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Filing taxes for free Publication 575 - Main Content Table of Contents General InformationPension. Filing taxes for free Annuity. Filing taxes for free Qualified employee plan. Filing taxes for free Qualified employee annuity. Filing taxes for free Designated Roth account. Filing taxes for free Tax-sheltered annuity plan. Filing taxes for free Fixed-period annuities. Filing taxes for free Annuities for a single life. Filing taxes for free Joint and survivor annuities. Filing taxes for free Variable annuities. Filing taxes for free Disability pensions. Filing taxes for free Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. Filing taxes for free Taxation of Periodic PaymentsPeriod of participation. Filing taxes for free Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Filing taxes for free No tax withheld. Filing taxes for free Partial rollovers. Filing taxes for free Frozen deposits. Filing taxes for free Reasonable period of time. Filing taxes for free 20% Mandatory withholding. Filing taxes for free How to report. Filing taxes for free How to report. Filing taxes for free Special rule for Roth IRAs and designated Roth accounts. Filing taxes for free Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Filing taxes for free How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Filing taxes for free   Some of the terms used in this publication are defined in the following paragraphs. Filing taxes for free Pension. Filing taxes for free   A pension is generally a series of definitely determinable payments made to you after you retire from work. Filing taxes for free Pension payments are made regularly and are based on such factors as years of service and prior compensation. Filing taxes for free Annuity. Filing taxes for free   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Filing taxes for free They can be either fixed (under which you receive a definite amount) or variable (not fixed). Filing taxes for free You can buy the contract alone or with the help of your employer. Filing taxes for free Qualified employee plan. Filing taxes for free   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. Filing taxes for free It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). Filing taxes for free To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Filing taxes for free Qualified employee annuity. Filing taxes for free   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Filing taxes for free Designated Roth account. Filing taxes for free   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Filing taxes for free Elective deferrals that are designated as Roth contributions are included in your income. Filing taxes for free However, qualified distributions (explained later) are not included in your income. Filing taxes for free You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Filing taxes for free Tax-sheltered annuity plan. Filing taxes for free   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. Filing taxes for free Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Filing taxes for free Types of pensions and annuities. Filing taxes for free   Pensions and annuities include the following types. Filing taxes for free Fixed-period annuities. Filing taxes for free   You receive definite amounts at regular intervals for a specified length of time. Filing taxes for free Annuities for a single life. Filing taxes for free   You receive definite amounts at regular intervals for life. Filing taxes for free The payments end at death. Filing taxes for free Joint and survivor annuities. Filing taxes for free   The first annuitant receives a definite amount at regular intervals for life. Filing taxes for free After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Filing taxes for free The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Filing taxes for free Variable annuities. Filing taxes for free   You receive payments that may vary in amount for a specified length of time or for life. Filing taxes for free The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. Filing taxes for free Disability pensions. Filing taxes for free   You receive disability payments because you retired on disability and have not reached minimum retirement age. Filing taxes for free More than one program. Filing taxes for free   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Filing taxes for free If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. Filing taxes for free Also, you may be considered to have received more than one pension or annuity. Filing taxes for free Your former employer or the plan administrator should be able to tell you if you have more than one contract. Filing taxes for free Example. Filing taxes for free Your employer set up a noncontributory profit-sharing plan for its employees. Filing taxes for free The plan provides that the amount held in the account of each participant will be paid when that participant retires. Filing taxes for free Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement. Filing taxes for free The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. Filing taxes for free Under the pension plan, however, a formula determines the amount of the pension benefits. Filing taxes for free The amount of contributions is the amount necessary to provide that pension. Filing taxes for free Each plan is a separate program and a separate contract. Filing taxes for free If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check. Filing taxes for free Distributions from a designated Roth account are treated separately from other distributions from the plan. Filing taxes for free Qualified domestic relations order (QDRO). Filing taxes for free   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. Filing taxes for free The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. Filing taxes for free A QDRO may not award an amount or form of benefit that is not available under the plan. Filing taxes for free   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. Filing taxes for free The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. Filing taxes for free The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Filing taxes for free The denominator is the present value of all benefits payable to the participant. Filing taxes for free   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Filing taxes for free Variable Annuities The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. Filing taxes for free For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Filing taxes for free Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. Filing taxes for free The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Filing taxes for free The taxable part of a distribution is treated as ordinary income. Filing taxes for free Net investment income tax. Filing taxes for free   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Filing taxes for free For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Filing taxes for free For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later. Filing taxes for free Withdrawals. Filing taxes for free   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. Filing taxes for free The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Filing taxes for