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E File 2011 Tax Return In 2013

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E File 2011 Tax Return In 2013

E file 2011 tax return in 2013 3. E file 2011 tax return in 2013   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. E file 2011 tax return in 2013 Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. E file 2011 tax return in 2013 In addition, you will contribute matching or nonelective contributions. E file 2011 tax return in 2013 SIMPLE plans can only be maintained on a calendar-year basis. E file 2011 tax return in 2013 A SIMPLE plan can be set up in either of the following ways. E file 2011 tax return in 2013 Using SIMPLE IRAs (SIMPLE IRA plan). E file 2011 tax return in 2013 As part of a 401(k) plan (SIMPLE 401(k) plan). E file 2011 tax return in 2013 Many financial institutions will help you set up a SIMPLE plan. E file 2011 tax return in 2013 SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. E file 2011 tax return in 2013 Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. E file 2011 tax return in 2013 For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. E file 2011 tax return in 2013 Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. E file 2011 tax return in 2013 You meet the employee limit. E file 2011 tax return in 2013 You do not maintain another qualified plan unless the other plan is for collective bargaining employees. E file 2011 tax return in 2013 Employee limit. E file 2011 tax return in 2013   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. E file 2011 tax return in 2013 Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. E file 2011 tax return in 2013 Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). E file 2011 tax return in 2013   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. E file 2011 tax return in 2013 Grace period for employers who cease to meet the 100-employee limit. E file 2011 tax return in 2013   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. E file 2011 tax return in 2013   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. E file 2011 tax return in 2013 Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. E file 2011 tax return in 2013 Coverage under the plan has not significantly changed during the grace period. E file 2011 tax return in 2013 The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. E file 2011 tax return in 2013    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. E file 2011 tax return in 2013 Other qualified plan. E file 2011 tax return in 2013   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. E file 2011 tax return in 2013 Exception. E file 2011 tax return in 2013   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. E file 2011 tax return in 2013 Who Can Participate in a SIMPLE IRA Plan? Eligible employee. E file 2011 tax return in 2013   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. E file 2011 tax return in 2013 The term “employee” includes a self-employed individual who received earned income. E file 2011 tax return in 2013   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. E file 2011 tax return in 2013 For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. E file 2011 tax return in 2013 However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. E file 2011 tax return in 2013 Excludable employees. E file 2011 tax return in 2013   The following employees do not need to be covered under a SIMPLE IRA plan. E file 2011 tax return in 2013 Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. E file 2011 tax return in 2013 Nonresident alien employees who have received no U. E file 2011 tax return in 2013 S. E file 2011 tax return in 2013 source wages, salaries, or other personal services compensation from you. E file 2011 tax return in 2013 Compensation. E file 2011 tax return in 2013   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. E file 2011 tax return in 2013 Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. E file 2011 tax return in 2013 If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. E file 2011 tax return in 2013 How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. E file 2011 tax return in 2013 Each form is a model savings incentive match plan for employees (SIMPLE) plan document. E file 2011 tax return in 2013 Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. E file 2011 tax return in 2013 Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. E file 2011 tax return in 2013 Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. E file 2011 tax return in 2013 The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. E file 2011 tax return in 2013 Keep the original form. E file 2011 tax return in 2013 Do not file it with the IRS. E file 2011 tax return in 2013 Other uses of the forms. E file 2011 tax return in 2013   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. E file 2011 tax return in 2013 Meeting employer notification requirements for the SIMPLE IRA plan. E file 2011 tax return in 2013 Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. E file 2011 tax return in 2013 Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. E file 2011 tax return in 2013 Deadline for setting up a SIMPLE IRA plan. E file 2011 tax return in 2013   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. E file 2011 tax return in 2013 This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. E file 2011 tax return in 2013 If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. E file 2011 tax return in 2013 A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. E file 2011 tax return in 2013 Setting up a SIMPLE IRA. E file 2011 tax return in 2013   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. E file 2011 tax return in 2013 A SIMPLE IRA must be set up for each eligible employee. E file 2011 tax return in 2013 Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. E file 2011 tax return in 2013   A SIMPLE IRA cannot be a Roth IRA. E file 2011 tax return in 2013 Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. E file 2011 tax return in 2013 Deadline for setting up a SIMPLE IRA. E file 2011 tax return in 2013   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. E file 2011 tax return in 2013 See Time limits for contributing funds , later, under Contribution Limits. E file 2011 tax return in 2013 Credit for startup costs. E file 2011 tax return in 2013   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. E file 2011 tax return in 2013 For more information, see Credit for startup costs under Reminders, earlier. E file 2011 tax return in 2013 Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. E file 2011 tax return in 2013 The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. E file 2011 tax return in 2013 Your decision to make either matching contributions or nonelective contributions (discussed later). E file 2011 tax return in 2013 A summary description provided by the financial institution. E file 2011 tax return in 2013 Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. E file 2011 tax return in 2013 Election period. E file 2011 tax return in 2013   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). E file 2011 tax return in 2013 However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. E file 2011 tax return in 2013   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. E file 2011 tax return in 2013 For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. E file 2011 tax return in 2013 Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. E file 2011 tax return in 2013 Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. E file 2011 tax return in 2013 You, as the employer, must make either matching contributions or nonelective contributions, defined later. E file 2011 tax return in 2013 No other contributions can be made to the SIMPLE IRA plan. E file 2011 tax return in 2013 These contributions, which you can deduct, must be made timely. E file 2011 tax return in 2013 See Time limits for contributing funds , later. E file 2011 tax return in 2013 Salary reduction contributions. E file 2011 tax return in 2013   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. E file 2011 tax return in 2013 These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. E file 2011 tax return in 2013 You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. E file 2011 tax return in 2013   