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File 2012 Taxes Online Free

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File 2012 Taxes Online Free

File 2012 taxes online free 6. File 2012 taxes online free   Tip Income Table of Contents Introduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. File 2012 taxes online free Reporting Tips to Your EmployerElectronic tip statement. File 2012 taxes online free Final report. File 2012 taxes online free Reporting Tips on Your Tax Return Allocated Tips Introduction This chapter is for employees who receive tips. File 2012 taxes online free All tips you receive are income and are subject to federal income tax. File 2012 taxes online free You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. File 2012 taxes online free The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax. File 2012 taxes online free Reporting your tip income correctly is not difficult. File 2012 taxes online free You must do three things. File 2012 taxes online free Keep a daily tip record. File 2012 taxes online free Report tips to your employer. File 2012 taxes online free Report all your tips on your income tax return. File 2012 taxes online free  This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. File 2012 taxes online free This chapter will also show you how to treat allocated tips. File 2012 taxes online free For information on special tip programs and agreements, see Publication 531. File 2012 taxes online free Useful Items - You may want to see: Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137 Social Security and Medicare Tax on Unreported Tip Income 4070 Employee's Report of Tips to Employer Keeping a Daily Tip Record Why keep a daily tip record. File 2012 taxes online free   You must keep a daily tip record so you can: Report your tips accurately to your employer, Report your tips accurately on your tax return, and Prove your tip income if your return is ever questioned. File 2012 taxes online free How to keep a daily tip record. File 2012 taxes online free   There are two ways to keep a daily tip record. File 2012 taxes online free You can either: Write information about your tips in a tip diary, or Keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge slips. File 2012 taxes online free You should keep your daily tip record with your tax or other personal records. File 2012 taxes online free You must keep your records for as long as they are important for administration of the federal tax law. File 2012 taxes online free For information on how long to keep records, see How long to keep records in chapter 1. File 2012 taxes online free    If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips. File 2012 taxes online free To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for Publication 1244. File 2012 taxes online free Also, Publication 1244 is available online at www. File 2012 taxes online free irs. File 2012 taxes online free gov/pub/irs-pdf/p1244. File 2012 taxes online free pdf. File 2012 taxes online free Publication 1244 includes a 1-year supply of Form 4070A. File 2012 taxes online free Each day, write in the information asked for on the form. File 2012 taxes online free   In addition to the information asked for on Form 4070A, you also need to keep a record of the date and value of any noncash tips you get, such as tickets, passes, or other items of value. File 2012 taxes online free Although you do not report these tips to your employer, you must report them on your tax return. File 2012 taxes online free   If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). File 2012 taxes online free Then, each workday, write the date and the following information. File 2012 taxes online free Cash tips you get directly from customers or from other employees. File 2012 taxes online free Tips from credit and debit card charge customers that your employer pays you. File 2012 taxes online free The value of any noncash tips you get, such as tickets, passes, or other items of value. File 2012 taxes online free The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips. File 2012 taxes online free Electronic tip record. File 2012 taxes online free   You can use an electronic system provided by your employer to record your daily tips. File 2012 taxes online free If you do, you must receive and keep a paper copy of this record. File 2012 taxes online free Service charges. File 2012 taxes online free    Do not write in your tip diary the amount of any service charge that your employer adds to a customer's bill and then pays to you and treats as wages. File 2012 taxes online free This is part of your wages, not a tip. File 2012 taxes online free See examples below. File 2012 taxes online free Example 1. File 2012 taxes online free Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. File 2012 taxes online free Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. File 2012 taxes online free Because Jane did not have an unrestricted right to determine the amount on the “tip line,” the 18% charge is considered a service charge. File 2012 taxes online free Do not include the 18% charge in your tip diary. File 2012 taxes online free Service charges that are paid to you are considered wages, not tips. File 2012 taxes online free Example 2. File 2012 taxes online free Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. File 2012 taxes online free David’s bill includes a blank “tip line,” with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. File 2012 taxes online free Because David is free to enter any amount on the “tip line” or leave it blank, any amount he includes is considered a tip. File 2012 taxes online free Be sure to include this amount in your tip diary. File 2012 taxes online free Reporting Tips to Your Employer Why report tips to your employer. File 2012 taxes online free   You must report tips to your employer so that: Your employer can withhold federal income tax and social security, Medicare, Additional Medicare, or railroad retirement taxes, Your employer can report the correct amount of your earnings to the Social Security Administration or Railroad Retirement Board (which affects your benefits when you retire or if you become disabled, or