form 1040   However, part or all of this refund (or credit) may be taxable. 2012 form 1040 See Refund (or credit) of state or local income taxes , later. 2012 form 1040 Separate federal returns. 2012 form 1040   If you and your spouse file separate state, local, and federal income tax returns, you each can deduct on your federal return only the amount of your own state and local income tax that you paid during the tax year. 2012 form 1040 Joint state and local returns. 2012 form 1040   If you and your spouse file joint state and local returns and separate federal returns, each of you can deduct on your separate federal return a part of the total state and local income taxes paid during the tax year. 2012 form 1040 You can deduct only the amount of the total taxes that is proportionate to your gross income compared to the combined gross income of you and your spouse. 2012 form 1040 However, you cannot deduct more than the amount you actually paid during the year. 2012 form 1040 You can avoid this calculation if you and your spouse are jointly and individually liable for the full amount of the state and local income taxes. 2012 form 1040 If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. 2012 form 1040 Joint federal return. 2012 form 1040   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. 2012 form 1040 Contributions to state benefit funds. 2012 form 1040    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. 2012 form 1040 For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. 2012 form 1040 Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. 2012 form 1040 Alaska Unemployment Compensation Fund. 2012 form 1040 California Nonoccupational Disability Benefit Fund. 2012 form 1040 New Jersey Nonoccupational Disability Benefit Fund. 2012 form 1040 New Jersey Unemployment Compensation Fund. 2012 form 1040 New York Nonoccupational Disability Benefit Fund. 2012 form 1040 Pennsylvania Unemployment Compensation Fund. 2012 form 1040 Rhode Island Temporary Disability Benefit Fund. 2012 form 1040 Washington State Supplemental Workmen's Compensation Fund. 2012 form 1040    Employee contributions to private or voluntary disability plans are not deductible. 2012 form 1040 Refund (or credit) of state or local income taxes. 2012 form 1040   If you receive a refund of (or credit for) state or local income taxes in a year after the year in which you paid them, you may have to include the refund in income on Form 1040, line 10, in the year you receive it. 2012 form 1040 This includes refunds resulting from taxes that were overwithheld, applied from a prior year return, not figured correctly, or figured again because of an amended return. 2012 form 1040 If you did not itemize your deductions in the previous year, do not include the refund in income. 2012 form 1040 If you deducted the taxes in the previous year, include all or part of the refund on Form 1040, line 10, in the year you receive the refund. 2012 form 1040 For a discussion of how much to include, see Recoveries in chapter 12. 2012 form 1040 Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. 2012 form 1040 S. 2012 form 1040 possession. 2012 form 1040 However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. 2012 form 1040 S. 2012 form 1040 tax under the foreign earned income exclusion or the foreign housing exclusion. 2012 form 1040 For information on these exclusions, see Publication 54, Tax Guide for U. 2012 form 1040 S. 2012 form 1040 Citizens and Resident Aliens Abroad. 2012 form 1040 For information on the foreign tax credit, see Publication 514. 2012 form 1040 General Sales Taxes You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5b. 2012 form 1040 You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. 2012 form 1040 Actual expenses. 2012 form 1040   Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. 2012 form 1040 However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. 2012 form 1040 If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. 2012 form 1040 If you use the actual expenses method, you must have receipts to show the general sales taxes paid. 2012 form 1040 Do not include sales taxes paid on items used in your trade or business. 2012 form 1040 Motor vehicles. 2012 form 1040   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. 2012 form 1040 This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. 2012 form 1040 Optional sales tax tables. 2012 form 1040   Instead of using your actual expenses, you can figure your state and local general sales tax deduction using the state and local sales tax tables in the Instructions for Schedule A (Form 1040). 2012 form 1040 You may also be able to add the state and local general sales taxes paid on certain specified items. 2012 form 1040   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. 2012 form 1040 Your income is your adjusted gross income plus any nontaxable items such as the following. 2012 form 1040 Tax-exempt interest. 2012 form 1040 Veterans' benefits. 2012 form 1040 Nontaxable combat pay. 2012 form 1040 Workers' compensation. 2012 form 1040 Nontaxable part of social security and railroad retirement benefits. 2012 form 1040 Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. 2012 form 1040 Public assistance payments. 