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. E file 2011 tax return in 2013 Catch-up contributions. E file 2011 tax return in 2013   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. E file 2011 tax return in 2013 The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. E file 2011 tax return in 2013 Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. E file 2011 tax return in 2013 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. E file 2011 tax return in 2013 The catch-up contribution limit. E file 2011 tax return in 2013 The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. E file 2011 tax return in 2013 Employer matching contributions. E file 2011 tax return in 2013   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. E file 2011 tax return in 2013 This requirement does not apply if you make nonelective contributions as discussed later. E file 2011 tax return in 2013 Example. E file 2011 tax return in 2013 In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. E file 2011 tax return in 2013 Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. E file 2011 tax return in 2013 You make 3% matching contributions. E file 2011 tax return in 2013 The total contribution you make for John is $2,000, figured as follows. E file 2011 tax return in 2013 Salary reduction contributions ($25,000 × . E file 2011 tax return in 2013 05) $1,250 Employer matching contribution ($25,000 × . E file 2011 tax return in 2013 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. E file 2011 tax return in 2013 Salary reduction contributions ($40,000 × . E file 2011 tax return in 2013 10) $4,000 Employer matching contribution ($40,000 × . E file 2011 tax return in 2013 03) 1,200 Total contributions $5,200 Lower percentage. E file 2011 tax return in 2013   If you choose a matching contribution less than 3%, the percentage must be at least 1%. E file 2011 tax return in 2013 You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. E file 2011 tax return in 2013 You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. E file 2011 tax return in 2013 Nonelective contributions. E file 2011 tax return in 2013   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. E file 2011 tax return in 2013 If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. E file 2011 tax return in 2013 Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). E file 2011 tax return in 2013   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. E file 2011 tax return in 2013 Example 1. E file 2011 tax return in 2013 In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. E file 2011 tax return in 2013 Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. E file 2011 tax return in 2013 You make a 2% nonelective contribution. E file 2011 tax return in 2013 Both of you are under age 50. E file 2011 tax return in 2013 The total contribution you make for Jane is $4,320, figured as follows. E file 2011 tax return in 2013 Salary reduction contributions ($36,000 × . E file 2011 tax return in 2013 10) $3,600 2% nonelective contributions ($36,000 × . E file 2011 tax return in 2013 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. E file 2011 tax return in 2013 Salary reduction contributions ($50,000 × . E file 2011 tax return in 2013 10) $5,000 2% nonelective contributions ($50,000 × . E file 2011 tax return in 2013 02) 1,000 Total contributions $6,000 Example 2. E file 2011 tax return in 2013 Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. E file 2011 tax return in 2013 Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . E file 2011 tax return in 2013 02) 1,500 Total contributions $13,500 Time limits for contributing funds. E file 2011 tax return in 2013   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. E file 2011 tax return in 2013 You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. E file 2011 tax return in 2013 Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. E file 2011 tax return in 2013 When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. E file 2011 tax return in 2013 You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. E file 2011 tax return in 2013 Example 1. E file 2011 tax return in 2013 Your tax year is the fiscal year ending June 30. E file 2011 tax return in 2013 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. E file 2011 tax return in 2013 Example 2. E file 2011 tax return in 2013 You are a sole proprietor whose tax year is the calendar year. E file 2011 tax return in 2013 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. E file 2011 tax return in 2013 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. E file 2011 tax return in 2013 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. E file 2011 tax return in 2013 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. E file 2011 tax return in 2013 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. E file 2011 tax return in 2013 ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. E file 2011 tax return in 2013 SIMPLE IRA plan contributions are not subject to federal income tax withholding. E file 2011 tax return in 2013 However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. E file 2011 tax return in 2013 Matching and nonelective contributions are not subject to these taxes. E file 2011 tax return in 2013 Reporting on Form W-2. E file 2011 tax return in 2013   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. E file 2011 tax return in 2013 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. E file 2011 tax return in 2013 You must also include them in box 12. E file 2011 tax return in 2013 Mark the “Retirement plan” checkbox in box 13. E file 2011 tax return in 2013 For more information, see the Form W-2 instructions. E file 2011 tax return in 2013 Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. E file 2011 tax return in 2013 Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. E file 2011 tax return in 2013 However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. E file 2011 tax return in 2013 Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. E file 2011 tax return in 2013 Early withdrawals generally are subject to a 10% additional tax. E file 2011 tax return in 2013 However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. E file 2011 tax return in 2013 More information. E file 2011 tax return in 2013   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. E file 2011 tax return in 2013 More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. E file 2011 tax return in 2013 SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. E file 2011 tax return in 2013 A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. E file 2011 tax return in 2013 However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. E file 2011 tax return in 2013 Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. E file 2011 tax return in 2013 If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. E file 2011 tax return in 2013 See Catch-up contributions , earlier under Contribution Limits. E file 2011 tax return in 2013 You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. E file 2011 tax return in 2013 No other contributions can be made to the trust. E file 2011 tax return in 2013 No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. E file 2011 tax return in 2013 The employee's rights to any contributions are nonforfeitable. E file 2011 tax return in 2013 No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). E file 2011 tax return in 2013 Compensation is defined earlier in this chapter. E file 2011 tax return in 2013 Employee notification. E file 2011 tax return in 2013   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. E file 2011 tax return in 2013 See Notification Requirement in this chapter. E file 2011 tax return in 2013 Credit for startup costs. E file 2011 tax return in 2013   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. E file 2011 tax return in 2013 For more information, see Credit for startup costs under Reminders, earlier. E file 2011 tax return in 2013 Note on Forms. E file 2011 tax return in 2013   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. E file 2011 tax return in 2013 To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. E file 2011 tax return in 2013 Prev  Up  Next   Home   More Online Publications
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Frequently Asked Questions on Gift Taxes