free   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). Filing taxes for free However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. Filing taxes for free To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). Filing taxes for free   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Filing taxes for free   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. Filing taxes for free The rest is taxable. Filing taxes for free   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Filing taxes for free If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Filing taxes for free Annuity payments. Filing taxes for free   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. Filing taxes for free For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Filing taxes for free For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. Filing taxes for free For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Filing taxes for free Death benefits. Filing taxes for free    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. Filing taxes for free If you choose to receive an annuity, the payments are subject to tax as described above. Filing taxes for free If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. Filing taxes for free See Survivors and Beneficiaries , later. Filing taxes for free Section 457 Deferred Compensation Plans If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. Filing taxes for free If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Filing taxes for free You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Filing taxes for free You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Filing taxes for free Your 457(b) plan may have a designated Roth account option. Filing taxes for free If so, you may be able to roll over amounts to the designated Roth account or make contributions. Filing taxes for free Elective deferrals to a designated Roth account are included in your income. Filing taxes for free Qualified distributions (explained later) are not included in your income. Filing taxes for free See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Filing taxes for free This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Filing taxes for free For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Filing taxes for free Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Filing taxes for free Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. Filing taxes for free Nonelective deferred compensation plans for nonemployees (independent contractors). Filing taxes for free Deferred compensation plans maintained by churches. Filing taxes for free Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Filing taxes for free An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Filing taxes for free Disability Pensions If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. Filing taxes for free You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Filing taxes for free Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Filing taxes for free You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Filing taxes for free For information on this credit, see Publication 524. Filing taxes for free Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Filing taxes for free Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Filing taxes for free Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Filing taxes for free For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Filing taxes for free Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Filing taxes for free The premiums can be for coverage for you, your spouse, or dependents. Filing taxes for free The distribution must be made directly from the plan to the insurance provider. Filing taxes for free You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Filing taxes for free You can only make this election for amounts that would otherwise be included in your income. Filing taxes for free The amount excluded from your income cannot be used to claim a medical expense deduction. Filing taxes for free An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Filing taxes for free If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Filing taxes for free The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Filing taxes for free Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Filing taxes for free Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Filing taxes for free Enter “PSO” next to the appropriate line on which you report the taxable amount. Filing taxes for free If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. Filing taxes for free Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Filing taxes for free These categories are treated differently for income tax purposes. Filing taxes for free The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Filing taxes for free This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. Filing taxes for free If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U. Filing taxes for free S. Filing taxes for free Railroad Retirement Board (RRB). Filing taxes for free For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915. Filing taxes for free The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Filing taxes for free It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Filing taxes for free Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Filing taxes for free This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Filing taxes for free (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Filing taxes for free ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Filing taxes for free See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Filing taxes for free Form RRB-1099-R is used for U. Filing taxes for free S. Filing taxes for free citizens, resident aliens, and nonresident aliens. Filing taxes for free Nonresident aliens. Filing taxes for free   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Filing taxes for free Nonresident aliens are subject to mandatory U. Filing taxes for free S. Filing taxes for free tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Filing taxes for free A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Filing taxes for free See Tax withholding next for more information. Filing taxes for free   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. Filing taxes for free To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. Filing taxes for free For information on filing requirements for aliens, see Publication 519, U. Filing taxes for free S. Filing taxes for free Tax Guide for Aliens. Filing taxes for free For information on tax treaties between the United States and other countries that may reduce or eliminate U. Filing taxes for free S. Filing taxes for free tax on your benefits, see Publication 901, U. Filing taxes for free S. Filing taxes for free Tax Treaties. Filing taxes for free Tax withholding. Filing taxes for free   To request or change your income tax withholding from SSEB payments, U. Filing taxes for free S. Filing taxes for free citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Filing taxes for free To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Filing taxes for free If you are a nonresident alien or a U. Filing taxes for free S. Filing taxes for free citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. Filing taxes for free S. Filing taxes for free tax withholding. Filing taxes for free Nonresident U. Filing taxes for free S. Filing taxes for free citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Filing taxes for free S. Filing taxes for free Help from the RRB. Filing taxes for free   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. Filing taxes for free S. Filing taxes for free consulate/Embassy if you reside outside the United States. Filing taxes for free You can visit the RRB on the Internet at www. Filing taxes for free rrb. Filing taxes for free gov. Filing taxes for free Form RRB-1099-R. Filing taxes for free   The following discussion explains the items shown on Form RRB-1099-R. Filing taxes for free The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. Filing taxes for free   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. Filing taxes for free   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. Filing taxes for free To determine if any of these rules apply to your benefits, see the discussions about them later. Filing taxes for free   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Filing taxes for free Use distribution code “7” if you are asked for a distribution code. Filing taxes for free Distribution codes are not shown on Form RRB-1099-R. Filing taxes for free   There are three copies of this form. Filing taxes for free Copy B is to be included with your income tax return if federal income tax is withheld. Filing taxes for free Copy C is for your own records. Filing taxes for free Copy 2 is filed with your state, city, or local income tax return, when required. Filing taxes for free See the illustrated Copy B (Form RRB-1099-R) above. Filing taxes for free       Each beneficiary will receive his or her own Form RRB-1099-R. Filing taxes for free If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Filing taxes for free So that you get your form timely, make sure the RRB always has your current mailing address. Filing taxes for free Please click here for the text description of the image. Filing taxes for free Form RRB-1099-R Box 1—Claim Number and Payee Code. Filing taxes for free   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Filing taxes for free This is the number under which the RRB paid your benefits. Filing taxes for free Your payee code follows your claim number and is the last number in this box. Filing taxes for free It is used by the RRB to identify you under your claim number. Filing taxes for free In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Filing taxes for free Box 2—Recipient's Identification Number. Filing taxes for free   This is the recipient's U. Filing taxes for free S. Filing taxes for free taxpayer identification number. Filing taxes for free It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. Filing taxes for free If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. Filing taxes for free The Instructions for Form W-7 explain how and when to apply. Filing taxes for free Box 3—Employee Contributions. Filing taxes for free   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. Filing taxes for free This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Filing taxes for free (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Filing taxes for free ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Filing taxes for free It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Filing taxes for free If this amount has changed, the change is retroactive. Filing taxes for free You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Filing taxes for free If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Filing taxes for free    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. Filing taxes for free Box 4—Contributory Amount Paid. Filing taxes for free   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Filing taxes for free (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Filing taxes for free ) This amount is the total contributory pension paid in 2013. Filing taxes for free It may be partly taxable and partly tax free or fully taxable. Filing taxes for free If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Filing taxes for free Box 5—Vested Dual Benefit. Filing taxes for free   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Filing taxes for free It is fully taxable. Filing taxes for free VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Filing taxes for free Note. Filing taxes for free The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Filing taxes for free Box 6—Supplemental Annuity. Filing taxes for free   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Filing taxes for free It is fully taxable. Filing taxes for free Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Filing taxes for free Box 7—Total Gross Paid. Filing taxes for free   This is the sum of boxes 4, 5, and 6. Filing taxes for free The amount represents the total pension paid in 2013. Filing taxes for free Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Filing taxes for free Box 8—Repayments. Filing taxes for free   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Filing taxes for free The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Filing taxes for free It only includes repayments of benefits that were taxable to you. Filing taxes for free This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Filing taxes for free If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Filing taxes for free For more information about repayments, see Repayment of benefits received in an earlier year , later. Filing taxes for free    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Filing taxes for free Box 9—Federal Income Tax Withheld. Filing taxes for free   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Filing taxes for free Include this on your income tax return as tax withheld. Filing taxes for free If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Filing taxes for free Determine the total amount of U. Filing taxes for free S. Filing taxes for free federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Filing taxes for free Box 10—Rate of Tax. Filing taxes for free   If you are taxed as a U. Filing taxes for free S. Filing taxes for free citizen or resident alien, this box does not apply to you. Filing taxes for free If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. Filing taxes for free If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Filing taxes for free Box 11—Country. Filing taxes for free   If you are taxed as a U. Filing taxes for free S. Filing taxes for free citizen or resident alien, this box does not apply to you. Filing taxes for free If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. Filing taxes for free If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Filing taxes for free Box 12—Medicare Premium Total. Filing taxes for free   This is for information purposes only. Filing taxes for free The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Filing taxes for free Medicare premium refunds are not included in the Medicare total. Filing taxes for free The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). Filing taxes for free However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Filing