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Federal Tax Extension

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Federal Tax Extension

Federal tax extension Publication 969 - Main Content Table of Contents Health Savings Accounts (HSAs)Qualifying for an HSA Contributions to an HSA Distributions From an HSA Balance in an HSA Death of HSA Holder Filing Form 8889 Employer Participation Medical Savings Accounts (MSAs)Archer MSAs Contributions to an MSA Distributions From an MSA Balance in an Archer MSA Death of the Archer MSA Holder Filing Form 8853 Employer Participation Medicare Advantage MSAs Flexible Spending Arrangements (FSAs)Qualifying for an FSA Contributions to an FSA Distributions From an FSA Balance in an FSA Employer Participation Health Reimbursement Arrangements (HRAs)Qualifying for an HRA Contributions to an HRA Distributions From an HRA Balance in an HRA Employer Participation How To Get Tax HelpLow Income Taxpayer Clinics Health Savings Accounts (HSAs) A health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. Federal tax extension You must be an eligible individual to qualify for an HSA. Federal tax extension No permission or authorization from the IRS is necessary to establish an HSA. Federal tax extension You set up an HSA with a trustee. Federal tax extension A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. Federal tax extension The HSA can be established through a trustee that is different from your health plan provider. Federal tax extension Your employer may already have some information on HSA trustees in your area. Federal tax extension If you have an Archer MSA, you can generally roll it over into an HSA tax free. Federal tax extension See Rollovers, later. Federal tax extension What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. Federal tax extension You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. Federal tax extension Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. Federal tax extension The contributions remain in your account until you use them. Federal tax extension The interest or other earnings on the assets in the account are tax free. Federal tax extension Distributions may be tax free if you pay qualified medical expenses. Federal tax extension See Qualified medical expenses , later. Federal tax extension An HSA is “portable. Federal tax extension ” It stays with you if you change employers or leave the work force. Federal tax extension Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. Federal tax extension You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. Federal tax extension You have no other health coverage except what is permitted under Other health coverage , later. Federal tax extension You are not enrolled in Medicare. Federal tax extension You cannot be claimed as a dependent on someone else's 2013 tax return. Federal tax extension Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). Federal tax extension If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you. Federal tax extension If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. Federal tax extension This is true even if the other person does not actually claim your exemption. Federal tax extension Each spouse who is an eligible individual who wants an HSA must open a separate HSA. Federal tax extension You cannot have a joint HSA. Federal tax extension High deductible health plan (HDHP). Federal tax extension   An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Federal tax extension Out-of-pocket expenses include copayments and other amounts, but do not include premiums. Federal tax extension   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. Federal tax extension Preventive care includes, but is not limited to, the following. Federal tax extension Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. Federal tax extension Routine prenatal and well-child care. Federal tax extension Child and adult immunizations. Federal tax extension Tobacco cessation programs. Federal tax extension Obesity weight-loss programs. Federal tax extension Screening services. Federal tax extension This includes screening services for the following: Cancer. Federal tax extension Heart and vascular diseases. Federal tax extension Infectious diseases. Federal tax extension Mental health conditions. Federal tax extension Substance abuse. Federal tax extension Metabolic, nutritional, and endocrine conditions. Federal tax extension Musculoskeletal disorders. Federal tax extension Obstetric and gynecological conditions. Federal tax extension Pediatric conditions. Federal tax extension Vision and hearing disorders. Federal tax extension For more information on screening services, see Notice 2004-23, 2004-15 I. Federal tax extension R. Federal tax extension B. Federal tax extension 725 available at www. Federal tax extension irs. Federal tax extension gov/irb/2004-15_IRB/ar10. Federal tax extension html. Federal tax extension     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. Federal tax extension      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,250 $12,500 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Federal tax extension Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Federal tax extension    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. Federal tax extension      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,350 $12,700 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Federal tax extension Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Federal tax extension   Self-only HDHP coverage is an HDHP covering only an eligible individual. Federal tax extension Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual (whether or not that individual is an eligible individual). Federal tax extension Example. Federal tax extension An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. Federal tax extension This is family HDHP coverage. Federal tax extension Family plans that do not meet the high deductible rules. Federal tax extension   There are some family plans that have deductibles for both the family as a whole and for individual family members. Federal tax extension Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. Federal tax extension If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. Federal tax extension Example. Federal tax extension You have family health insurance coverage in 2013. Federal tax extension The annual deductible for the family plan is $3,500. Federal tax extension This plan also has an individual deductible of $1,500 for each family member. Federal tax extension The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($2,500) for family coverage. Federal tax extension Other health coverage. Federal tax extension   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Federal tax extension However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Federal tax extension    You can have additional insurance that provides benefits only for the following items. Federal tax extension Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. Federal tax extension A specific disease or illness. Federal tax extension A fixed amount per day (or other period) of hospitalization. Federal tax extension   You can also have coverage (whether provided through insurance or otherwise) for the following items. Federal tax extension Accidents. Federal tax extension Disability. Federal tax extension Dental care. Federal tax extension Vision care. Federal tax extension Long-term care. Federal tax extension    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. Federal tax extension For example, if your plan provides coverage substantially all of which is for a specific disease or illness, the plan is not an HDHP for purposes of establishing an HSA. Federal tax extension Prescription drug plans. Federal tax extension   You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan does not provide benefits until the minimum annual deductible of the HDHP has been met. Federal tax extension If you can receive benefits before that deductible is met, you are not an eligible individual. Federal tax extension Other employee health plans. Federal tax extension   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Federal tax extension Health FSAs and HRAs are discussed later. Federal tax extension   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. Federal tax extension Limited-purpose health FSA or HRA. Federal tax extension These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Federal tax extension Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. Federal tax extension Suspended HRA. Federal tax extension Before the beginning of an HRA coverage period, you can elect to suspend the HRA. Federal tax extension The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. Federal tax extension When the suspension period ends, you are no longer eligible to make contributions to an HSA. Federal tax extension Post-deductible health FSA or HRA. Federal tax extension These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. Federal tax extension The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met. Federal tax extension Retirement HRA. Federal tax extension This arrangement pays or reimburses only those medical expenses incurred after retirement. Federal tax extension After retirement you are no longer eligible to make contributions to an HSA. Federal tax extension Health FSA – grace period. Federal tax extension   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero. Federal tax extension See Flexible Spending Arrangements (FSAs) , later. Federal tax extension Contributions to an HSA Any eligible individual can contribute to an HSA. Federal tax extension For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. Federal tax extension For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. Federal tax extension Family members or any other person may also make contributions on behalf of an eligible individual. Federal tax extension Contributions to an HSA must be made in cash. Federal tax extension Contributions of stock or property are not allowed. Federal tax extension Limit on Contributions The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. Federal tax extension For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. Federal tax extension If you have family HDHP coverage, you can contribute up to $6,450. Federal tax extension For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. Federal tax extension If you have family HDHP coverage you can contribute up to $6,550. Federal tax extension If you were, or were considered (under the last-month rule, discussed later), an eligible individual for the entire year and did not change your type of coverage, you can contribute the full amount based on your type of coverage. Federal tax extension However, if you were not an eligible individual for the entire year or changed your coverage during the year, your contribution limit is the greater of: The limitation shown on the Line 3 Limitation Chart and Worksheetin the Instructions for Form 8889, Health Savings Accounts (HSAs), or The maximum annual HSA contribution based on your HDHP coverage (self-only or family) on the first day of the last month of your tax year. Federal tax extension If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2013 is $6,450 even if you changed coverage during the year. Federal tax extension Last-month rule. Federal tax extension   Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. Federal tax extension You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. Federal tax extension Testing period. Federal tax extension   If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. Federal tax extension For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. Federal tax extension For example, December 1, 2013, through December 31, 2014. Federal tax extension   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. Federal tax extension You include this amount in your income in the year in which you fail to be an eligible individual. Federal tax extension This amount is also subject to a 10% additional tax. Federal tax extension The income and additional tax are shown on Form 8889, Part III. Federal tax extension Example 1. Federal tax extension Chris, age 53, becomes an eligible individual on December 1, 2013. Federal tax extension He has family HDHP coverage on that date. Federal tax extension Under the last-month rule, he contributes $6,450 to his HSA. Federal tax extension Chris fails to be an eligible individual in June 2014. Federal tax extension Because Chris did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), he must include in his 2014 income the contributions made in 2013 that would not have been made except for the last-month rule. Federal tax extension Chris uses the worksheet in the Form 8889 instructions to determine this amount. Federal tax extension January -0- February -0- March -0- April -0- May -0- June -0- July -0- August -0- September -0- October -0- November -0- December $6,450. Federal tax extension 00 Total for all months $6,450. Federal tax extension 00 Limitation. Federal tax extension Divide the total by 12 $537. Federal tax extension 50 Chris would include $5,912. Federal tax extension 50 ($6,450. Federal tax extension 00 – $537. Federal tax extension 50) in his gross income on his 2014 tax return. Federal tax extension Also, a 10% additional tax applies to this amount. Federal tax extension Example 2. Federal tax extension Erika, age 39, has self-only HDHP coverage on January 1, 2013. Federal tax extension Erika changes to family HDHP coverage on November 1, 2013. Federal tax extension Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. Federal tax extension Erika fails to be an eligible individual in March 2014. Federal tax extension Because she did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), she must include in income the contribution made that would not have been made except for the last-month rule. Federal tax extension Erika uses the worksheet in the Form 8889 instructions to determine this amount. Federal tax extension January $3,250. Federal tax extension 00 February $3,250. Federal tax extension 00 March $3,250. Federal tax extension 00 April $3,250. Federal tax extension 00 May $3,250. Federal tax extension 00 June $3,250. Federal tax extension 00 July $3,250. Federal tax extension 00 August $3,250. Federal tax extension 00 September $3,250. Federal tax extension 00 October $3,250. Federal tax extension 00 November $6,450. Federal tax extension 00 December $6,450. Federal tax extension 00 Total for all months $45,400. Federal tax extension 00 Limitation. Federal tax extension Divide the total by 12 $3,783. Federal tax extension 34 Erika would include $2,666. Federal tax extension 67 ($6,450 – $3,783. Federal tax extension 34) in her gross income