your family's benefits if you die), and You can avoid the penalty for not reporting tips to your employer (explained later). File 2012 taxes online free What tips to report. File 2012 taxes online free   Report to your employer only cash, check, and debit and credit card tips you receive. File 2012 taxes online free   If your total tips for any 1 month from any one job are less than $20, do not report the tips for that month to that employer. File 2012 taxes online free   If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. File 2012 taxes online free Do not report to your employer any portion of the tips you receive that you pass on to other employees. File 2012 taxes online free However, you must report tips you receive from other employees. File 2012 taxes online free    Do not report the value of any noncash tips, such as tickets or passes, to your employer. File 2012 taxes online free You do not pay social security, Medicare, Additional Medicare or railroad retirement taxes on these tips. File 2012 taxes online free How to report. File 2012 taxes online free    If your employer does not give you any other way to report tips, you can use Form 4070. File 2012 taxes online free Fill in the information asked for on the form, sign and date the form, and give it to your employer. File 2012 taxes online free To get a 1-year supply of the form, ask the IRS or your employer for Publication 1244. File 2012 taxes online free   If you do not use Form 4070, give your employer a statement with the following information. File 2012 taxes online free Your name, address, and social security number. File 2012 taxes online free Your employer's name, address, and business name (if it is different from your employer's name). File 2012 taxes online free The month (or the dates of any shorter period) in which you received tips. File 2012 taxes online free The total tips required to be reported for that period. File 2012 taxes online free You must sign and date the statement. File 2012 taxes online free Be sure to keep a copy with your tax or other personal records. File 2012 taxes online free   Your employer may require you to report your tips more than once a month. File 2012 taxes online free However, the statement cannot cover a period of more than 1 calendar month. File 2012 taxes online free Electronic tip statement. File 2012 taxes online free   Your employer can have you furnish your tip statements electronically. File 2012 taxes online free When to report. File 2012 taxes online free   Give your report for each month to your employer by the 10th of the next month. File 2012 taxes online free If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next day that is not a Saturday, Sunday, or legal holiday. File 2012 taxes online free Example. File 2012 taxes online free You must report your tips received in September 2014 by October 10, 2014. File 2012 taxes online free Final report. File 2012 taxes online free   If your employment ends during the month, you can report your tips when your employment ends. File 2012 taxes online free Penalty for not reporting tips. File 2012 taxes online free   If you do not report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security, Medicare, and Additional Medicare taxes or railroad retirement tax you owe on the unreported tips. File 2012 taxes online free (For information about these taxes, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, later. File 2012 taxes online free ) The penalty amount is in addition to the taxes you owe. File 2012 taxes online free   You can avoid this penalty if you can show reasonable cause for not reporting the tips to your employer. File 2012 taxes online free To do so, attach a statement to your return explaining why you did not report them. File 2012 taxes online free Giving your employer money for taxes. File 2012 taxes online free   Your regular pay may not be enough for your employer to withhold all the taxes you owe on your regular pay plus your reported tips. File 2012 taxes online free If this happens, you can give your employer money until the close of the calendar year to pay the rest of the taxes. File 2012 taxes online free   If you do not give your employer enough money, your employer will apply your regular pay and any money you give in the following order. File 2012 taxes online free All taxes on your regular pay. File 2012 taxes online free Social security, Medicare, and Additional Medicare taxes or railroad retirement taxes on your reported tips. File 2012 taxes online free Federal, state, and local income taxes on your reported tips. File 2012 taxes online free    Any taxes that remain unpaid can be collected by your employer from your next paycheck. File 2012 taxes online free If withholding taxes remain uncollected at the end of the year, you may be subject to a penalty for underpayment of estimated taxes. File 2012 taxes online free See Publication 505, Tax Withholding and Estimated Tax, for more information. File 2012 taxes online free    Uncollected taxes. File 2012 taxes online free You must report on your tax return any social security and Medicare taxes or railroad retirement tax that remained uncollected at the end of 2013. File 2012 taxes online free These uncollected taxes will be shown on your 2013 Form W-2. File 2012 taxes online free See Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer under Reporting Tips on Your Tax Return, later. File 2012 taxes online free Reporting Tips on Your Tax Return How to report tips. File 2012 taxes online free    Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; or Form 1040EZ, line 1. File 2012 taxes online free What tips to report. File 2012 taxes online free   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. File 2012 taxes online free Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. File 2012 taxes online free Add to the amount in box 1 only the tips you did not report to your employer. File 2012 taxes online free    If you received $20 or more in cash and charge tips in a month and did not report all of those tips to your employer, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer, later. File 2012 taxes online free    If you did not keep a daily tip record as required