2012 form 1040 If you lived in different states during the same tax year, you must prorate your applicable table amount for each state based on the days you lived in each state. 2012 form 1040 See the Instructions for Schedule A (Form 1040), line 5, for details. 2012 form 1040 Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. 2012 form 1040 You can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. 2012 form 1040 Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. 2012 form 1040 They also do not include itemized charges for services (such as trash collection) assessed against specific property or certain people, even if the charge is paid to the taxing authority. 2012 form 1040 For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. 2012 form 1040 Tenant-shareholders in a cooperative housing corporation. 2012 form 1040   Generally, if you are a tenant-stockholder in a cooperative housing corporation, you can deduct the amount paid to the corporation that represents your share of the real estate taxes the corporation paid or incurred for your dwelling unit. 2012 form 1040 The corporation should provide you with a statement showing your share of the taxes. 2012 form 1040 For more information, see Special Rules for Cooperatives in Publication 530. 2012 form 1040 Division of real estate taxes between buyers and sellers. 2012 form 1040   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. 2012 form 1040   The buyer and the seller must divide the real estate taxes according to the number of days in the real property tax year (the period to which the tax is imposed relates) that each owned the property. 2012 form 1040 The seller is treated as paying the taxes up to, but not including, the date of sale. 2012 form 1040 The buyer is treated as paying the taxes beginning with the date of sale. 2012 form 1040 This applies regardless of the lien dates under local law. 2012 form 1040 Generally, this information is included on the settlement statement provided at the closing. 2012 form 1040    If you (the seller) cannot deduct taxes until they are paid because you use the cash method of accounting, and the buyer of your property is personally liable for the tax, you are considered to have paid your part of the tax at the time of the sale. 2012 form 1040 This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. 2012 form 1040 However, you must also include the amount of that tax in the selling price of the property. 2012 form 1040 The buyer must include the same amount in his or her cost of the property. 2012 form 1040   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. 2012 form 1040 Worksheet 22-1. 2012 form 1040 Figuring Your Real Estate Tax Deduction 1. 2012 form 1040 Enter the total real estate taxes for the real property tax year   2. 2012 form 1040 Enter the number of days in the real property tax year that you owned the property   3. 2012 form 1040 Divide line 2 by 365 (for leap years, divide line 2 by 366) . 2012 form 1040 4. 2012 form 1040 Multiply line 1 by line 3. 2012 form 1040 This is your deduction. 2012 form 1040 Enter it on Schedule A (Form 1040), line 6   Note. 2012 form 1040 Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. 2012 form 1040 Your total deduction is the sum of the line 4 amounts for all of the properties. 2012 form 1040 Real estate taxes for prior years. 2012 form 1040   Do not divide delinquent taxes between the buyer and seller if the taxes are for any real property tax year before the one in which the property is sold. 2012 form 1040 Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. 2012 form 1040 The buyer must add them to the cost of the property. 2012 form 1040 The seller can deduct these taxes paid by the buyer. 2012 form 1040 However, the seller must include them in the selling price. 2012 form 1040 Examples. 2012 form 1040   The following examples illustrate how real estate taxes are divided between buyer and seller. 2012 form 1040 Example 1. 2012 form 1040 Dennis and Beth White's real property tax year for both their old home and their new home is the calendar year, with payment due August 1. 2012 form 1040 The tax on their old home, sold on May 7, was $620. 2012 form 1040 The tax on their new home, bought on May 3, was $732. 2012 form 1040 Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the old home even though they did not actually pay them to the taxing authority. 2012 form 1040 On the other hand, they can claim only a proportionate share of the taxes they paid on their new property even though they paid the entire amount. 2012 form 1040 Dennis and Beth owned their old home during the real property tax year for 126 days (January 1 to May 6, the day before the sale). 2012 form 1040 They figure their deduction for taxes on their old home as follows. 2012 form 1040 Worksheet 22-1. 2012 form 1040 Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. 2012 form 1040 Enter the total real estate taxes for the real property tax year $620 2. 2012 form 1040 Enter the number of days in the real property tax year that you owned the property 126 3. 2012 form 1040 Divide line 2 by 365 (for leap years, divide line 2 by 366) . 2012 form 1040 3452 4. 2012 form 1040 Multiply line 1 by line 3. 2012 form 1040 This is your deduction. 