on her 2014 tax return. Federal tax extension Also, a 10% additional tax applies to this amount. Federal tax extension Additional contribution. Federal tax extension   If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. Federal tax extension For example, if you have self-only coverage, you can contribute up to $4,250 (the contribution limit for self-only coverage ($3,250) plus the additional contribution of $1,000). Federal tax extension However, see Enrolled in Medicare , later. Federal tax extension If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. Federal tax extension Reduction of contribution limit. Federal tax extension   You must reduce the amount that can be contributed (including any additional contribution) to your HSA by the amount of any contribution made to your Archer MSA (including employer contributions) for the year. Federal tax extension A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. Federal tax extension Rules for married people. Federal tax extension   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. Federal tax extension If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. Federal tax extension You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. Federal tax extension After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. Federal tax extension The rules for married people apply only if both spouses are eligible individuals. Federal tax extension If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. Federal tax extension If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. Federal tax extension Each spouse must make the additional contribution to his or her own HSA. Federal tax extension Example. Federal tax extension For 2013, Mr. Federal tax extension Auburn and his wife are both eligible individuals. Federal tax extension They each have family coverage under separate HDHPs. Federal tax extension Mr. Federal tax extension Auburn is 58 years old and Mrs. Federal tax extension Auburn is 53. Federal tax extension Mr. Federal tax extension and Mrs. Federal tax extension Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. Federal tax extension If they split it equally, Mr. Federal tax extension Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. Federal tax extension Auburn can contribute $3,225 to an HSA. Federal tax extension Employer contributions. Federal tax extension   You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. Federal tax extension This includes amounts contributed to your account by your employer through a cafeteria plan. Federal tax extension Enrolled in Medicare. Federal tax extension   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. Federal tax extension Example. Federal tax extension You turned age 65 in July 2013 and enrolled in Medicare. Federal tax extension You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Federal tax extension Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). Federal tax extension Qualified HSA funding distribution. Federal tax extension   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. Federal tax extension This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. Federal tax extension For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. Federal tax extension   The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. Federal tax extension The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. Federal tax extension The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. Federal tax extension The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. Federal tax extension   You can make only one qualified HSA funding distribution during your lifetime. Federal tax extension However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. Federal tax extension The total qualified HSA funding distribution cannot be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled. Federal tax extension Example. Federal tax extension In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. Federal tax extension You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). Federal tax extension Funding distribution – testing period. Federal tax extension   You must remain an eligible individual during the testing period. Federal tax extension For a qualified HSA funding distribution, the testing period begins with the month in which the qualified HSA funding distribution is contributed and ends on the last day of the 12th month following that month. Federal tax extension For example, if a qualified HSA funding distribution is contributed to your HSA on August 10, 2013, your testing period begins in August 2013, and ends on August 31, 2014. Federal tax extension   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the qualified HSA funding distribution. Federal tax extension You include this amount in income in the year in which you fail to be an eligible individual. Federal tax extension This amount is also subject to a 10% additional tax. Federal tax extension The income and the additional tax are shown on Form 8889, Part III. Federal tax extension   Each qualified HSA funding distribution allowed has its own testing period. Federal tax extension For example, you are an eligible individual, age 45, with self-only HDHP coverage. Federal tax extension On June 18, 2013, you make a qualified HSA funding distribution of $3,250. Federal tax extension On July 27, 2013, you enroll in family HDHP coverage and on August 17, 2013, you make a qualified HSA funding distribution of $3,200. Federal tax extension Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. Federal tax extension Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. Federal tax extension   The testing period rule that applies under the last-month rule (discussed earlier) does not apply to amounts contributed to an HSA through a qualified HSA funding distribution. Federal tax extension If you remain an eligible individual during the entire funding distribution testing period, then no amount of that distribution is included in income and will not be subject to the additional tax for failing to meet the last-month rule testing period. Federal tax extension Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. Federal tax extension Archer MSAs and other HSAs. Federal tax extension   You can roll over amounts from Archer MSAs and other HSAs into an HSA. Federal tax extension You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Federal tax extension Rollover contributions do not need to be in cash. Federal tax extension Rollovers are not subject to the annual contribution limits. Federal tax extension   You must roll over the amount within 60 days after the date of receipt. Federal tax extension You can make only one rollover contribution to an HSA during a 1-year period. Federal tax extension Note. Federal tax extension If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer is not considered a rollover. Federal tax extension There is no limit on the number of these transfers. Federal tax extension Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. Federal tax extension When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. Federal tax extension If you fail to be an eligible individual during 2013, you can still make contributions, up until April 15, 2014, for the months you were an eligible individual. Federal tax extension Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. Federal tax extension Your employer must notify you and the trustee of your HSA that the contribution is for 2013. Federal tax extension The contribution will be reported on your 2014 Form W-2. Federal tax extension Reporting Contributions on Your Return Contributions made by your employer are not included in your income. Federal tax extension Contributions to an employee's account by an employer using the amount of an employee's salary reduction through a cafeteria plan are treated as employer contributions. Federal tax extension Generally, you can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income. Federal tax extension Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Federal tax extension The contributions are treated as a distribution of money and are not included in the partner's gross income. Federal tax extension Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner's gross income. Federal tax extension In both situations, the partner can deduct the contribution made to the partner's HSA. Federal tax extension Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. Federal tax extension The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Federal tax extension Form 8889. Federal tax extension   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. Federal tax extension You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. Federal tax extension Contributions made by your employer and qualified HSA funding distributions are also shown on the form. Federal tax extension   You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. Federal tax extension Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Federal tax extension Follow the instructions for Form 8889. Federal tax extension Report your HSA deduction on Form 1040 or Form 1040NR. Federal tax extension Excess contributions. Federal tax extension   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Federal tax extension Excess contributions are not deductible. Federal tax extension Excess contributions made by your employer are included in your gross income. Federal tax extension If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. Federal tax extension   Generally, you must pay a 6% excise tax on excess contributions. Federal tax extension See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Federal tax extension The excise tax applies to each tax year the excess contribution remains in the account. Federal tax extension   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. Federal tax extension You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. Federal tax extension You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. Federal tax extension If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income is not an excess contribution. Federal tax extension If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. Federal tax extension Deducting an excess contribution in a later year. Federal tax extension   You may be able to deduct excess contributions for previous years that are still in your HSA. Federal tax extension The excess contribution you can deduct for the current year is the lesser of the following two amounts. Federal tax extension Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. Federal tax extension The total excess contributions in your HSA at the beginning of the year. Federal tax extension   Amounts contributed for the year include contributions by you, your employer, and any other person. Federal tax extension They also include any qualified HSA funding distribution made to your HSA. Federal tax extension Any excess contribution remaining at the end of a tax year is subject to the excise tax. Federal tax extension See Form 5329. Federal tax extension Distributions From an HSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. Federal tax extension When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA. Federal tax extension You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. Federal tax extension If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Federal tax extension You do not have to make distributions from your HSA each year. Federal tax extension If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Federal tax extension Generally, a distribution is money you get from your health savings account. Federal tax extension Your total distributions include amounts paid with a debit card that restricts payments to health care and amounts withdrawn from the HSA by other individuals that you have designated. Federal tax extension The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Federal tax extension Qualified medical expenses. Federal tax extension   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Federal tax extension These are explained in Publication 502, Medical and Dental Expenses. Federal tax extension   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. Federal tax extension A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. Federal tax extension   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. Federal tax extension State law determines when an HSA is established. Federal tax extension An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established. Federal tax extension   If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses. Federal tax extension   Qualified medical expenses are those incurred by the following persons. Federal tax extension You and your spouse. Federal tax extension All dependents you claim on your tax return. Federal tax extension Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Federal tax extension    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. Federal tax extension You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA. Federal tax extension Insurance premiums. Federal tax extension   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. Federal tax extension Health care continuation coverage (such as coverage under COBRA). Federal tax extension Health care coverage while receiving unemployment compensation under federal or state law. Federal tax extension Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Federal tax extension   The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. Federal tax extension See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). Federal tax extension   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. Federal tax extension For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses. Federal tax extension Health coverage tax credit. Federal tax extension   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. Federal tax extension See Publication 502 for more information on this credit. Federal tax extension Deemed distributions from HSAs. Federal tax extension   The following situations result in deemed taxable distributions from your HSA. Federal tax extension You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. Federal tax extension Your account ceases to be an HSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8889. Federal tax extension You used any portion of any of your HSAs as security for a loan at any time in 2013. Federal tax extension You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Federal tax extension   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the HSA, Lending of money between you and the HSA, Furnishing goods, services, or facilities between you and the HSA, and Transfer to or use by you, or for your benefit, of any assets of the HSA. Federal tax extension   Any deemed