and an amount is shown in box 8 of your Form W-2, see Allocated Tips, later. File 2012 taxes online free   If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add the following tips to the amount in box 1 of your Form W-2. File 2012 taxes online free Cash and charge tips you received that totaled less than $20 for any month. File 2012 taxes online free The value of noncash tips, such as tickets, passes, or other items of value. File 2012 taxes online free Example. File 2012 taxes online free Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2013) on June 30 and received $10,000 in wages during the year. File 2012 taxes online free Ben kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. File 2012 taxes online free He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required. File 2012 taxes online free Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages plus $7,000 reported tips) in box 1. File 2012 taxes online free He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return. File 2012 taxes online free Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer. File 2012 taxes online free    If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security, Medicare, and Additional Medicare taxes on the unreported tips as additional tax on your return. File 2012 taxes online free To report these taxes, you must file a return even if you would not otherwise have to file. File 2012 taxes online free You must use Form 1040. File 2012 taxes online free (You cannot file Form 1040EZ or Form 1040A. File 2012 taxes online free )    Use Form 4137 to figure social security and Medicare taxes. File 2012 taxes online free Enter the tax on your return as instructed, and attach the completed Form 4137 to your return. File 2012 taxes online free Use Form 8959 to figure Additional Medicare Tax. File 2012 taxes online free    If you are subject to the Railroad Retirement Tax Act, you cannot use Form 4137 to pay railroad retirement tax on unreported tips. File 2012 taxes online free To get railroad retirement credit, you must report tips to your employer. File 2012 taxes online free Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer. File 2012 taxes online free   You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe and you did not give your employer enough money to pay the rest of the taxes. File 2012 taxes online free For more information, see Giving your employer money for taxes , under Reporting Tips to Your Employer, earlier. File 2012 taxes online free   If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owe on tips reported for 2013, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). File 2012 taxes online free You must report these amounts as additional tax on your return. File 2012 taxes online free Unlike the uncollected portion of the regular (1. File 2012 taxes online free 45%) Medicare tax, the uncollected Additional Medicare Tax is not reported in box 12 of Form W-2 with code B. File 2012 taxes online free    To report these uncollected taxes, you must file a return even if you would not otherwise have to file. File 2012 taxes online free You must report these taxes on Form 1040, line 60. File 2012 taxes online free See the instructions for Form 1040, line 60. File 2012 taxes online free (You cannot file Form 1040EZ or Form 1040A. File 2012 taxes online free ) Allocated Tips If your employer allocated tips to you, they are shown separately in box 8 of your Form W-2. File 2012 taxes online free They are not included in box 1 with your wages and reported tips. File 2012 taxes online free If box 8 is blank, this discussion does not apply to you. File 2012 taxes online free What are allocated tips. File 2012 taxes online free   These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. File 2012 taxes online free Your employer will have done this only if: You worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees, and The tips you reported to your employer were less than your share of 8% of food and drink sales. File 2012 taxes online free No income, social security, Medicare, Additional Medicare or railroad retirement taxes are withheld on allocated tips. File 2012 taxes online free How were your allocated tips figured. File 2012 taxes online free   The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from 8% (or an approved lower rate) of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). File 2012 taxes online free Your share of that amount was figured using either a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours worked. File 2012 taxes online free For information about the exact allocation method used, ask your employer. File 2012 taxes online free Must you report your allocated tips on your tax return. File 2012 taxes online free   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. File 2012 taxes online free Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. File 2012 taxes online free Add to the amount in box 1 only the tips you did not report to your employer. File 2012 taxes online free This should include any allocated tips shown in box 8 on your Form(s) W-2, unless you have adequate records to show that you received less tips in the year than the allocated figures. File 2012 taxes online free   See What tips to report under Reporting Tips on Your Tax Return, and Keeping a Daily Tip Record , earlier. File 2012 taxes online free How to report allocated tips. File 2012 taxes online free   Report the amount in box 1 and the allocated tips in box 8 of your Form(s) W-2 as wages on Form 1040, line 7; Form 1040NR, line 8; or Form 1040NR-EZ, line 3. File 2012 taxes online free (You cannot file Form 1040A or Form 1040EZ when you have allocated tips. File 2012 taxes online free )    Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tips, you must report those taxes as additional tax on your return. File 2012 taxes online free Complete Form 4137, and include the allocated tips on line 1 of the form. File 2012 taxes online free See Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, earlier. File 2012 taxes online free Prev  Up  Next   Home   More Online Publications
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National Taxpayer Advocate Congressional Testimony