Below are some of the more common questions and answers about Gift Tax issues. You may also find additional information in Publication 950 or some of the other forms and publications offered on our Forms Page. Included in this area are the instructions to Forms 706 and 709. Within these instructions, you will find the tax rate schedules to the related returns. If the answers to your questions can not be found in these resources, we strongly recommend visiting with a tax practitioner.


Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

  1. Gifts that are not more than the annual exclusion for the calendar year.
  2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  3. Gifts to your spouse.
  4. Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

May I deduct gifts on my income tax return?
Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions). If you are not sure whether the gift tax or the estate tax applies to your situation, refer to Publication 950, Introduction to Estate and Gift Taxes.

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013.

What other information do I need to include with the return?
Refer to Form 709 (PDF), 709 Instructions and Publication 950. Among other items listed:

  1. Copies of appraisals.
  2. Copies of relevant documents regarding the transfer.
  3. Documentation of any unusual items shown on the return (partially-gifted assets, other items relevant to the transfer(s)).

What is "Fair Market Value?"
Fair Market Value is defined as: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." Regulation §20.2031-1.

Who should I hire to represent me and prepare and file the return?
The Internal Revenue Service cannot make recommendations about specific individuals, but there are several factors to consider:

  1. How complex is the transfer?
  2. How large is the transfer?
  3. Do I need an attorney, CPA, Enrolled Agent (EA) or other professional(s)?

For most simple, small transfers (less than the annual exclusion amount) you may not need the services of a professional.