distribution will not be treated as used to pay qualified medical expenses. Federal tax extension These distributions are included in your income and are subject to the additional 20% tax, discussed later. Federal tax extension Recordkeeping. Federal tax extension You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. Federal tax extension Do not send these records with your tax return. Federal tax extension Keep them with your tax records. Federal tax extension Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). Federal tax extension If you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8889. Federal tax extension However, the distribution of an excess contribution taken out after the due date, including extensions, of your return is subject to tax even if used for qualified medical expenses. Federal tax extension Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Federal tax extension If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. Federal tax extension Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. Federal tax extension You may have to pay an additional 20% tax on your taxable distribution. Federal tax extension HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. Federal tax extension Additional tax. Federal tax extension   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Federal tax extension Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. Federal tax extension Exceptions. Federal tax extension   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Federal tax extension Balance in an HSA An HSA is generally exempt from tax. Federal tax extension You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Federal tax extension Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Federal tax extension Earnings on amounts in an HSA are not included in your income while held in the HSA. Federal tax extension Death of HSA Holder You should choose a beneficiary when you set up your HSA. Federal tax extension What happens to that HSA when you die depends on whom you designate as the beneficiary. Federal tax extension Spouse is the designated beneficiary. Federal tax extension   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. Federal tax extension Spouse is not the designated beneficiary. Federal tax extension   If your spouse is not the designated beneficiary of your HSA: The account stops being an HSA, and The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. Federal tax extension If your estate is the beneficiary, the value is included on your final income tax return. Federal tax extension The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. Federal tax extension Filing Form 8889 You must file Form 8889 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your HSA during the year. Federal tax extension You must file the form even if only your employer or your spouse's employer made contributions to the HSA. Federal tax extension If, during the tax year, you are the beneficiary of two or more HSAs or you are a beneficiary of an HSA and you have your own HSA, you must complete a separate Form 8889 for each HSA. Federal tax extension Enter “statement” at the top of each Form 8889 and complete the form as instructed. Federal tax extension Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. Federal tax extension Attach the statements to your tax return after the controlling Form 8889. Federal tax extension Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. Federal tax extension Unlike the previous discussions, “you” refers to the employer and not to the employee. Federal tax extension Health plan. Federal tax extension   If you want your employees to be able to have an HSA, they must have an HDHP. Federal tax extension You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Federal tax extension Contributions. Federal tax extension   You can make contributions to your employees' HSAs. Federal tax extension You deduct the contributions on your business income tax return for the year in which you make the contributions. Federal tax extension If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. Federal tax extension   For more information on employer contributions, see Notice 2008-59, 2008-29 I. Federal tax extension R. Federal tax extension B. Federal tax extension 123, questions 23 through 27, available at www. Federal tax extension irs. Federal tax extension gov/irb/2008-29_IRB/ar11. Federal tax extension html. Federal tax extension Comparable contributions. Federal tax extension   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. Federal tax extension Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. Federal tax extension The comparability rules do not apply to contributions made through a cafeteria plan. Federal tax extension Comparable participating employees. Federal tax extension   Comparable participating employees: Are covered by your HDHP and are eligible to establish an HSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (part-time, full-time, or former employees). Federal tax extension   To meet the comparability requirements for eligible employees who have not established an HSA by December 31 or have not notified you that they have an HSA, you must meet a notice requirement and a contribution requirement. Federal tax extension   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. Federal tax extension The notice must state that each eligible employee who, by the last day of February, establishes an HSA and notifies you that they have established an HSA will receive a comparable contribution to the HSA for the prior year. Federal tax extension For a sample of the notice, see Regulation 54. Federal tax extension 4980G-4 A-14(c). Federal tax extension You will meet the contribution requirement for these employees if by April 15, 2014, you contribute comparable amounts plus reasonable interest to the employee's HSA for the prior year. Federal tax extension Note. Federal tax extension For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. Federal tax extension Excise tax. Federal tax extension   If you made contributions to your employees' HSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. Federal tax extension Employment taxes. Federal tax extension   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. Federal tax extension You must report the contributions in box 12 of the Form W-2 you file for each employee. Federal tax extension This includes the amounts the employee elected to contribute through a cafeteria plan. Federal tax extension Enter code “W” in box 12. Federal tax extension Medical Savings Accounts (MSAs) Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder's spouse, or the account holder's dependent(s). Federal tax extension After December 31, 2007, you cannot be treated as an eligible individual for Archer MSA purposes unless: You were an active participant for any tax year ending before January 1, 2008, or You became an active participant for a tax year ending after December 31, 2007, by reason of coverage under a high deductible health plan (HDHP) of an Archer MSA participating employer. Federal tax extension A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare. Federal tax extension Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. Federal tax extension S. Federal tax extension financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. Federal tax extension What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. Federal tax extension You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. Federal tax extension The interest or other earnings on the assets in your Archer MSA are tax free. Federal tax extension Distributions may be tax free if you pay qualified medical expenses. Federal tax extension See Qualified medical expenses , later. Federal tax extension The contributions remain in your Archer MSA from year to year until you use them. Federal tax extension An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. Federal tax extension Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. Federal tax extension An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). Federal tax extension A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. Federal tax extension You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. Federal tax extension You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. Federal tax extension If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. Federal tax extension This is true even if the other person does not actually claim your exemption. Federal tax extension Small employer. Federal tax extension   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. Federal tax extension The definition of small employer is modified for new employers and growing employers. Federal tax extension Growing employer. Federal tax extension   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. Federal tax extension The employer will continue to meet the requirement for small employers if he or she: Had 50 or fewer employees when the Archer MSAs began, Made a contribution that was excludable or deductible as an Archer MSA for the last year he or she had 50 or fewer employees, and Had an average of 200 or fewer employees each year after 1996. Federal tax extension Changing employers. Federal tax extension   If you change employers, your Archer MSA moves with you. Federal tax extension However, you may not make additional contributions unless you are otherwise eligible. Federal tax extension High deductible health plan (HDHP). Federal tax extension   To be eligible for an Archer MSA, you must be covered under an HDHP. Federal tax extension An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the annual out-of-pocket medical expenses that you must pay for covered expenses. Federal tax extension Limits. Federal tax extension   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. Federal tax extension   Self-only coverage Family coverage Minimum annual deductible $2,150 $4,300 Maximum annual deductible $3,200 $6,450 Maximum annual out-of-pocket expenses $4,300 $7,850 Family plans that do not meet the high deductible rules. Federal tax extension   There are some family plans that have deductibles for both the family as a whole and for individual family members. Federal tax extension Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. Federal tax extension If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. Federal tax extension Example. Federal tax extension You have family health insurance coverage in 2013. Federal tax extension The annual deductible for the family plan is $5,500. Federal tax extension This plan also has an individual deductible of $2,000 for each family member. Federal tax extension The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($4,300) for family coverage. Federal tax extension Other health coverage. Federal tax extension   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Federal tax extension However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Federal tax extension However, you can have additional insurance that provides benefits only for the following items. Federal tax extension Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. Federal tax extension A specific disease or illness. Federal tax extension A fixed amount per day (or other period) of hospitalization. Federal tax extension You can also have coverage (whether provided through insurance or otherwise) for the following items. Federal tax extension Accidents. Federal tax extension Disability. Federal tax extension Dental care. Federal tax extension Vision care. Federal tax extension Long-term care. Federal tax extension Contributions to an MSA Contributions to an Archer MSA must be made in cash. Federal tax extension You cannot contribute stock or other property to an Archer MSA. Federal tax extension Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. Federal tax extension (You do not pay tax on these contributions. Federal tax extension ) If your employer does not make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. Federal tax extension Both you and your employer cannot make contributions to your Archer MSA in the same year. Federal tax extension You do not have to make contributions to your Archer MSA every year. Federal tax extension    If your spouse is covered by your HDHP and an excludable amount is contributed by your spouse's employer to an Archer MSA belonging to your spouse, you cannot make contributions to your own Archer MSA that year. Federal tax extension Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. Federal tax extension An income limit. Federal tax extension Annual deductible limit. Federal tax extension   You (or your employer) can contribute up to 75% of the annual deductible of your HDHP (65% if you have a self-only plan) to your Archer MSA. Federal tax extension You must have the HDHP all year to contribute the full amount. Federal tax extension If you do not qualify to contribute the full amount for the year, determine your annual deductible limit by using the worksheet in the Instructions for Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Federal tax extension Example 1. Federal tax extension You have an HDHP for your family all year in 2013. Federal tax extension The annual deductible is $5,000. Federal tax extension You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. Federal tax extension Example 2. Federal tax extension You have an HDHP for your family for the entire months of July through December 2013 (6 months). Federal tax extension The annual deductible is $5,000. Federal tax extension You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. Federal tax extension If you and your spouse each have a family plan, you are treated as having family coverage with the lower annual deductible of the two health plans. Federal tax extension The contribution limit is split equally between you unless you agree on a different division. Federal tax extension Income limit. Federal tax extension   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. Federal tax extension   If you are self-employed, you cannot contribute more than your net self-employment income. Federal tax extension This is your income from self-employment minus expenses (including the deductible part of self-employment tax). Federal tax extension Example 1. Federal tax extension Noah Paul earned $25,000 from ABC Company in 2013. Federal tax extension Through ABC, he had an HDHP for his family for the entire year. Federal tax extension The annual deductible was $5,000. Federal tax extension He can contribute up to $3,750 to his Archer MSA (75% × $5,000). Federal tax extension He can contribute the full amount because he earned more than $3,750 at ABC. Federal tax extension Example 2. Federal tax extension Westley Lawrence is self-employed. Federal tax extension He had an HDHP for his