 Current Testimony:


Written Statement of Nina E. Olson before the Subcommittee on Financial Services and General Government Committee on Appropriations, U.S. House of Representatives. Subject: Internal Revenue Service Oversight. 02/26/2014

 Prior Testimony:


Written Statement of Nina E. Olson before the Subcommittee on Government Operations, House Committee on Oversight and Government Reform, U.S. House of Representatives. Subject: Identity Theft-Related Tax Fraud. 08/02/2013
 

Written Statement of Nina E. Olson before the Subcommittee on Financial Services and General Government, Committee on Appropriations, United States Senate. Subject: Internal Revenue Service FY 2014 Budget Request. 05/08/2013
 

Written Statement of Nina E. Olson before the Committee on Finance, U.S. Senate. Subject: Tax Fraud, Tax ID Theft, and Tax Reform. 04/16/2013
 

Written Statement of Nina E. Olson before the Subcommittee on Government Organization, Efficiency, and Financial Management - Committee on Oversight and Government Reform, U.S. House of Representatives. Subject: Identity Theft-Related Tax Fraud. 11/29/2012
 

Written Statement of Nina E. Olson before the Committee on Oversight and Government Reform, U.S. House of Representatives. Subject: Tax-Related Provisions of the Affordable Care Act. 08/02/2012
 

Written Statement of Nina E. Olson before the Subcommittee on Crime, Terrorism, and Homeland Security, U.S. House of Representatives, Committee on the Judiciary. Subject: Identity Theft and Income Tax Preparation Fraud. 06/28/2012
 

Written Statement of Nina E. Olson before the Subcommittees on Oversight and Social Security, U.S. House of Representatives, Committee on Ways and Means. Subject: Identity Theft and Tax Fraud. 05/08/2012
 

Written Statement of Nina E. Olson before the Subcommittee on Government Organization, Efficiency, and Financial Management, U.S. House of Representatives, Committee on Oversight and Government Reform. Subject: Tax Compliance and Tax-Fraud Prevention. 04/19/2012
 