2012 form 1040 Enter it on Schedule A (Form 1040), line 6 $214 Since the buyers of their old home paid all of the taxes, Dennis and Beth also include the $214 in the selling price of the old home. 2012 form 1040 (The buyers add the $214 to their cost of the home. 2012 form 1040 ) Dennis and Beth owned their new home during the real property tax year for 243 days (May 3 to December 31, including their date of purchase). 2012 form 1040 They figure their deduction for taxes on their new home as follows. 2012 form 1040 Worksheet 22-1. 2012 form 1040 Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. 2012 form 1040 Enter the total real estate taxes for the real property tax year $732 2. 2012 form 1040 Enter the number of days in the real property tax year that you owned the property 243 3. 2012 form 1040 Divide line 2 by 365 (for leap years, divide line 2 by 366) . 2012 form 1040 6658 4. 2012 form 1040 Multiply line 1 by line 3. 2012 form 1040 This is your deduction. 2012 form 1040 Enter it on Schedule A (Form 1040), line 6 $487 Since Dennis and Beth paid all of the taxes on the new home, they add $245 ($732 paid less $487 deduction) to their cost of the new home. 2012 form 1040 (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. 2012 form 1040 ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. 2012 form 1040 They will enter this amount on Schedule A (Form 1040), line 6. 2012 form 1040 Example 2. 2012 form 1040 George and Helen Brown bought a new home on May 3, 2013. 2012 form 1040 Their real property tax year for the new home is the calendar year. 2012 form 1040 Real estate taxes for 2012 were assessed in their state on January 1, 2013. 2012 form 1040 The taxes became due on May 31, 2013, and October 31, 2013. 2012 form 1040 The Browns agreed to pay all taxes due after the date of purchase. 2012 form 1040 Real estate taxes for 2012 were $680. 2012 form 1040 They paid $340 on May 31, 2013, and $340 on October 31, 2013. 2012 form 1040 These taxes were for the 2012 real property tax year. 2012 form 1040 The Browns cannot deduct them since they did not own the property until 2013. 2012 form 1040 Instead, they must add $680 to the cost of their new home. 2012 form 1040 In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. 2012 form 1040 The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). 2012 form 1040 They will figure their 2014 deduction for taxes as follows. 2012 form 1040 Worksheet 22-1. 2012 form 1040 Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. 2012 form 1040 Enter the total real estate taxes for the real property tax year $752 2. 2012 form 1040 Enter the number of days in the real property tax year that you owned the property 243 3. 2012 form 1040 Divide line 2 by 365 (for leap years, divide line 2 by 366) . 2012 form 1040 6658 4. 2012 form 1040 Multiply line 1 by line 3. 2012 form 1040 This is your deduction. 2012 form 1040 Claim it on Schedule A (Form 1040), line 6 $501 The remaining $251 ($752 paid less $501 deduction) of taxes paid in 2014, along with the $680 paid in 2013, is added to the cost of their new home. 2012 form 1040 Because the taxes up to the date of sale are considered paid by the seller on the date of sale, the seller is entitled to a 2013 tax deduction of $931. 2012 form 1040 This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. 2012 form 1040 The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. 2012 form 1040 The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. 2012 form 1040 Form 1099-S. 2012 form 1040   For certain sales or exchanges of real estate, the person responsible for closing the sale (generally the settlement agent) prepares Form 1099-S, Proceeds From Real Estate Transactions, to report certain information to the IRS and to the seller of the property. 2012 form 1040 Box 2 of Form 1099-S is for the gross proceeds from the sale and should include the portion of the seller's real estate tax liability that the buyer will pay after the date of sale. 2012 form 1040 The buyer includes these taxes in the cost basis of the property, and the seller both deducts this amount as a tax paid and includes it in the sales price of the property. 2012 form 1040   For a real estate transaction that involves a home, any real estate tax the seller paid in advance but that is the liability of the buyer appears on Form 1099-S, box 5. 2012 form 1040 The buyer deducts this amount as a real estate tax, and the seller reduces his or her real estate tax deduction (or includes it in income) by the same amount. 2012 form 1040 See Refund (or rebate) , later. 2012 form 1040 Taxes placed in escrow. 2012 form 1040   If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. 2012 form 1040 You can deduct only the real estate tax that the third party actually paid to the taxing authority. 2012 form 1040 If the third party does not notify you of the amount of real estate tax that was paid for you, contact the third party or the taxing authority to find the proper amount to show on your return. 2012 form 1040 Tenants by the entirety. 2012 form 1040   If you and your spouse held property as tenants by the entirety and you file separate federal returns, each of you can deduct only the taxes each of you paid on the property. 2012 form 1040 Divorced individuals. 