family for the entire year in 2013. Federal tax extension The annual deductible was $5,000. Federal tax extension Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). Federal tax extension However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. Federal tax extension Therefore, he is limited to a contribution of $2,500. Federal tax extension Individuals enrolled in Medicare. Federal tax extension   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. Federal tax extension However, you may be eligible for a Medicare Advantage MSA, discussed later. Federal tax extension When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. Federal tax extension Reporting Contributions on Your Return Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040 or Form 1040NR. Federal tax extension You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. Federal tax extension You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount you (or your employer) contributed during the year. Federal tax extension Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. Federal tax extension Follow the instructions for Form 8853 and complete the worksheet in the instructions. Federal tax extension Report your Archer MSA deduction on Form 1040 or Form 1040NR. Federal tax extension Excess contributions. Federal tax extension   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. Federal tax extension Excess contributions are not deductible. Federal tax extension Excess contributions made by your employer are included in your gross income. Federal tax extension If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. Federal tax extension   Generally, you must pay a 6% excise tax on excess contributions. Federal tax extension See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Federal tax extension The excise tax applies to each tax year the excess contribution remains in the account. Federal tax extension   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. Federal tax extension You withdraw the excess contributions by the due date, including extensions, of your tax return. Federal tax extension You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. Federal tax extension Deducting an excess contribution in a later year. Federal tax extension   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. Federal tax extension The excess contribution you can deduct in the current year is the lesser of the following two amounts. Federal tax extension Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. Federal tax extension The total excess contributions in your Archer MSA at the beginning of the year. Federal tax extension   Any excess contributions remaining at the end of a tax year are subject to the excise tax. Federal tax extension See Form 5329. Federal tax extension Distributions From an MSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. Federal tax extension When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your Archer MSA to send you a distribution from your Archer MSA. Federal tax extension You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). Federal tax extension If you receive distributions for other reasons, the amount will be subject to income tax and may be subject to an additional 20% tax as well. Federal tax extension You do not have to make withdrawals from your Archer MSA each year. Federal tax extension If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Federal tax extension A distribution is money you get from your Archer MSA. Federal tax extension The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Federal tax extension Qualified medical expenses. Federal tax extension   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Federal tax extension These are explained in Publication 502. Federal tax extension   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. Federal tax extension A medicine or drug will be a qualified medical expense for MSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. Federal tax extension   Qualified medical expenses are those incurred by the following persons. Federal tax extension You and your spouse. Federal tax extension All dependents you claim on your tax return. Federal tax extension Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Federal tax extension    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. Federal tax extension    You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your Archer MSA. Federal tax extension Special rules for insurance premiums. Federal tax extension   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. Federal tax extension You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law as qualified medical expenses for Archer MSAs. Federal tax extension Health coverage tax credit. Federal tax extension   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. Federal tax extension See Publication 502 for information on this credit. Federal tax extension Deemed distributions from Archer MSAs. Federal tax extension   The following situations result in deemed taxable distributions from your Archer MSA. Federal tax extension You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. Federal tax extension Your account ceases to be an Archer MSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8853. Federal tax extension You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. Federal tax extension You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Federal tax extension   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the Archer MSA, Lending of money between you and the Archer MSA, Furnishing goods, services, or facilities between you and the Archer MSA, and Transfer to or use by you, or for your benefit, of any assets of the Archer MSA. Federal tax extension   Any deemed distribution will not be treated as used to pay qualified medical expenses. Federal tax extension These distributions are included in your income and are subject to the additional 20% tax, discussed later. Federal tax extension Recordkeeping. Federal tax extension You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. Federal tax extension Do not send these records with your tax return. Federal tax extension Keep them with your tax records. Federal tax extension Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). Federal tax extension If you use a distribution from your Archer MSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. Federal tax extension Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Federal tax extension If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. Federal tax extension Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. Federal tax extension You may have to pay an additional 20% tax, discussed later, on your taxable distribution. Federal tax extension If an amount (other than a rollover) is contributed to your Archer MSA this year (by you or your employer), you also must report and pay tax on a distribution you receive from your Archer MSA this year that is used to pay medical expenses of someone who is not covered by an HDHP, or is also covered by another health plan that is not an HDHP, at the time the expenses are incurred. Federal tax extension Rollovers. Federal tax extension   Generally, any distribution from an Archer MSA that you roll over into another Archer MSA or an HSA is not taxable if you complete the rollover within 60 days. Federal tax extension An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. Federal tax extension See the Form 8853 instructions for more information. Federal tax extension Additional tax. Federal tax extension   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. Federal tax extension Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. Federal tax extension Report the additional tax in the total on Form 1040 or Form 1040NR. Federal tax extension Exceptions. Federal tax extension   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Federal tax extension Balance in an Archer MSA An Archer MSA is generally exempt from tax. Federal tax extension You are permitted to take a distribution from your Archer MSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Federal tax extension Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Federal tax extension Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. Federal tax extension Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. Federal tax extension What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. Federal tax extension Spouse is the designated beneficiary. Federal tax extension   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. Federal tax extension Spouse is not the designated beneficiary. Federal tax extension   If your spouse is not the designated beneficiary of your Archer MSA: The account stops being an Archer MSA, and The fair market value of the Archer MSA becomes taxable to the beneficiary in the year in which you die. Federal tax extension   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. Federal tax extension The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. Federal tax extension Filing Form 8853 You must file Form 8853 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your Archer MSA during the year. Federal tax extension You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. Federal tax extension If, during the tax year, you are the beneficiary of two or more Archer MSAs or you are a beneficiary of an Archer MSA and you have your own Archer MSA, you must complete a separate Form 8853 for each MSA. Federal tax extension Enter “statement” at the top of each Form 8853 and complete the form as instructed. Federal tax extension Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. Federal tax extension Attach the statements to your tax return after the controlling Form 8853. Federal tax extension Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. Federal tax extension Unlike the previous discussions, “you” refers to the employer and not to the employee. Federal tax extension Health plan. Federal tax extension   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. Federal tax extension You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Federal tax extension Contributions. Federal tax extension   You can make contributions to your employees' Archer MSAs. Federal tax extension You deduct the contributions on the “Employee benefit programs” line of your business income tax return for the year in which you make the contributions. Federal tax extension If you are filing Form 1040, Schedule C, this is Part II, line 14. Federal tax extension Comparable contributions. Federal tax extension   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. Federal tax extension Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. Federal tax extension Comparable participating employees. Federal tax extension   Comparable participating employees: Are covered by your HDHP and are eligible to establish an Archer MSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (either part-time or full-time). Federal tax extension Excise tax. Federal tax extension   If you made contributions to your employees' Archer MSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. Federal tax extension Employment taxes. Federal tax extension   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. Federal tax extension You must report the contributions in box 12 of the Form W-2 you file for each employee. Federal tax extension Enter code “R” in box 12. Federal tax extension Medicare Advantage MSAs A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. Federal tax extension To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have a high deductible health plan (HDHP) that meets the Medicare guidelines. Federal tax extension A Medicare Advantage MSA is a tax-exempt trust or custodial savings account that you set up with a financial institution (such as a bank or an insurance company) in which the Medicare program can deposit money for qualified medical expenses. Federal tax extension The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. Federal tax extension An HDHP is a special health insurance policy that has a high deductible. Federal tax extension You choose the policy you want to use as part of your Medicare Advantage MSA plan. Federal tax extension However, the policy must be approved by the Medicare program. Federal tax extension Medicare Advantage MSAs are administered through the federal Medicare program. Federal tax extension You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. Federal tax extension medicare. Federal tax extension gov. Federal tax extension Note. Federal tax extension You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. Federal tax extension Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. Federal tax extension FSAs are usually funded through voluntary salary reduction agreements with your employer. Federal tax extension No employment or federal income taxes are deducted from your contribution. Federal tax extension The employer may also contribute. Federal tax extension Note. Federal tax extension Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for FSAs on your income tax return. Federal tax extension For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. Federal tax extension What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. Federal tax extension Contributions made by your employer can be excluded from your gross income. Federal tax extension No employment or federal income taxes are deducted from the contributions. Federal tax extension Withdrawals may be tax free if you pay qualified medical expenses. Federal tax extension See Qualified medical expenses , later. Federal tax extension You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. Federal tax extension Qualifying for an FSA Health FSAs are employer-established benefit plans. Federal tax extension These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Federal tax extension Employers have complete flexibility to offer various combinations of benefits in designing their plan. Federal tax extension You do not have to be covered under any other health care plan to participate. Federal tax extension Self-employed persons are not eligible for an FSA. Federal tax extension Certain limitations may apply if you are a highly compensated participant or a key employee. Federal tax extension Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. Federal tax extension This is sometimes called a salary reduction agreement. Federal tax extension The employer may also contribute to your FSA if specified in the plan. Federal tax extension You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. Federal tax extension However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. Federal tax extension When To Contribute At the
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Understanding Your CP75D Notice