However, if the transfer is large or complicated or both, then these actions should be considered; It is a good idea to discuss the matter with several attorneys and CPAs or EAs. Ask about how much experience they have had and ask for referrals. This process should be similar to locating a good physician. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on transfer matters, make sure the lines of communication remain open so that there are no surprises.

Finally, people who make gifts as a part of their overall estate and financial plan often engage the services of both attorneys and CPAs, EAs and other professionals. The attorney usually handles wills, trusts and transfer documents that are involved and reviews the impact of documents on the gift tax return and overall plan. The CPA or EA often handles the actual return preparation and some representation of the donor in matters with the IRS. However, some attorneys handle all of the work. CPAs or EAs may also handle most of the work, but cannot take care of wills, trusts, deeds and other matters where a law license is required. In addition, other professionals (such as appraisers, surveyors, financial advisors and others) may need to be engaged during this time

Do I have to talk to the IRS during an examination?
You do not have to be present during an examination unless IRS representatives need to ask specific questions. Although you may represent yourself during an examination, most donors prefer that the professional(s) they have employed handle this phase of the examination. You may delegate authority for this by executing Form 2848 "Power of Attorney."

What if I disagree with the examination proposals?
You have many rights and avenues of appeal if you disagree with any proposals made by the IRS.  See Publications 1 and 5 (PDF) for an explanation of these options.

What if I sell property that has been given to me?
The general rule is that your basis in the property is the same as the basis of the donor. For example, if you were given stock that the donor had purchased for $10 per share (and that was his/her basis), and you later sold it for $100 per share, you would pay income tax on a gain of $90 per share. (Note: The rules are different for property acquired from an estate).

Most information for this page came from the Internal Revenue Code: Chapter 12--Gift Tax (generally Internal Revenue Code §2501 and following, related regulations and other sources)

Can a married same sex donor claim the gift tax marital deduction for a transfer to his or her spouse?
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married.  Also, the Service will recognize a marriage of individuals of the same sex that was validly created under the laws of the state of celebration even if the married couple resides in a state that does not recognize the validity of same-sex marriages.

However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

Gifts to your spouse are eligible for the marital deduction.

For further information, including the timeframes regarding filing claims or amended returns, see Revenue Ruling 2013-17.

Revenue Ruling 2013-17, along with updated Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, are available today on IRS.gov. See also Publication 555, Community Property.


If you have suggestions or comments (or suggested FAQs) for the Estate and Gift Tax web site, please contact us: CONTACT ESTATE AND GIFT TAX.  We will not be able to respond to your email, but will consider it when making improvements or additions to this site.