Written Statement of Nina E. Olson before the Subcommittee on Fiscal Responsibility and Economic Growth, United States Senate. Subject: Tax Fraud by Identity Theft, Part 2: Status, Progress, and Potential Solutions. 03/20/2012
 

Written Statement of Nina E. Olson before the Committee on Finance, United States Senate. Subject: Complexity and the Tax Gap: Making Tax Compliance Easier and Collecting What's Due. 06/28/2011
 

Written Statement of Nina E. Olson before the Subcommittee on Financial Services and General Government Committee on Appropriations, United States Senate. Subject: Internal Revenue Service FY 2012 Budget Request. 06/08/2011
 

Written Statement of Nina E. Olson before the Subcommittee on Fiscal Responsibility and Economic Growth, Committee on Finance. Subject: Hearing on the Spread of Tax Fraud by Identity Theft: A Threat to Taxpayers, A Drain on the Public Treasury. 05/25/2011
 

Written Statement of Nina E. Olson before the Subcommittee on Oversight, Committee on Ways and Means. Subject: Hearing on Improper Payments in the Administration of Refundable Tax Credits. 05/25/2011
 

Written Statement of Nina E. Olson before the House Committee on Small Business. Subject: Hearing on How Tax Complexity Hinders Small Businesses and the Impact on Job Creation and Economic Growth. 04/13/2011
 

Written Statement of Nina E. Olson before the U.S. House of Representatives, Committee on Ways and Means. Subject: Hearing on Tax Reform. 01/20/2011
 

Written Statement of Nina E. Olson before the U.S. Senate, Committee on Finance. Subject: Tax Filing Season Update - Current IRSW Issues. 04/15/2010
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Ways and Means. Subject: National Taxpayer Advocate's 2009 Annual Report to Congress - 03/16/2010
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Ways and Means.  Subject:  Tax Compliance Challenges Facing Financially Struggling Taxpayers. 02/26/09
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Ways and Means.  Subject:  The Status of Economic Stimulus Payments. 06/19/08
 

Written Statement of Nina E. Olson, before the U.S. Senate Committee on Appropriations. Subject:  Internal Revenue Service FY 2009 Budget Request. 04/16/08
 

Written Statement of Nina E. Olson before the U.S. Senate Committee on Finance. Subject: Identity Theft in Tax Administration. 04/10/08
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Ways and Means. Subject:  The 2008 Tax Return Filing Season; IRS Operations; FY 2009 Budget Proposals; and the National Taxpayer Advocate's 2007 Annual Report to Congress. 03/13/08
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Ways and Means. Subject: IRS Private Debt Collection Program. 05/23/07  [ Appendices transmitted as a separate document]
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Ways and Means, Subcommittee on Select Revenue Measures. Subject: The Alternative Minimum Tax. 03/07/07
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Appropriations, Subcommittee on Financial Services and General Government.  Subject:  Tax Fairness: Policy and Enforcement. 03/05/07
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on the Budget. Subject:  The IRS and the Tax Gap. 02/16/07
 

Written Statement of Nina E. Olson, before the U.S. Senate, Committee on Homeland Security and Governmental Affairs, Subcommittee on Federal Financial Management, Government Information, and International Security.  Subject:  The Tax Gap. 09/26/06 
 

Written Statement of Nina E. Olson, before the U.S. Senate, Committee on Finance, Subcommittee of Taxation and IRS Oversight.  Subject:  The Tax Gap. 07/26/06
 

Written Statement of Nina E. Olson, before the U.S. Senate, Committee on Appropriations; Subcommittee on Transportation, Treasury, the Judiciary, Housing and Urban Development, and Related Agencies. Subject:  Internal Revenue Service FY 2007 Budget Request. 04/27/06 
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Small Business.  Subject:  The Effects of Tax Compliance Initiatives on Small Business. 04/05/06 
 

Written Statement of Nina E. Olson, before the U.S. Senate, Committee on Finance. Subject:  Tax Return Preparation Options for Taxpayers. 04/04/06
 