We’re auditing your tax return and we need documentation to verify the income and withholding you reported on your tax return. This may affect your eligibility for the Earned Income Credit (EIC), dependent exemption(s) and other refundable credits that you claimed. We are holding your refund pending the results of the audit.


What you need to do

  • Read the notice and the enclosed forms carefully. They explain the information you must send to us.
  • Provide copies of supporting documentation to verify the items we're auditing.
  • Complete the response form by indicating which items your supporting documentation addresses on the copies you're submitting and return the form with the documents you are submitting.

You may want to


Answers to Common Questions

Why was my return selected for audit?
While most returns are accepted as filed, some are selected for examination. The IRS examines (or audits) some federal tax returns to determine if income, expenses, and credits are reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination doesn't suggest you made an error or were dishonest.

Why are my wages being audited?
The amounts you reported on the wages and withholding lines of your tax return appear incorrect.

Can I claim the earned income credit for my fiancé’s child?
No. You must be married to the child’s parent during the tax year in question to receive EIC.

What do I need to send?
Refer to the applicable Form 886-H and Form 886-L you received with your notice. There is a separate form for each item being audited that explains what supporting documentation to send.

What if I can’t provide the requested documentation?
We’ll disallow the items being audited and send you an examination report that shows the proposed changes to your tax return.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Contact us at the number listed on the top right corner of your notice. You can also refer to the IRS Identity Theft resource page for more information.

Can I file my tax return while I am being audited?
Yes, you should continue to file all required tax returns before the due date to avoid additional penalties and interest.


Tips for next year

Avoid errors that can delay your refund or result in IRS denying your EITC claim. Find out the most common errors in claiming EITC here.

Page Last Reviewed or Updated: 07-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Federal Tax Extension