Page Last Reviewed or Updated: 20-Feb-2014

The E File 2011 Tax Return In 2013

E file 2011 tax return in 2013 Index A Addition to property, Additions and Improvements Adjusted basis, Adjusted Basis Alternative Depreciation System (ADS) Recovery periods, Recovery Periods Under ADS Required use, Required use of ADS. E file 2011 tax return in 2013 Amended return, Filing an Amended Return Apartment Cooperative, Cooperative apartments. E file 2011 tax return in 2013 Rental, Which Property Class Applies Under GDS? Automobile (see Passenger automobile) B Basis Adjustments, Basis adjustment for depreciation allowed or allowable. E file 2011 tax return in 2013 , Adjustment of partner's basis in partnership. E file 2011 tax return in 2013 , Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. E file 2011 tax return in 2013 , Basis adjustment due to casualty loss. E file 2011 tax return in 2013 Basis for depreciation, What Is the Basis for Depreciation? Casualty loss, Basis adjustment due to casualty loss. E file 2011 tax return in 2013 Change in use, Property changed from personal use. E file 2011 tax return in 2013 Cost, Cost as Basis Depreciable basis, Depreciable basis. E file 2011 tax return in 2013 Other than cost, Other Basis Recapture of clean-fuel vehicle deduction or credit, Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. E file 2011 tax return in 2013 Term interest, Basis adjustments. E file 2011 tax return in 2013 Unadjusted, Figuring the Unadjusted Basis of Your Property Business use of property, partial, Partial business or investment use. E file 2011 tax return in 2013 Business-use limit, recapture of Section 179 deduction, When Must You Recapture the Deduction? Business-use requirement, listed property, What Is the Business-Use Requirement? C Car (see Passenger automobile) Carryover of section 179 deduction, Carryover of disallowed deduction. E file 2011 tax return in 2013 Casualty loss, effect of, Basis adjustment due to casualty loss. E file 2011 tax return in 2013 Changing accounting method, Changing Your Accounting Method Communication equipment (see Listed property) Commuting, Commuting use. E file 2011 tax return in 2013 Computer (see Listed property) Computer software, Computer software. E file 2011 tax return in 2013 , Off-the-shelf computer software. E file 2011 tax return in 2013 Containers, Containers. E file 2011 tax return in 2013 Conventions, Which Convention Applies? Cooperative apartment, Cooperative apartments. E file 2011 tax return in 2013 Copyright, Patents and copyrights. E file 2011 tax return in 2013 (see also Section 197 intangibles) Correcting depreciation deductions, How Do You Correct Depreciation Deductions? Cost basis, Cost as Basis D Declining balance Method, Declining Balance Method Rates, Declining balance rate. E file 2011 tax return in 2013 Deduction limit Automobile, Do the Passenger Automobile Limits Apply? Section 179, How Much Can You Deduct? Depreciation Deduction Employee, Can Employees Claim a Deduction? Listed property, Can Employees Claim a Deduction? Determinable useful life, Property Having a Determinable Useful Life Excepted property, Excepted Property Incorrect amount deducted, How Do You Correct Depreciation Deductions? Methods, Which Depreciation Method Applies? Property lasting more than one year, Property Lasting More Than One Year Property owned, Property You Own Property used in business, Property Used in Your Business or Income-Producing Activity Recapture, Revoking an election. E file 2011 tax return in 2013 , Recapture of Excess Depreciation Depreciation allowable, Basis adjustment for depreciation allowed or allowable. E file 2011 tax return in 2013 Depreciation allowed, Basis adjustment for depreciation allowed or allowable. E file 2011 tax return in 2013 Depreciation deduction Listed property, What Is the Business-Use Requirement? Determinable useful life, Property Having a Determinable Useful Life Disposition Before recovery period ends, Sale or Other Disposition Before the Recovery Period Ends General asset account property, Disposing of GAA Property Section 179 deduction, When Must You Recapture the Deduction? E Election ADS, Electing ADS. E file 2011 tax return in 2013 , Election of ADS. E file 2011 tax return in 2013 Declining balance (150% DB) method, 150% election. E file 2011 tax return in 2013 Exclusion from MACRS, Election To Exclude Property From MACRS General asset account, Electing To Use a GAA Not to claim special depreciation allowance, How Can You Elect Not To Claim an Allowance? Section 179 deduction, How Do You Elect the Deduction? Straight line method, Straight line election. E file 2011 tax return in 2013 Electric vehicle, Electric Vehicles Employee Depreciation deduction, Can Employees Claim a Deduction? How to claim depreciation, Employee. E file 2011 tax return in 2013 Employee deduction, listed property, Can Employees Claim a Deduction? Energy property, Energy property. E file 2011 tax return in 2013 Exchange of MACRS property, Property Acquired in a Like-kind Exchange or Involuntary Conversion F Farm Property, Depreciation Methods for Farm Property Figuring MACRS Using percentage tables, How Is the Depreciation Deduction