Written Statement of Nina E. Olson, before the U.S. House of Representatives, Committee on Appropriations, Subcommittee on Transportation, Treasury, and Housing and Urban Development, the Judiciary, District of Columbia, and Related Agencies. Subject:  Internal Revenue Service FY 2007 Budget Request. 03/29/06
 

Written Statement of Nina E. Olson  before the Committee on the Budget, United States Senate. Subject:  The Causes of and Solutions to the Federal Tax Gap. 02/15/2006
 

Written Statement of Nina E. Olson, NTA, before the Subcommittee on Federal Financial Management, Government Information, and International Security. Subject: The Tax Gap.  10/26/2005
 

National Taxpayer Advocate Written Testimony, before the House Committee on Small Business. 09/21/05
 

National Taxpayer Advocate Written Testimony before the House Committee on Ways and Means Subcommittee on Oversight on the Regulation of Federal Tax Return Preparers. 07/20/05
 

National Taxpayer Advocate Written Testimony before the Senate Subcommittee on Taxation and IRS Oversight on the Alternative Minimum Tax (AMT). 05/23/05
 

National Taxpayer Advocate Written Testimony for the Joint Review of the Strategic Plans and Budget of the Internal Revenue Service.05/19/05
 

National Taxpayer Advocate Testimony before the President's Advisory Panel on Federal Tax Reform 03/05:


National Taxpayer Advocate Testimony before the Senate Committee of Finance on the Tax Gap and Tax Shelters. 07/21/2004

 