2012 form 1040   If your divorce or separation agreement states that you must pay the real estate taxes for a home owned by you and your spouse, part of your payments may be deductible as alimony and part as real estate taxes. 2012 form 1040 See Taxes and insurance in chapter 18 for more information. 2012 form 1040 Ministers' and military housing allowances. 2012 form 1040   If you are a minister or a member of the uniformed services and receive a housing allowance that you can exclude from income, you still can deduct all of the real estate taxes you pay on your home. 2012 form 1040 Refund (or rebate). 2012 form 1040   If you received a refund or rebate in 2013 of real estate taxes you paid in 2013, you must reduce your deduction by the amount refunded to you. 2012 form 1040 If you received a refund or rebate in 2013 of real estate taxes you deducted in an earlier year (either as an itemized deduction or an increase to your standard deduction), you generally must include the refund or rebate in income in the year you receive it. 2012 form 1040 However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. 2012 form 1040 For more information, see Recoveries in chapter 12. 2012 form 1040 Table 22-1. 2012 form 1040 Which Taxes Can You Deduct? Type of Tax You Can Deduct You Cannot Deduct Fees and Charges Fees and charges that are expenses of your trade or business or of producing income. 2012 form 1040 Fees and charges that are not expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Cannot Deduct ). 2012 form 1040     Fines and penalties. 2012 form 1040 Income Taxes State and local income taxes. 2012 form 1040 Federal income taxes. 2012 form 1040   Foreign income taxes. 2012 form 1040     Employee contributions to state funds listed under Contributions to state benefit funds . 2012 form 1040 Employee contributions to private or voluntary disability plans. 2012 form 1040     State and local general sales taxes if you choose to deduct state and local income taxes. 2012 form 1040 General Sales Taxes State and local general sales taxes, including compensating use taxes. 2012 form 1040 State and local income taxes if you choose to deduct state and local general sales taxes. 2012 form 1040 Other Taxes Taxes that are expenses of your trade or business. 2012 form 1040 Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. 2012 form 1040   Taxes on property producing rent or royalty income. 2012 form 1040 Per capita taxes. 2012 form 1040   Occupational taxes. 2012 form 1040 See chapter 28. 2012 form 1040     One-half of self-employment tax paid. 2012 form 1040   Personal Property Taxes State and local personal property taxes. 2012 form 1040 Customs duties that are not expenses of your trade or business or of producing income. 2012 form 1040 Real Estate Taxes State and local real estate taxes. 2012 form 1040 Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). 2012 form 1040   Foreign real estate taxes. 2012 form 1040 Taxes for local benefits (with exceptions). 2012 form 1040 See Real Estate-Related Items You Cannot Deduct . 2012 form 1040   Tenant's share of real estate taxes paid by  cooperative housing corporation. 2012 form 1040 Trash and garbage pickup fees (with exceptions). 2012 form 1040 See Real Estate-Related Items You Cannot Deduct . 2012 form 1040     Rent increase due to higher real estate taxes. 2012 form 1040     Homeowners' association charges. 2012 form 1040 Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. 2012 form 1040 Taxes for local benefits. 2012 form 1040 Itemized charges for services (such as trash and garbage pickup fees). 2012 form 1040 Transfer taxes (or stamp taxes). 2012 form 1040 Rent increases due to higher real estate taxes. 2012 form 1040 Homeowners' association charges. 2012 form 1040 Taxes for local benefits. 2012 form 1040   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. 2012 form 1040 These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. 2012 form 1040 You should increase the basis of your property by the amount of the assessment. 2012 form 1040   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. 2012 form 1040 If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. 2012 form 1040 If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. 2012 form 1040    Taxes for local benefits may be included in your real estate tax bill. 2012 form 1040 If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. 2012 form 1040 You should use the rules above to determine if the local benefit tax is deductible. 2012 form 1040 Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. 2012 form 1040 Itemized charges for services. 2012 form 1040    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. 2012 form 1040 For example, you cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance). 2012 form 1040    You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. 2012 form 1040 If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. 2012 form 1040 Exception. 2012 form 1040   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if: The fees or charges are imposed at a like rate against all property in the taxing jurisdiction, The funds collected are not earmarked; instead, they are commingled with general revenue funds, and Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected. 2012 form 1040 Transfer taxes (or stamp taxes). 