Figured? Without using percentage tables, Figuring the Deduction Without Using the Tables Films, Films, video tapes, and recordings. E file 2011 tax return in 2013 Free tax services, Free help with your tax return. E file 2011 tax return in 2013 G General asset account Abusive transaction, Abusive transactions. E file 2011 tax return in 2013 Disposing of property, Disposing of GAA Property Grouping property in, Grouping Property Nonrecognition transaction, Nonrecognition transactions. E file 2011 tax return in 2013 General Depreciation System (GDS), recovery periods, Recovery Periods Under GDS Gift (see Basis, other than cost) H Help (see Tax help) I Idle property, Idle Property Improvements, How Do You Treat Repairs and Improvements?, Additions and Improvements Income forecast method, Income Forecast Method Incorrect depreciation deductions, How Do You Correct Depreciation Deductions? Indian reservation Defined, Indian reservation. E file 2011 tax return in 2013 Qualified infrastructure property, Qualified infrastructure property. E file 2011 tax return in 2013 Qualified property, Qualified property. E file 2011 tax return in 2013 Recovery periods for qualified property, Indian Reservation Property Related person, Related person. E file 2011 tax return in 2013 Inheritance (see Basis, other than cost) Intangible property Depreciation method, Intangible Property, Income Forecast Method Income forecast method, Income Forecast Method Straight line method, Intangible Property Inventory, Inventory. E file 2011 tax return in 2013 Investment use of property, partial, Partial business or investment use. E file 2011 tax return in 2013 Involuntary conversion of MACRS property, Property Acquired in a Like-kind Exchange or Involuntary Conversion L Land Not depreciable, Land Preparation costs, Land Leased property, Leased property. E file 2011 tax return in 2013 Leasehold improvement property, defined, Qualified leasehold improvement property. E file 2011 tax return in 2013 , Qualified leasehold improvement property. E file 2011 tax return in 2013 Life tenant, Life tenant. E file 2011 tax return in 2013 (see also Term interests) Limit on deduction Automobile, Do the Passenger Automobile Limits Apply? Section 179, How Much Can You Deduct? Listed property 5% owner, 5% owner. E file 2011 tax return in 2013 Computer, Computers and Related Peripheral Equipment Condition of employment, Condition of employment. E file 2011 tax return in 2013 Defined, What Is Listed Property? Employee deduction, Can Employees Claim a Deduction? Employer convenience, Employer's convenience. E file 2011 tax return in 2013 Improvements to, Improvements to listed property. E file 2011 tax return in 2013 Leased, Lessee's Inclusion Amount Passenger automobile, Passenger Automobiles Qualified business use, Qualified Business Use Recordkeeping, Adequate Records Related person, Related persons. E file 2011 tax return in 2013 Reporting on Form 4562, How Is Listed Property Information Reported? Lodging, Property used for lodging. E file 2011 tax return in 2013 M Maximum deduction Electric vehicles, Electric Vehicles Passenger automobiles, Maximum Depreciation Deduction Trucks, Trucks and Vans Vans, Trucks and Vans Mobile home (see Residential rental property) Modified ACRS (MACRS) Addition or improvement, Additions and Improvements Alternative Depreciation System (ADS), Which Depreciation System (GDS or ADS) Applies? Conventions, Which Convention Applies? Declining balance method, Declining Balance Method Depreciation methods, Which Depreciation Method Applies? Farm property, Depreciation Methods for Farm Property Figuring, short tax year, Property Placed in Service in a Short Tax Year General Depreciation System (GDS), Which Depreciation System (GDS or ADS) Applies? Percentage tables, Using the MACRS Percentage Tables Property classes, Which Property Class Applies Under GDS? Recovery periods, Which Recovery Period Applies? Short tax year, Figuring the Deduction for a Short Tax Year Straight line method, Straight Line Method N Nonresidential real property, Which Property Class Applies Under GDS? Nontaxable transfer of MACRS property, Property Acquired in a Nontaxable Transfer O Office in the home, Office in the home. E file 2011 tax return in 2013 , Office in the home. E file 2011 tax return in 2013 Ownership, incidents of, Incidents of ownership. E file 2011 tax return in 2013 P Partial business use, Partial business use. E file 2011 tax return in 2013 Passenger automobile Defined, Passenger Automobiles Electric vehicles, Electric Vehicles Limit on, Do the Passenger Automobile Limits Apply? Maximum depreciation deduction, Maximum Depreciation Deduction Trucks, Trucks and Vans Vans, Trucks and Vans Patent, Patents and copyrights. E file 2011 tax return in 2013 (see also Section 197 intangibles) Personal property, Personal property. E file 2011 tax return in 2013 Phonographic equipment (see Listed property) Photographic equipment (see Listed property) Placed in service Before 1987, Property You Placed in Service Before 1987 Date, What Is the Placed in Service Date? Rule, Placed in Service Property Classes, Which Property Class Applies Under GDS? Depreciable, What