Federal tax extension 24. Federal tax extension   Contributions Table of Contents Introduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. Federal tax extension Household items. Federal tax extension Deduction more than $500. Federal tax extension Form 1098-C. Federal tax extension Filing deadline approaching and still no Form 1098-C. Federal tax extension Exception 1—vehicle used or improved by organization. Federal tax extension Exception 2—vehicle given or sold to needy individual. Federal tax extension Deduction $500 or less. Federal tax extension Right to use property. Federal tax extension Tangible personal property. Federal tax extension Future interest. Federal tax extension Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. Federal tax extension Text message. Federal tax extension Credit card. Federal tax extension Pay-by-phone account. Federal tax extension Stock certificate. Federal tax extension Promissory note. Federal tax extension Option. Federal tax extension Borrowed funds. Federal tax extension Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report Introduction This chapter explains how to claim a deduction for your charitable contributions. Federal tax extension It discusses the following topics. Federal tax extension The types of organizations to which you can make deductible charitable contributions. Federal tax extension The types of contributions you can deduct. Federal tax extension How much you can deduct. Federal tax extension What records you must keep. Federal tax extension How to report your charitable contributions. Federal tax extension A charitable contribution is a donation or gift to, or for the use of, a qualified organization. Federal tax extension It is voluntary and is made without getting, or expecting to get, anything of equal value. Federal tax extension Form 1040 required. Federal tax extension    To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. Federal tax extension The amount of your deduction may be limited if certain rules and limits explained in this chapter apply to you. Federal tax extension The limits are explained in detail in Publication 526. Federal tax extension Useful Items - You may want to see: Publication 526 Charitable Contributions 561 Determining the Value of Donated Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 8283 Noncash Charitable Contributions Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. Federal tax extension Most organizations other than churches and governments must apply to the IRS to become a qualified organization. Federal tax extension How to check whether an organization can receive deductible charitable contributions. Federal tax extension   You can ask any organization whether it is a qualified organization, and most will be able to tell you. Federal tax extension Or go to IRS. Federal tax extension gov. Federal tax extension Click on “Tools” and then on “Exempt Organizations Select Check” (www. Federal tax extension irs. Federal tax extension gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). Federal tax extension This online tool will enable you to search for qualified organizations. Federal tax extension You can also call the IRS to find out if an organization is qualified. Federal tax extension Call 1-877-829-5500. Federal tax extension People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. Federal tax extension Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. Federal tax extension gsa. Federal tax extension gov/fedrelay. Federal tax extension Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. Federal tax extension A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). Federal tax extension It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Federal tax extension Certain organizations that foster national or international amateur sports competition also qualify. Federal tax extension War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). Federal tax extension Domestic fraternal societies, orders, and associations operating under the lodge system. Federal tax extension (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Federal tax extension ) Certain nonprofit cemetery companies or corporations. Federal tax extension (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. Federal tax extension ) The United States or any state, the District of Columbia, a U. Federal tax extension S. Federal tax extension possession (including Puerto Rico), a political subdivision of a state or U. Federal tax extension S. Federal tax extension possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. Federal tax extension (Your contribution to this type of organization is only deductible if it is to be used solely for public purposes. Federal tax extension ) Examples. Federal tax extension    The following list gives some examples of qualified organizations. Federal tax extension Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. Federal tax extension Most nonprofit charitable organizations such as the American Red Cross and the United Way. Federal tax extension Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. Federal tax extension This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. Federal tax extension However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . Federal tax extension Nonprofit hospitals and medical research organizations. Federal tax extension Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Federal tax extension Nonprofit volunteer fire companies. Federal tax extension Nonprofit organizations that develop and maintain public parks and recreation facilities. Federal tax extension Civil defense organizations. Federal tax extension Certain foreign charitable organizations. Federal tax extension   Under income tax treaties with Canada, Israel, and Mexico, you may be able to deduct contributions to certain Canadian, Israeli, or Mexican charitable organizations. Federal tax extension Generally, you must have income from sources in that country. Federal tax extension For additional information on the deduction of contributions to Canadian charities, see Publication 597, Information on the United States–Canada Income Tax Treaty. Federal tax extension If you need more information on how to figure your contribution to Mexican and Israeli charities, see Publication 526. Federal tax extension Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. Federal tax extension A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. Federal tax extension The contributions must be made to a qualified organization and not set aside for use by a specific person. Federal tax extension If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. Federal tax extension See Contributions of Property , later in this chapter. Federal tax extension Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. Federal tax extension See Limits on Deductions , later. Federal tax extension In addition, the total of your charitable contribution deduction and certain other itemized deductions may be limited. Federal tax extension See chapter 29. Federal tax extension Table 24-1 gives examples of contributions you can and cannot deduct. Federal tax extension Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Federal tax extension Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. Federal tax extension If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. Federal tax extension For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Federal tax extension Example 1. Federal tax extension You pay $65 for a ticket to a dinner-dance at a church. Federal tax extension Your entire $65 payment goes to the church. Federal tax extension The ticket to the dinner-dance has a fair market value of $25. Federal tax extension When you buy your ticket, you know that its value is less than your payment. Federal tax extension To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). Federal tax extension You can deduct $40 as a contribution to the church. Federal tax extension Example 2. Federal tax extension At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. Federal tax extension The amount you pay is no more than the fair rental value. Federal tax extension You have not made a deductible charitable contribution. Federal tax extension Athletic events. Federal tax extension   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. Federal tax extension   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. Federal tax extension Subtract the price of the tickets from your payment. Federal tax extension You can deduct 80% of the remaining amount as a charitable contribution. Federal tax extension Example 1. Federal tax extension You pay $300 a year for membership in a university's athletic scholarship program. Federal tax extension The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. Federal tax extension You can deduct $240 (80% of $300) as a charitable contribution. Federal tax extension Table 24-1. Federal tax extension Examples of Charitable Contributions—A Quick Check Use the following lists for a quick check of whether you can deduct a contribution. Federal tax extension See the rest of this chapter for more information and additional rules and limits that may apply. Federal tax extension Deductible As  Charitable Contributions Not Deductible  As Charitable Contributions Money or property you give to:  Churches, synagogues, temples, mosques, and other religious organizations Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park) Nonprofit schools and hospitals The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc. Federal tax extension War veterans groups   Expenses paid for a student living with you, sponsored by a qualified organization  Out-of-pocket expenses when you serve a qualified organization as a volunteer Money or property you give to:  Civic leagues, social and sports clubs, labor unions, and chambers of commerce Foreign organizations (except certain Canadian, Israeli, and Mexican charities) Groups that are run for personal profit Groups whose purpose is to lobby for law changes Homeowners' associations Individuals Political groups or candidates for public office   Cost of raffle, bingo, or lottery tickets  Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups  Tuition  Value of your time or services  Value of blood given to a blood bank    Example 2. Federal tax extension The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. Federal tax extension You must subtract the usual price of a ticket ($120) from your $300 payment. Federal tax extension The result is $180. Federal tax extension Your deductible charitable contribution is $144 (80% of $180). Federal tax extension Charity benefit events. Federal tax extension   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. Federal tax extension   If there is an established charge for the event, that charge is the value of your benefit. Federal tax extension If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. Federal tax extension Whether you use the tickets or other privileges has no effect on the amount you can deduct. Federal tax extension However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. Federal tax extension    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. Federal tax extension If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. Federal tax extension Example. Federal tax extension You pay $40 to see a special showing of a movie for the benefit of a qualified organization. Federal tax extension Printed on the ticket is “Contribution—$40. Federal tax extension ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). Federal tax extension Membership fees or dues. Federal tax extension    You may be able to deduct membership fees or dues you pay to a qualified organization. Federal tax extension However, you can deduct only the amount that is more than the value of the benefits you receive. Federal tax extension    You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. Federal tax extension They are not qualified organizations. Federal tax extension Certain membership benefits can be disregarded. Federal tax extension   Both you and the organization can disregard the following membership benefits if you receive them in return for an annual payment of $75 or less. Federal tax extension Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. Federal tax extension Admission, while you are a member, to events open only to members of the organization, if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. Federal tax extension 20. Federal tax extension Token items. Federal tax extension   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. Federal tax extension You receive only a small item or other benefit of token value. Federal tax extension The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. Federal tax extension Written statement. Federal tax extension   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. Federal tax extension The statement must say that you can deduct only the amount of your payment that is more than the value of the goods or services you received. Federal tax extension It must also give you a good faith estimate of the value of those goods or services. Federal tax extension   The organization can give you the statement either when it solicits or when it receives the payment from you. Federal tax extension Exception. Federal tax extension   An organization will not have to give you this statement if one of the following is true. Federal tax extension The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. Federal tax extension You receive only items whose value is not substantial as described under Token items , earlier. Federal tax extension You receive only membership benefits that can be disregarded, as described earlier. Federal tax extension Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. Federal tax extension You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization as part of a program of the organization to provide educational opportunities for the student, Is not your relative or dependent, and Is a full-time student in the twelfth or any lower grade at a school in the United States. Federal tax extension You can deduct up to $50 a month for each full calendar month the student lives with you. Federal tax extension Any month when conditions (1) through (3) are met for 15 days or more counts as a full month. Federal tax extension For additional information, see Expenses Paid for Student Living With You in Publication 526. Federal tax extension Mutual exchange program. Federal tax extension   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. Federal tax extension Table 24-2. Federal tax extension Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. Federal tax extension All of the rules explained in this chapter also apply. Federal tax extension See, in particular, Out-of-Pocket Expenses in Giving Services . Federal tax extension Question Answer I volunteer 6 hours a week in the office of a qualified organization. Federal tax extension The receptionist is paid $10 an hour for the same work. Federal tax extension Can I deduct $60 a week for my time?    