2012 form 1040   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. 2012 form 1040 If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. 2012 form 1040 If paid by the buyer, they are included in the cost basis of the property. 2012 form 1040 Rent increase due to higher real estate taxes. 2012 form 1040   If your landlord increases your rent in the form of a tax surcharge because of increased real estate taxes, you cannot deduct the increase as taxes. 2012 form 1040 Homeowners' association charges. 2012 form 1040   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. 2012 form 1040 Personal Property Taxes Personal property tax is deductible if it is a state or local tax that is: Charged on personal property, Based only on the value of the personal property, and Charged on a yearly basis, even if it is collected more or less than once a year. 2012 form 1040 A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. 2012 form 1040 For example, a yearly tax based on value qualifies as a personal property tax even if it is called a registration fee and is for the privilege of registering motor vehicles or using them on the highways. 2012 form 1040 If the tax is partly based on value and partly based on other criteria, it may qualify in part. 2012 form 1040 Example. 2012 form 1040 Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. 2012 form 1040 You paid $32 based on the value ($1,500) and weight (3,400 lbs. 2012 form 1040 ) of your car. 2012 form 1040 You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. 2012 form 1040 The remaining $17 ($. 2012 form 1040 50 × 34), based on the weight, is not deductible. 2012 form 1040 Taxes and Fees You Cannot Deduct Many federal, state, and local government taxes are not deductible because they do not fall within the categories discussed earlier. 2012 form 1040 Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. 2012 form 1040 See Table 22-1. 2012 form 1040 Taxes and fees that are generally not deductible include the following items. 2012 form 1040 Employment taxes. 2012 form 1040 This includes social security, Medicare, and railroad retirement taxes withheld from your pay. 2012 form 1040 However, one-half of self-employment tax you pay is deductible. 2012 form 1040 In addition, the social security and other employment taxes you pay on the wages of a household worker may be included in medical expenses that you can deduct or child care expenses that allow you to claim the child and dependent care credit. 2012 form 1040 For more information, see chapters 21 and 32. 2012 form 1040 Estate, inheritance, legacy, or succession taxes. 2012 form 1040 However, you can deduct the estate tax attributable to income in respect of a decedent if you, as a beneficiary, must include that income in your gross income. 2012 form 1040 In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. 2012 form 1040 For more information, see Publication 559, Survivors, Executors, and Administrators. 2012 form 1040 Federal income taxes. 2012 form 1040 This includes income taxes withheld from your pay. 2012 form 1040 Fines and penalties. 2012 form 1040 You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. 2012 form 1040 Gift taxes. 2012 form 1040 License fees. 2012 form 1040 You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). 2012 form 1040 Per capita taxes. 2012 form 1040 You cannot deduct state or local per capita taxes. 2012 form 1040 Many taxes and fees other than those listed above are also nondeductible, unless they are ordinary and necessary expenses of a business or income producing activity. 2012 form 1040 For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. 2012 form 1040 Where To Deduct You deduct taxes on the following schedules. 2012 form 1040 State and local income taxes. 2012 form 1040    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. 2012 form 1040 Check box a on line 5. 2012 form 1040 General sales taxes. 2012 form 1040   Sales taxes are deducted on Schedule A (Form 1040), line 5. 2012 form 1040 You must check box b on line 5. 2012 form 1040 If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. 2012 form 1040 Foreign income taxes. 2012 form 1040   Generally, income taxes you pay to a foreign country or U. 2012 form 1040 S. 2012 form 1040 possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. 2012 form 1040 S. 2012 form 1040 income tax on Form 1040, line 47. 2012 form 1040 To claim the credit, you may have to complete and attach Form 1116. 2012 form 1040 For more information, see chapter 37, the Form 1040 instructions, or Publication 514. 2012 form 1040 Real estate taxes and personal property taxes. 2012 form 1040    Real estate and personal property taxes are deducted on Schedule A (Form 1040), lines 6 and 7, respectively, unless they are paid on property used in your business, in which case they are deducted on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). 2012 form 1040 Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). 2012 form 1040 Self-employment tax. 2012 form 1040    Deduct one-half of your self-employment tax on Form 1040, line 27. 2012 form 1040 Other taxes. 2012 form 1040    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. 2012 form 1040 Prev  Up  Next   Home   More Online Publications