Page Last Reviewed or Updated: 14-Mar-2014

The File 2012 Taxes Online Free

File 2012 taxes online free 5. File 2012 taxes online free   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. File 2012 taxes online free Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. File 2012 taxes online free When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. File 2012 taxes online free Otherwise, these are capital expenses that must be added to the basis of the land. File 2012 taxes online free (See chapter 6 for information on determining basis. File 2012 taxes online free ) Conservation expenses for land in a foreign country do not qualify for this special treatment. File 2012 taxes online free The deduction for conservation expenses cannot be more than 25% of your gross income from farming. File 2012 taxes online free See 25% Limit on Deduction , later. File 2012 taxes online free Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. File 2012 taxes online free These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. File 2012 taxes online free You must include in income most government payments for approved conservation practices. File 2012 taxes online free However, you can exclude some payments you receive under certain cost-sharing conservation programs. File 2012 taxes online free For more information, see Agricultural Program Payments in chapter 3. File 2012 taxes online free To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. File 2012 taxes online free Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. File 2012 taxes online free You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. File 2012 taxes online free You are not farming if you are engaged only in forestry or the growing of timber. File 2012 taxes online free Farm defined. File 2012 taxes online free   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. File 2012 taxes online free It also includes plantations, ranches, ranges, and orchards. File 2012 taxes online free A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. File 2012 taxes online free It does not include an area where they are merely caught or harvested. File 2012 taxes online free A plant nursery is a farm for purposes of deducting soil and water conservation expenses. File 2012 taxes online free Farm rental. File 2012 taxes online free   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. File 2012 taxes online free If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. File 2012 taxes online free   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. File 2012 taxes online free Example. File 2012 taxes online free You own a farm in Iowa and live in California. File 2012 taxes online free You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. File 2012 taxes online free You cannot deduct your soil conservation expenses for this farm. File 2012 taxes online free You must capitalize the expenses and add them to the basis of the land. File 2012 taxes online free     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. File 2012 taxes online free Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. File 2012 taxes online free If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. File 2012 taxes online free Keep a copy of the plan with your books and records to support your deductions. File 2012 taxes online free Conservation plan. File 2012 taxes online free   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. File 2012 taxes online free There are three types of approved plans. File 2012 taxes online free NRCS individual site plans. File 2012 taxes online free These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. File 2012 taxes online free NRCS county plans. File 2012 taxes online free These plans include a listing of farm conservation practices approved for the county where the farmland is located. File 2012 taxes online free You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. File 2012 taxes online free Comparable state agency plans. File 2012 taxes online free These plans are approved by state agencies and can be approved individual site plans or county plans. File 2012 taxes online free   A list of NRCS conservation programs is available at www. File 2012 taxes online free nrcs. File 2012 taxes online free usda. File 2012 taxes online free gov/programs. File 2012 taxes online free Individual site plans can be obtained from NRCS offices and the comparable state agencies. File 2012 taxes online free Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. File 2012 taxes online free These expenses include, but are not limited to, the following. File 2012 taxes online free The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. File 2012 taxes online free The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. File 2012 taxes online free The eradication of brush. File 2012 taxes online free The planting of windbreaks. File 2012 taxes online free You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. File 2012 taxes online free These expenses are added to the basis of the land. File 2012 taxes online free If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. File 2012 taxes online free See chapter 3 for information about payments eligible for the cost-sharing exclusion. File 2012 taxes online free New farm or farmland. File 2012 taxes online free   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. File 2012 taxes online free You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. File 2012 taxes online free The new farming activity does not have to be the same as the old farming activity. File 2012 taxes online free For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. File 2012 taxes online free Land not used for farming. File 2012 taxes online free   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. File 2012 taxes online free For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. File 2012 taxes online free You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. File 2012 taxes online free Depreciable conservation assets. File 2012 taxes online free   You generally cannot deduct your expenses for depreciable conservation assets. File 2012 taxes online free However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. File 2012 taxes online free See Assessment for Depreciable Property , later. File 2012 taxes online free   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. File 2012 taxes online free These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. File 2012 taxes online free You recover your capital investment through annual allowances for depreciation. File 2012 taxes online free   You can deduct soil and water conservation expenses for nondepreciable earthen items. File 2012 taxes online free Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. File 2012 taxes online free Water well. File 2012 taxes online free   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. File 2012 taxes online free It is a capital expense. File 2012 taxes online free You recover your cost through depreciation. File 2012 taxes online free You also must capitalize your cost for drilling a test hole. File 2012 taxes online free If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. File 2012 taxes online free You can recover the total cost through depreciation deductions. File 2012 taxes online free   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. File 2012 taxes online free Abandonment means that all economic benefits from the well are terminated. File 2012 taxes online free For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. File 2012 taxes online free Endangered species recovery expenses. File 2012 taxes online free   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. File 2012 taxes online free Otherwise, these are capital expenses that must be added to the basis of the land. File 2012 taxes online free   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. File 2012 taxes online free See Internal Revenue Code section 175 for more information. File 2012 taxes online free Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. File 2012 taxes online free You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. File 2012 taxes online free Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. File 2012 taxes online free This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. File 2012 taxes online free The depreciable property must be used in the district's soil and water conservation activities. File 