No, you cannot deduct the value of your time or services. Federal tax extension The office is 30 miles from my home. Federal tax extension Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. Federal tax extension If you don't want to figure your actual costs, you can deduct 14 cents for each mile. Federal tax extension I volunteer as a Red Cross nurse's aide at a hospital. Federal tax extension Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. Federal tax extension I pay a babysitter to watch my children while I volunteer for a qualified organization. Federal tax extension Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. Federal tax extension (If you have childcare expenses so you can work for pay, see chapter 32. Federal tax extension ) Out-of-Pocket Expenses in Giving Services Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. Federal tax extension The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. Federal tax extension Table 24-2 contains questions and answers that apply to some individuals who volunteer their services. Federal tax extension Conventions. Federal tax extension   If a qualified organization selects you to attend a convention as its representative, you can deduct unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight in connection with the convention. Federal tax extension However, see Travel , later. Federal tax extension   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. Federal tax extension You also cannot deduct transportation, meals and lodging, and other expenses for your spouse or children. Federal tax extension    You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. Federal tax extension You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. Federal tax extension Uniforms. Federal tax extension   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. Federal tax extension Foster parents. Federal tax extension   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. Federal tax extension A qualified organization must select the individuals you take into your home for foster care. Federal tax extension    You can deduct expenses that meet both of the following requirements. Federal tax extension They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. Federal tax extension They are incurred primarily to benefit the qualified organization. Federal tax extension   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. Federal tax extension For details, see chapter 3. Federal tax extension Example. Federal tax extension You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. Federal tax extension Your unreimbursed expenses are not deductible as charitable contributions. Federal tax extension Car expenses. Federal tax extension   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, that are directly related to the use of your car in giving services to a charitable organization. Federal tax extension You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. Federal tax extension    If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. Federal tax extension   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. Federal tax extension   You must keep reliable written records of your car expenses. Federal tax extension For more information, see Car expenses under Records To Keep, later. Federal tax extension Travel. Federal tax extension   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. Federal tax extension This applies whether you pay the expenses directly or indirectly. Federal tax extension You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. Federal tax extension   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Federal tax extension Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. Federal tax extension However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. Federal tax extension Example 1. Federal tax extension You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. Federal tax extension You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. Federal tax extension You participate in the activities of the group and enjoy your time with them. Federal tax extension You oversee the breaking of camp and you transport the group home. Federal tax extension You can deduct your travel expenses. Federal tax extension Example 2. Federal tax extension You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. Federal tax extension The project is sponsored by a charitable organization. Federal tax extension In most circumstances, you cannot deduct your expenses. Federal tax extension Example 3. Federal tax extension You work for several hours each morning on an archaeological dig sponsored by a charitable organization. Federal tax extension The rest of the day is free for recreation and sightseeing. Federal tax extension You cannot take a charitable contribution deduction even though you work very hard during those few hours. Federal tax extension Example 4. Federal tax extension You spend the entire day attending a charitable organization's regional meeting as a chosen representative. Federal tax extension In the evening you go to the theater. Federal tax extension You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. Federal tax extension Daily allowance (per diem). Federal tax extension   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. Federal tax extension You may be able to deduct any necessary travel expenses that are more than the allowance. Federal tax extension Deductible travel expenses. Federal tax extension   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. Federal tax extension Because these travel expenses are not business-related, they are not subject to the same limits as business-related expenses. Federal tax extension For information on business travel expenses, see Travel Expenses in chapter 26. Federal tax extension Contributions You Cannot Deduct There are some contributions you cannot deduct, such as those made to specific individuals and those made to nonqualified organizations. Federal tax extension (See Contributions to Individuals and Contributions to Nonqualified Organizations , next. Federal tax extension ) There are others you can deduct only part of, as discussed later under Contributions From Which You Benefit . Federal tax extension Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. Federal tax extension Contributions to fraternal societies made for the purpose of paying medical or burial expenses of deceased members. Federal tax extension Contributions to individuals who are needy or worthy. Federal tax extension You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. Federal tax extension But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. Federal tax extension Example. Federal tax extension You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. Federal tax extension However, you cannot deduct contributions earmarked for relief of a particular individual or family. Federal tax extension Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. Federal tax extension Expenses you paid for another person who provided services to a qualified organization. Federal tax extension Example. Federal tax extension Your son does missionary work. Federal tax extension You pay his expenses. Federal tax extension You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. Federal tax extension Payments to a hospital that are for a specific patient's care or for services for a specific patient. Federal tax extension You cannot deduct these payments even if the hospital is operated by a city, a state, or other qualified organization. Federal tax extension Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. Federal tax extension Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. Federal tax extension Chambers of commerce and other business leagues or organizations (but see chapter 28). Federal tax extension Civic leagues and associations. Federal tax extension Communist organizations. Federal tax extension Country clubs and other social clubs. Federal tax extension Most foreign organizations (other than certain Canadian, Israeli, or Mexican charitable organizations). Federal tax extension For details, see Publication 526. Federal tax extension Homeowners' associations. Federal tax extension Labor unions (but see chapter 28). Federal tax extension Political organizations and candidates. Federal tax extension Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. Federal tax extension See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. Federal tax extension These contributions include the following. Federal tax extension Contributions for lobbying. Federal tax extension This includes amounts that you earmark for use in, or in connection with, influencing specific legislation. Federal tax extension Contributions to a retirement home for room, board, maintenance, or admittance. Federal tax extension Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. Federal tax extension Costs of raffles, bingo, lottery, etc. Federal tax extension You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. Federal tax extension For information on how to report gambling winnings and losses, see Gambling winnings in chapter 12 and Gambling Losses Up to the Amount of Gambling Winnings in chapter 28. Federal tax extension Dues to fraternal orders and similar groups. Federal tax extension However, see Membership fees or dues , earlier, under Contributions You Can Deduct. Federal tax extension Tuition, or amounts you pay instead of tuition. Federal tax extension You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. Federal tax extension You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. Federal tax extension ” Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. Federal tax extension Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. Federal tax extension The cost of meals you eat while you perform services for a qualified organization unless it is necessary for you to be away from home overnight while performing the services. Federal tax extension Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final (but see Adoption Credit in chapter 37, and the instructions for Form 8839, Qualified Adoption Expenses). Federal tax extension You also may be able to claim an exemption for the child. Federal tax extension See Adopted child in chapter 3. Federal tax extension Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property (but see chapter 28). Federal tax extension Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Federal tax extension However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. Federal tax extension See Giving Property That Has Increased in Value , later. Federal tax extension For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. Federal tax extension Clothing and household items. Federal tax extension   You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. Federal tax extension Exception. Federal tax extension   You can take a deduction for a contribution of an item of clothing or household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. Federal tax extension Household items. Federal tax extension   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. Federal tax extension   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. Federal tax extension Cars, boats, and airplanes. Federal tax extension    The following rules apply to any donation of a qualified vehicle. Federal tax extension A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. Federal tax extension Deduction more than $500. Federal tax extension   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. Federal tax extension If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. Federal tax extension Form 1098-C. Federal tax extension   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. Federal tax extension The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. Federal tax extension   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. Federal tax extension   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. Federal tax extension    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. Federal tax extension But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. Federal tax extension Filing deadline approaching and still no Form 1098-C. Federal tax extension   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. Federal tax extension Request an automatic 6-month extension of time to file your return. Federal tax extension You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Federal tax extension S. Federal tax extension Individual Income Tax Return. Federal tax extension  For more information, see Automatic Extension in chapter 1. Federal tax extension File the return on time without claiming the deduction for the qualified vehicle. Federal tax extension After receiving the Form 1098-C, file an amended return, Form 1040X, claiming the deduction. Federal tax extension Attach Copy B of Form 1098-C (or other statement) to the amended return. Federal tax extension For more information about amended returns, see Amended Returns and Claims for Refund in chapter 1. Federal tax extension Exceptions. Federal tax extension   There are two exceptions to the rules just described for deductions of more than $500. Federal tax extension Exception 1—vehicle used or improved by organization. Federal tax extension   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. Federal tax extension But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Federal tax extension The Form 1098-C (or other statement) will show whether this exception applies. Federal tax extension Exception 2—vehicle given or sold to needy individual. Federal tax extension   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. Federal tax extension But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Federal tax extension The Form 1098-C (or other statement) will show whether this exception applies. Federal tax extension   This exception does not apply if the organization sells the vehicle at auction. Federal tax extension In that case, you cannot deduct the vehicle's fair market value. Federal tax extension Example. Federal tax extension Anita donates a used car to a qualified organization. Federal tax extension She bought it 3 years ago for $9,000. Federal tax extension A used car guide shows the fair market value for this type of car is $6,000. Federal tax extension However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. Federal tax extension Neither exception 1 nor exception 2 applies. Federal tax extension If Anita itemizes her deductions, she can deduct $2,900 for her donation. Federal tax extension She must attach Form 1098-C and Form 8283 to her return. Federal tax extension Deduction $500 or less. Federal tax extension   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. Federal tax extension But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Federal tax extension   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. Federal tax extension The statement must contain the information and meet the tests for an acknowledgment described under Deductions of At Least $250 But Not More Than $500 under Records To Keep, later. Federal tax extension Partial interest in property. Federal tax extension   Generally, you cannot deduct a charitable contribution of less than your entire interest in property. Federal tax extension Right to use property. Federal tax extension   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. Federal tax extension For exceptions and more information, see Partial Interest in Property Not in Trust in Publication 561. Federal tax extension Future interests in tangible personal property. Federal tax extension   You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. Federal tax extension Tangible personal property. Federal tax extension   This is any property, other than land or buildings, that can be seen or touched. Federal tax extension It includes furniture, books, jewelry, paintings, and cars. Federal tax extension Future interest. Federal tax extension   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. Federal tax extension Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. Federal tax extension Publication 561 contains a more complete discussion. Federal tax extension Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Federal tax extension Used clothing and household items. Federal tax extension   The fair market value of used clothing and household goods is usually far less than what you paid for them when they were new. Federal tax extension   For used clothing, you should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. Federal tax extension See Household Goods in Publication 561 for information on the valuation of household goods, such as furniture, appliances, and linens. Federal tax extension Example. Federal tax extension Dawn Greene donated a coat to a thrift store operated by her church. Federal tax extension She paid $300 for the coat 3 years ago. Federal tax extension Similar coats in the thrift store sell for $50. Federal tax extension The fair market value of the coat is $50. Federal tax extension Dawn's donation is limited to $50. Federal tax extension Cars, boats, and airplanes. Federal tax extension   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. Federal tax extension Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. Federal tax extension The guides may be published monthly or seasonally and for different regions of the country. Federal tax extension These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Federal tax extension The prices are not “official” and these publications are not considered an appraisal of any specific donated property. Federal tax extension But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Federal tax extension   You can also find used car pricing information on the Internet. Federal tax extension Example. Federal tax extension You donate a used car in poor condition to a local high school for use by students studying car repair. Federal tax extension A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Federal tax extension However, the guide shows the price for a private party sale of the car is only $750. Federal tax extension The fair market value of the car is considered to be $750. Federal tax extension Large quantities. Federal tax extension   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. Federal tax extension Giving Property That Has Decreased in Value If you contribute property with a fair market value that is less than your basis in it, your deduction is limited to its fair market value. Federal tax extension You cannot claim a deduction for the difference between the property's basis and its fair market value. Federal tax extension Giving Property That Has Increased in Value If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. Federal tax extension Your basis in property is generally what you paid for it. Federal tax extension See chapter 13 if you need more information about basis. Federal tax extension Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. Federal tax extension Ordinary income property. Federal tax extension   Property is ordinary income property if you would have recognized ordinary income or short-term capital gain had you sold it at fair market value on the date it was contributed. Federal tax extension Examples of ordinary income property are inventory, works of art created by the donor, manuscripts prepared by the donor, and capital assets (defined in chapter 14) held 1 year or less. Federal tax extension Amount of deduction. Federal tax extension   The amount you can deduct for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. Federal tax extension Generally, this