Property Can Be Depreciated? Idle, Idle Property Improvements, How Do You Treat Repairs and Improvements? Leased, Leased property. E file 2011 tax return in 2013 , Leased property. E file 2011 tax return in 2013 Listed, What Is Listed Property? Personal, Personal property. E file 2011 tax return in 2013 Real, Real property. E file 2011 tax return in 2013 Retired from service, Retired From Service Tangible personal, Tangible personal property. E file 2011 tax return in 2013 Term interest, Certain term interests in property. E file 2011 tax return in 2013 Q Qualified leasehold improvement property, defined, Qualified leasehold improvement property. E file 2011 tax return in 2013 , Qualified leasehold improvement property. E file 2011 tax return in 2013 Qualified property, special depreciation allowance, What Is Qualified Property? R Real property, Real property. E file 2011 tax return in 2013 Recapture Clean-fuel vehicle deduction or credit, Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. E file 2011 tax return in 2013 General asset account, abusive transaction, Abusive transactions. E file 2011 tax return in 2013 Listed property, Recapture of Excess Depreciation MACRS depreciation, Revoking an election. E file 2011 tax return in 2013 Section 179 deduction, When Must You Recapture the Deduction? Special depreciation allowance, When Must You Recapture an Allowance? Recordkeeping Listed property, Adequate Records Section 179, How Do You Elect the Deduction? Recovery periods ADS, Recovery Periods Under ADS GDS, Recovery Periods Under GDS Related persons, Related persons. E file 2011 tax return in 2013 , Related persons. E file 2011 tax return in 2013 , Related persons. E file 2011 tax return in 2013 , Related persons. E file 2011 tax return in 2013 , Related person. E file 2011 tax return in 2013 , Related persons. E file 2011 tax return in 2013 Rent-to-own property, defined, Qualified rent-to-own property. E file 2011 tax return in 2013 Rental home (see Residential rental property) Rented property, improvements, Improvements to rented property. E file 2011 tax return in 2013 Repairs, How Do You Treat Repairs and Improvements? Residential rental property, Which Property Class Applies Under GDS? Retail motor fuels outlet, Retail motor fuels outlet. E file 2011 tax return in 2013 Revoking ADS election, Electing ADS. E file 2011 tax return in 2013 General asset account election, Revoking an election. E file 2011 tax return in 2013 Section 179 election, Revoking an election. E file 2011 tax return in 2013 S Sale of property, Sale or Other Disposition Before the Recovery Period Ends Section 179 deduction Business use required, Partial business use. E file 2011 tax return in 2013 Carryover, Carryover of disallowed deduction. E file 2011 tax return in 2013 Dispositions, When Must You Recapture the Deduction? Electing, How Do You Elect the Deduction? Limits Business (taxable) income, Business Income Limit Business-use, recapture, When Must You Recapture the Deduction? Dollar, Dollar Limits Enterprise zone business, Enterprise Zone Businesses Partial business use, Partial business use. E file 2011 tax return in 2013 Married filing separate returns, Married Individuals Partnership rules, Partnerships and Partners Property Eligible, Eligible Property Excepted, Excepted Property Purchase required, Property Acquired by Purchase Recapture, When Must You Recapture the Deduction? Recordkeeping, How Do You Elect the Deduction? S corporation rules, S Corporations Settlement fees, Settlement costs. E file 2011 tax return in 2013 Short tax year Figuring depreciation, Property Placed in Service in a Short Tax Year Figuring placed-in-service date, Using the Applicable Convention in a Short Tax Year Software, computer, Computer software. E file 2011 tax return in 2013 , Off-the-shelf computer software. E file 2011 tax return in 2013 Sound recording, Films, video tapes, and recordings. E file 2011 tax return in 2013 Special depreciation allowance Election not to claim, How Can You Elect Not To Claim an Allowance? Qualified property, What Is Qualified Property? Recapture, When Must You Recapture an Allowance? Stock, constructive ownership of, Constructive ownership of stock or partnership interest. E file 2011 tax return in 2013 Straight line method, Intangible Property, Straight Line Method Created intangibles, Certain created intangibles. E file 2011 tax return in 2013 T Tangible personal property, Tangible personal property. E file 2011 tax return in 2013 Term interest, Certain term interests in property. E file 2011 tax return in 2013 Trade-in of property, Trade-in of other property. E file 2011 tax return in 2013 Trucks, Trucks and Vans U Unadjusted basis, Figuring the Unadjusted Basis of Your Property Useful life, Property Having a Determinable Useful Life V Vans, Trucks and Vans Video tape, Films, video tapes, and recordings. E file 2011 tax return in 2013 Video-recording equipment (see Listed property) W When to use ADS, Which Depreciation System (GDS or ADS) Applies? Worksheet Leased listed property, Inclusion amount worksheet. E file 2011 tax return in 2013 MACRS, MACRS Worksheet Prev  Up     Home   More Online Publications