2012 taxes online free However, the following limits apply to these assessments. File 2012 taxes online free The total assessment limit. File 2012 taxes online free The yearly assessment limit. File 2012 taxes online free After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. File 2012 taxes online free The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. File 2012 taxes online free See Table 5-1 for a brief summary of these limits. File 2012 taxes online free Table 5-1. File 2012 taxes online free Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. File 2012 taxes online free Your deductible share of the cost to the district for the property. File 2012 taxes online free Your gross income from farming. File 2012 taxes online free No one taxpayer can deduct more than 10% of the total assessment. File 2012 taxes online free Any amount over 10% is a capital expense and is added to the basis of your land. File 2012 taxes online free If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. File 2012 taxes online free If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. File 2012 taxes online free You can deduct the remainder in equal amounts over the next 9 tax years. File 2012 taxes online free Limit for all conservation expenses, including assessments for depreciable property. File 2012 taxes online free Amounts greater than 25% can be carried to the following year and added to that year's expenses. File 2012 taxes online free The total is then subject to the 25% of gross income from farming limit in that year. File 2012 taxes online free To ensure your deduction is within the deduction limits, keep records to show the following. File 2012 taxes online free The total assessment against all members of the district for the depreciable property. File 2012 taxes online free Your deductible share of the cost to the district for the depreciable property. File 2012 taxes online free Your gross income from farming. File 2012 taxes online free Total assessment limit. File 2012 taxes online free   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. File 2012 taxes online free This applies whether you pay the assessment in one payment or in installments. File 2012 taxes online free If your assessment is more than 10% of the total amount assessed, both the following rules apply. File 2012 taxes online free The amount over 10% is a capital expense and is added to the basis of your land. File 2012 taxes online free If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. File 2012 taxes online free Yearly assessment limit. File 2012 taxes online free   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. File 2012 taxes online free If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. File 2012 taxes online free If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. File 2012 taxes online free You can deduct the remainder in equal amounts over the next 9 tax years. File 2012 taxes online free Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. File 2012 taxes online free Example 1. File 2012 taxes online free This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. File 2012 taxes online free Of the assessment, $1,500 is for digging drainage ditches. File 2012 taxes online free You can deduct this part as a soil or conservation expense as if you had paid it directly. File 2012 taxes online free The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. File 2012 taxes online free The total amount assessed by the district against all its members for the depreciable equipment is $7,000. File 2012 taxes online free The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. File 2012 taxes online free The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. File 2012 taxes online free To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. File 2012 taxes online free Add $500 to the result for a total of $570. File 2012 taxes online free Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). File 2012 taxes online free You can deduct the balance at the rate of $70 a year over the next 9 years. File 2012 taxes online free You add $70 to the $1,500 portion of the assessment for drainage ditches. File 2012 taxes online free You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. File 2012 taxes online free Example 2. File 2012 taxes online free Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. File 2012 taxes online free The total amount assessed by the district against all its members for depreciable equipment is $5,500. File 2012 taxes online free The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. File 2012 taxes online free The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). File 2012 taxes online free Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. File 2012 taxes online free You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. File 2012 taxes online free Sale or other disposal of land during 9-year period. File 2012 taxes online free   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. File 2012 taxes online free Death of farmer during 9-year period. File 2012 taxes online free   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. File 2012 taxes online free 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. File 2012 taxes online free Gross income from farming. File 2012 taxes online free   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. File 2012 taxes online free Gains from sales of draft, breeding, or dairy livestock are included. File 2012 taxes online free Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. File 2012 taxes online free Carryover of deduction. File 2012 taxes online free   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. File 2012 taxes online free However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. File 2012 taxes online free Example. File 2012 taxes online free In 2012, you have gross income of $32,000 from two farms. File 2012 taxes online free During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. File 2012 taxes online free However, your deduction is limited to 25% of $32,000, or $8,000. File 2012 taxes online free The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. File 2012 taxes online free The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. File 2012 taxes online free Any expenses over the limit in that year are carried to 2014 and later years. File 2012 taxes online free Net operating loss. File 2012 taxes online free   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. File 2012 taxes online free If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. File 2012 taxes online free When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. File 2012 taxes online free If you do not choose to deduct the expenses, you must capitalize them. File 2012 taxes online free Change of method. File 2012 taxes online free   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. File 2012 taxes online free To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. File 2012 taxes online free You or your authorized representative must sign the request. File 2012 taxes online free   The request must include the following information. File 2012 taxes online free Your name and address. File 2012 taxes online free The first tax year the method or change of method is to apply. File 2012 taxes online free Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. File 2012 taxes online free If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. File 2012 taxes online free The total expenses you paid or incurred in the first tax year the method or change of method is to apply. File 2012 taxes online free A statement that you will account separately in your books for the expenses to which this method or change of method relates. File 2012 taxes online free Send your request to the following  address. File 2012 taxes online free  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. File 2012 taxes online free Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). File 2012 taxes online free However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. File 2012 taxes online free Gain on sale of farmland. File 2012 taxes online free   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. File 2012 taxes online free If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. File 2012 taxes online free See Section 1252 property under Other Gains in chapter 9. File 2012 taxes online free Prev  Up  Next   Home   More Online Publications