rule limits the deduction to your basis in the property. Federal tax extension Example. Federal tax extension You donate stock you held for 5 months to your church. Federal tax extension The fair market value of the stock on the day you donate it is $1,000, but you paid only $800 (your basis). Federal tax extension Because the $200 of appreciation would be short-term capital gain if you sold the stock, your deduction is limited to $800 (fair market value minus the appreciation). Federal tax extension Capital gain property. Federal tax extension   Property is capital gain property if you would have recognized long-term capital gain had you sold it at fair market value on the date of the contribution. Federal tax extension It includes capital assets held more than 1 year, as well as certain real property and depreciable property used in your trade or business and, generally, held more than 1 year. Federal tax extension Amount of deduction — general rule. Federal tax extension   When figuring your deduction for a contribution of capital gain property, you generally can use the fair market value of the property. Federal tax extension Exceptions. Federal tax extension   In certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. Federal tax extension Generally, this means reducing the fair market value to the property's cost or other basis. Federal tax extension Bargain sales. Federal tax extension   A bargain sale of property is a sale or exchange for less than the property's fair market value. Federal tax extension A bargain sale to a qualified organization is partly a charitable contribution and partly a sale or exchange. Federal tax extension A bargain sale may result in a taxable gain. Federal tax extension More information. Federal tax extension   For more information on donating appreciated property, see Giving Property That Has Increased in Value in Publication 526. Federal tax extension When To Deduct You can deduct your contributions only in the year you actually make them in cash or other property (or in a later carryover year, as explained later under Carryovers ). Federal tax extension This applies whether you use the cash or an accrual method of accounting. Federal tax extension Time of making contribution. Federal tax extension   Usually, you make a contribution at the time of its unconditional delivery. Federal tax extension Checks. Federal tax extension   A check you mail to a charity is considered delivered on the date you mail it. Federal tax extension Text message. Federal tax extension   Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. Federal tax extension Credit card. Federal tax extension    Contributions charged on your credit card are deductible in the year you make the charge. Federal tax extension Pay-by-phone account. Federal tax extension    Contributions made through a pay-by-phone account are considered delivered on the date the financial institution pays the amount. Federal tax extension Stock certificate. Federal tax extension   A properly endorsed stock certificate is considered delivered on the date of mailing or other delivery to the charity or to the charity's agent. Federal tax extension However, if you give a stock certificate to your agent or to the issuing corporation for transfer to the name of the charity, your contribution is not delivered until the date the stock is transferred on the books of the corporation. Federal tax extension Promissory note. Federal tax extension   If you issue and deliver a promissory note to a charity as a contribution, it is not a contribution until you make the note payments. Federal tax extension Option. Federal tax extension    If you grant a charity an option to buy real property at a bargain price, it is not a contribution until the organization exercises the option. Federal tax extension Borrowed funds. Federal tax extension   If you contribute borrowed funds, you can deduct the contribution in the year you deliver the funds to the charity, regardless of when you repay the loan. Federal tax extension Limits on Deductions The amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI). Federal tax extension Your deduction may be further limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to. Federal tax extension If your total contributions for the year are 20% or less of your AGI, these limits do not apply to you. Federal tax extension The limits are discussed in detail under Limits on Deductions in Publication 526. Federal tax extension A higher limit applies to certain qualified conservation contributions. Federal tax extension See Publication 526 for details. Federal tax extension Carryovers You can carry over any contributions you cannot deduct in the current year because they exceed your adjusted-gross-income limits. Federal tax extension You can deduct the excess in each of the next 5 years until it is used up, but not beyond that time. Federal tax extension For more information, see Carryovers in Publication 526. Federal tax extension Records To Keep You must keep records to prove the amount of the contributions you make during the year. Federal tax extension The kind of records you must keep depends on the amount of your contributions and whether they are: Cash contributions, Noncash contributions, or Out-of-pocket expenses when donating your services. Federal tax extension Note. Federal tax extension An organization generally must give you a written statement if it receives a payment from you that is more than $75 and is partly a contribution and partly for goods or services. Federal tax extension (See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. Federal tax extension ) Keep the statement for your records. Federal tax extension It may satisfy all or part of the recordkeeping requirements explained in the following discussions. Federal tax extension Cash Contributions Cash contributions include those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. Federal tax extension You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following. Federal tax extension A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Federal tax extension Bank records may include: A canceled check, A bank or credit union statement, or A credit card statement. Federal tax extension A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution. Federal tax extension The payroll deduction records described next. Federal tax extension Payroll deductions. Federal tax extension   If you make a contribution by payroll deduction, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization. Federal tax extension If your employer withheld $250 or more from a single paycheck, see Contributions of $250 or More , next. Federal tax extension Contributions of $250 or More You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records. Federal tax extension If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions. Federal tax extension Amount of contribution. Federal tax extension   In figuring whether your contribution is $250 or more, do not combine separate contributions. Federal tax extension For example, if you gave your church $25 each week, your weekly payments do not have to be combined. Federal tax extension Each payment is a separate contribution. Federal tax extension   If contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution. Federal tax extension   If you made a payment that is partly for goods and services, as described earlier under Contributions From Which You Benefit , your contribution is the amount of the payment that is more than the value of the goods and services. Federal tax extension Acknowledgment. Federal tax extension   The acknowledgment must meet these tests. Federal tax extension It must be written. Federal tax extension It must include: The amount of cash you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), A description and good faith estimate of the value of any goods or services described in (b) (other than intangible religious benefits), and A statement that the only benefit you received was an intangible religious benefit, if that was the case. Federal tax extension The acknowledgment does not need to describe or estimate the value of an intangible religious benefit. Federal tax extension An intangible religious benefit is a benefit that generally is not sold in commercial transactions outside a donative (gift) context. Federal tax extension An example is admission to a religious ceremony. Federal tax extension You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. Federal tax extension   If the acknowledgment does not show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. Federal tax extension If the acknowledgment shows the date of the contribution and meets the other tests just described, you do not need any other records. Federal tax extension Payroll deductions. Federal tax extension   If you make a contribution by payroll deduction and your employer withholds $250 or more from a single paycheck, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld as a contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization and states the organization does not provide goods or services in return for any contribution made to it by payroll deduction. Federal tax extension A single pledge card may be kept for all contributions made by payroll deduction regardless of amount as long as it contains all the required information. Federal tax extension   If the pay stub, Form W-2, pledge card, or other document does not show the date of the contribution, you must have another document that does show the date of the contribution. Federal tax extension If the pay stub, Form W-2, pledge card, or other document shows the date of the contribution, you do not need any other records except those just described in (1) and (2). Federal tax extension Noncash Contributions For a contribution not made in cash, the records you must keep depend on whether your deduction for the contribution is: Less than $250, At least $250 but not more than $500, Over $500 but not more than $5,000, or Over $5,000. Federal tax extension Amount of deduction. Federal tax extension   In figuring whether your deduction is $500 or more, combine your claimed deductions for all similar items of property donated to any charitable organization during the year. Federal tax extension   If you received goods or services in return, as described earlier in Contributions From Which You Benefit , reduce your contribution by the value of those goods or services. Federal tax extension If you figure your deduction by reducing the fair market value of the donated property by its appreciation, as described earlier in Giving Property That Has Increased in Value , your contribution is the reduced amount. Federal tax extension Deductions of Less Than $250 If you make any noncash contribution, you must get and keep a receipt from the charitable organization showing: The name of the charitable organization, The date and location of the charitable contribution, and A reasonably detailed description of the property. Federal tax extension A letter or other written communication from the charitable organization acknowledging receipt of the contribution and containing the information in (1), (2), and (3) will serve as a receipt. Federal tax extension You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity's unattended drop site). Federal tax extension Additional records. Federal tax extension   You must also keep reliable written records for each item of contributed property. Federal tax extension Your written records must include the following information. Federal tax extension The name and address of the organization to which you contributed. Federal tax extension The date and location of the contribution. Federal tax extension A description of the property in detail reasonable under the circumstances. Federal tax extension For a security, keep the name of the issuer, the type of security, and whether it is regularly traded on a stock exchange or in an over-the-counter market. Federal tax extension The fair market value of the property at the time of the contribution and how you figured the fair market value. Federal tax extension If it was determined by appraisal, keep a signed copy of the appraisal. Federal tax extension The cost or other basis of the property, if you must reduce its fair market value by appreciation. Federal tax extension Your records should also include the amount of the reduction and how you figured it. Federal tax extension The amount you claim as a deduction for the tax year as a result of the contribution, if you contribute less than your entire interest in the property during the tax year. Federal tax extension Your records must include the amount you claimed as a deduction in any earlier years for contributions of other interests in this property. Federal tax extension They must also include the name and address of each organization to which you contributed the other interests, the place where any such tangible property is located or kept, and the name of any person in possession of the property, other than the organization to which you contributed it. Federal tax extension The terms of any conditions attached to the contribution of property. Federal tax extension Deductions of At Least $250 But Not More Than $500 If you claim a deduction of at least $250 but not more than $500 for a noncash charitable contribution, you must get and keep an acknowledgment of your contribution from the qualified organization. Federal tax extension If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that shows your total contributions. Federal tax extension The acknowledgment must contain the information in items (1) through (3) under Deductions of Less Than $250 , earlier, and your written records must include the information listed in that discussion under Additional records . Federal tax extension The acknowledgment must also meet these tests. Federal tax extension It must be written. Federal tax extension It must include: A description (but not necessarily the value) of any property you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), and A description and good faith estimate of the value of any goods or services described in (b). Federal tax extension If the only benefit you received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so and does not need to describe or estimate the value of the benefit. Federal tax extension You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. Federal tax extension Deductions Over $500 You are required to give additional information if you claim a deduction over $500 for noncash charitable contributions. Federal tax extension See Records To Keep in Publication 526 for more information. Federal tax extension Out-of-Pocket Expenses If you give services to a qualified organization and have unreimbursed out-of-pocket expenses related to those services, the following two rules apply. Federal tax extension You must have adequate records to prove the amount of the expenses. Federal tax extension If any of your unreimbursed out-of-pocket expenses, considered separately, are $250 or more (for example, you pay $250 or more for an airline ticket to attend a convention of a qualified organization as a chosen representative), you must get an acknowledgment from the qualified organization that contains: A description of the services you provided, A statement of whether or not the organization provided you any goods or services to reimburse you for the expenses you incurred, A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided to reimburse you, and A statement that the only benefit you received was an intangible religious benefit, if that was the case. Federal tax extension The acknowledgment does not need to describe or estimate the value of an intangible religious benefit (defined earlier under Acknowledgment ). Federal tax extension You must get the acknowledgment on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. Federal tax extension Car expenses. Federal tax extension   If you claim expenses directly related to use of your car in giving services to a qualified organization, you must keep reliable written records of your expenses. Federal tax extension Whether your records are considered reliable depends on all the facts and circumstances. Federal tax extension Generally, they may be considered reliable if you made them regularly and at or near the time you had the expenses. Federal tax extension   For example, your records might show the name of the organization you were serving and the dates you used your car for a charitable purpose. Federal tax extension If you use the standard mileage rate of 14 cents a mile, your records must show the miles you drove your car for the charitable purpose. Federal tax extension If you deduct your actual expenses, your records must show the costs of operating the car that are directly related to a charitable purpose. Federal tax extension   See Car expenses under Out-of-Pocket Expenses in Giving Services, earlier, for the expenses you can deduct. Federal tax extension How To Report Report your charitable contributions on Schedule A (Form 1040). Federal tax extension If your total deduction for all noncash contributions for the year is over $500, you must also file Form 8283. Federal tax extension See How To Report in Publication 526 for more information. Federal tax extension Prev  Up  Next   Home   More Online Publications