taxes for free If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. Filing taxes for free Repayment of benefits received in an earlier year. Filing taxes for free   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. Filing taxes for free   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Filing taxes for free The 2%-of-adjusted-gross-income limit applies to this deduction. Filing taxes for free You cannot take this deduction if you file Form 1040A. Filing taxes for free    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. Filing taxes for free For more information, see Repayments in Publication 525. Filing taxes for free Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Filing taxes for free However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Filing taxes for free (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Filing taxes for free ) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. Filing taxes for free See Estimated tax , later. Filing taxes for free The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. Filing taxes for free For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Filing taxes for free There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Filing taxes for free Choosing no withholding. Filing taxes for free   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Filing taxes for free You can make this choice on Form W-4P for periodic and nonperiodic payments. Filing taxes for free This choice generally remains in effect until you revoke it. Filing taxes for free   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. Filing taxes for free   To choose not to have tax withheld, a U. Filing taxes for free S. Filing taxes for free citizen or resident alien must give the payer a home address in the United States or its possessions. Filing taxes for free Without that address, the payer must withhold tax. Filing taxes for free For example, the payer has to withhold tax if the recipient has provided a U. Filing taxes for free S. Filing taxes for free address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Filing taxes for free S. Filing taxes for free home address. Filing taxes for free   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. Filing taxes for free S. Filing taxes for free citizen, a U. Filing taxes for free S. Filing taxes for free resident alien, or someone who left the country to avoid tax. Filing taxes for free But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Filing taxes for free This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Filing taxes for free For details, get Publication 519. Filing taxes for free Periodic payments. Filing taxes for free   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Filing taxes for free Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Filing taxes for free You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Filing taxes for free If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Filing taxes for free   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. Filing taxes for free   You must file a new withholding certificate to change the amount of withholding. Filing taxes for free Nonperiodic distributions. Filing taxes for free    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. Filing taxes for free You can also ask the payer to withhold an additional amount using Form W-4P. Filing taxes for free The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. Filing taxes for free Eligible rollover distribution. Filing taxes for free    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Filing taxes for free You cannot choose not to have tax withheld from an eligible rollover distribution. Filing taxes for free However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. Filing taxes for free For more information about eligible rollover distributions, see Rollovers , later. Filing taxes for free Estimated tax. Filing taxes for free   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Filing taxes for free Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. Filing taxes for free If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Filing taxes for free For more information, get Publication 505, Tax Withholding and Estimated Tax. Filing taxes for free In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. Filing taxes for free See Publication 915. Filing taxes for free You can choose to have income tax withheld from those benefits. Filing taxes for free Use Form W-4V to make this choice. Filing taxes for free Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). Filing taxes for free If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. Filing taxes for free Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Filing taxes for free In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). Filing taxes for free To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Filing taxes for free This includes the amounts your employer contributed that were taxable to you when paid. Filing taxes for free (However, see Foreign employment contributions , later. Filing taxes for free ) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). Filing taxes for free It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Filing taxes for free From this total cost you must subtract the following amounts. Filing taxes for free Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment. Filing taxes for free Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Filing taxes for free If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. Filing taxes for free (See Simplified Method , later, for information on its required use. Filing taxes for free ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Filing taxes for free (See General Rule , later, for information on its use. Filing taxes for free ) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. Filing taxes for free For more information, see Publication 939. Filing taxes for free The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Filing taxes for free Form 1099-R. Filing taxes for free If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Filing taxes for free Annuity starting date defined. Filing taxes for free   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Filing taxes for free Example. Filing taxes for free On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. Filing taxes for free The annuity starting date is July 1. Filing taxes for free This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet. Filing taxes for free Designated Roth accounts. Filing taxes for free   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Filing taxes for free Your cost will also include any in-plan Roth rollovers you included in income. Filing taxes for free Foreign employment contributions. Filing taxes for free   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Filing taxes for free The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Filing taxes for free Foreign employment contributions while a nonresident alien. Filing taxes for free   In determining your cost, special rules apply if you are a U. Filing taxes for free S. Filing taxes for free citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Filing taxes for free Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed. Filing taxes for free Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Filing taxes for free Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Filing taxes for free These payments are also known as amounts received as an annuity. Filing taxes for free If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Filing taxes for free In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Filing taxes for free The amount of each payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Filing taxes for free Designated Roth accounts. Filing taxes for free   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Filing taxes for free This applies to both your cost in the account and income earned on that account. Filing taxes for free A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Filing taxes for free   If the distribution is not a qualified distribution, the rules discussed in this section apply. Filing taxes for free The designated Roth account is treated as a separate contract. Filing taxes for free Period of participation. Filing taxes for free   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. Filing taxes for free Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Filing taxes for free   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. Filing taxes for free   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Filing taxes for free This is known as an in-plan Roth rollover. Filing taxes for free For more details, see In-plan Roth rollovers , later. Filing taxes for free Fully Taxable Payments The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Filing taxes for free You did not pay anything or are not considered to have paid anything for your pension or annuity. Filing taxes for free Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Filing taxes for free Your employer did not withhold contributions from your salary. Filing taxes for free You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Filing taxes for free Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Filing taxes for free You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Filing taxes for free Deductible voluntary employee contributions. Filing taxes for free   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Filing taxes for free Accumulated deductible voluntary employee contributions include net earnings on the contributions. Filing taxes for free If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Filing taxes for free Partly Taxable Payments If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. Filing taxes for free This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Filing taxes for free The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Filing taxes for free You figure the tax-free part of the payment using one of the following methods. Filing taxes for free Simplified Method. Filing taxes for free You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Filing taxes for free You cannot use this method if your annuity is paid under a nonqualified plan. Filing taxes for free General Rule. Filing taxes for free You must use this method if your annuity is paid under a nonqualified plan. Filing taxes for free You generally cannot use this method if your annuity is paid under a qualified plan. Filing taxes for free You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Filing taxes for free If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Filing taxes for free Qualified plan annuity starting before November 19, 1996. Filing taxes for free   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. Filing taxes for free If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Filing taxes for free If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. Filing taxes for free Exclusion limit. Filing taxes for free   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Filing taxes for free Once your annuity starting date is determined, it does not change. Filing taxes for free If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Filing taxes for free That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Filing taxes for free Exclusion limited to cost. Filing taxes for free   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Filing taxes for free Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Filing taxes for free This deduction is not subject to the 2%-of-adjusted-gross-income limit. Filing taxes for free Example 1. Filing taxes for free Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Filing taxes for free The total cost of your annuity is $12,000. Filing taxes for free Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Filing taxes for free After that, your annuity payments are generally fully taxable. Filing taxes for free Example 2. Filing taxes for free The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Filing taxes for free You have recovered tax free only $9,600 (8 × $1,200) of your cost. Filing taxes for free An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Filing taxes for free Exclusion not limited to cost. Filing taxes for free   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Filing taxes for free If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Filing taxes for free The total exclusion may be more than your cost. Filing taxes for free Simplified Method Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Filing taxes for free For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Filing taxes for free For any other annuity, this number is the number of monthly annuity payments under the contract. Filing taxes for free Who must use the Simplified Method. Filing taxes for free   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Filing taxes for free You receive your pension or annuity payments from any of the following plans. Filing taxes for free A qualified employee plan. Filing taxes for free A qualified employee annuity. Filing taxes for free A tax-sheltered annuity plan (403(b) plan). Filing taxes for free On your annuity starting date, at least one of the following conditions applies to you. Filing taxes for free You are under age 75. Filing taxes for free You are entitled to less than 5 years of guaranteed payments. Filing taxes for free Guaranteed payments. Filing taxes for free   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Filing taxes for free If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Filing taxes for free Annuity starting before November 19, 1996. Filing taxes for free   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Filing taxes for free You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . Filing taxes for free Who cannot use the Simplified Method. Filing taxes for free   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. Filing taxes for free See General Rule , later. Filing taxes for free How to use the Simplified Method. Filing taxes for free    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Filing taxes for free Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Filing taxes for free   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Filing taxes for free How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Filing taxes for free For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Filing taxes for free    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Filing taxes for free Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Filing taxes for free Single-life annuity. Filing taxes for free   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Filing taxes for free Enter on line 3 the number shown for your age on your annuity starting date. Filing taxes for free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Filing taxes for free Multiple-lives annuity. Filing taxes for free   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Filing taxes for free Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Filing taxes for free For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Filing taxes for free For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Filing taxes for free Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Filing taxes for free   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Filing taxes for free Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Filing taxes for free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Filing taxes for free Fixed-period annuity. Filing taxes for free   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Filing taxes for free Line 6. Filing taxes for free   The amount on line 6 should include all amounts that could have been recovered in prior years. Filing taxes for free If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Filing taxes for free Example. Filing taxes for free Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Filing taxes for free Bill's annuity starting date is January 1, 2013. Filing taxes for free The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Filing taxes for free Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Filing taxes for free Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Filing taxes for free Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Filing taxes for free Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. Filing taxes for free His completed worksheet is shown later. Filing taxes for free Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Filing taxes for free Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Filing taxes for free The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Filing taxes for free If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Filing taxes for free This deduction is not subject to the 2%-of-adjusted-gross-income limit. Filing taxes for free Worksheet A. Filing taxes for free Simplified Method Worksheet for Bill Smith 1. Filing taxes for free Enter the total pension or annuity payments received this year. Filing taxes for free Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Filing taxes for free $14,400 2. Filing taxes for free Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Filing taxes for free * See Cost (Investment in the Contract) , earlier 2. Filing taxes for free 31,000   Note. Filing taxes for free If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Filing taxes for free Otherwise, go to line 3. Filing taxes for free     3. Filing taxes for free Enter the appropriate number from Table 1 below. Filing taxes for free But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Filing taxes for free 310 4. Filing taxes for free Divide line 2 by the number on line 3 4. Filing taxes for free 100 5. Filing taxes for free Multiply line 4 by the number of months for which this year's payments were made. Filing taxes for free If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Filing taxes for free Otherwise, go to line 6 5. Filing taxes for free 1,200 6. Filing taxes for free Enter any amount previously recovered tax free in years after 1986. Filing taxes for free This is the amount shown on line 10 of your worksheet for last year 6. Filing taxes for free -0- 7. Filing taxes for free Subtract line 6 from line 2 7. Filing taxes for free 31,000 8. Filing taxes for free Enter the smaller of line 5 or line 7 8. Filing taxes for free 1,200 9. Filing taxes for free Taxable amount for year. Filing taxes for free Subtract line 8 from line 1. Filing taxes for free Enter the result, but not less than zero. Filing taxes for free Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Filing taxes for free Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Filing taxes for free If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers , earlier, before entering an amount on your tax return 9. Filing taxes for free $13,200 10. Filing taxes for free Was your annuity starting date before 1987? □ Yes. Filing taxes for free STOP. Filing taxes for free Do not complete the rest of this worksheet. Filing taxes for free  ☑ No. Filing taxes for free Add lines 6 and 8. Filing taxes for free This is the amount you have recovered tax free through 2013. Filing taxes for free You will need this number if you need to fill out this worksheet next year 10. Filing taxes for free 1,200 11. Filing taxes for free Balance of cost to be recovered. Filing taxes for free Subtract line 10 from line 2. Filing taxes for free If zero, you will not have to complete this worksheet next year. Filing taxes for free The payments you receive next year will generally be fully taxable 11. Filing taxes for free $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Filing taxes for free           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Filing taxes for free . Filing taxes for free . Filing taxes for free BEFORE November 19, 1996, enter on line 3. Filing taxes for free . Filing taxes for free . Filing taxes for free AFTER November 18, 1996, enter on line 3. Filing taxes for free . Filing taxes for free . Filing taxes for free     55 or under 300 360     56-60 260 310     61-65 240 260     66-70 170 210     71 or older 120 160     Table 2 for Line 3 Above     IF the combined ages at  annuity starting date were. Filing taxes for free . Filing taxes for free . Filing taxes for free THEN enter on line 3. Filing taxes for free . Filing taxes for free . Filing taxes for free     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Filing taxes for free   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. Filing taxes for free Figure your share by taking the following steps. Filing taxes for free Complete your worksheet through line 4 to figure the monthly tax-free amount. Filing taxes for free Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Filing taxes for free Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Filing taxes for free The result is your share of the monthly tax-free amount. Filing taxes for free   Replace the amount on line 4 of the worksheet with the result in (3) above. Filing taxes for free Enter that amount on line 4 of your worksheet each year. Filing taxes for free General Rule Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. Filing taxes for free Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Filing taxes for free To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Filing taxes for free Who must use the General Rule. Filing taxes for free   You must use the General Rule if you receive pension or annuity payments from: A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at least 5 years. Filing taxes for free Annuity starting before November 19, 1996. Filing taxes for free   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Filing taxes for free You also had to use it for any fixed-period annuity. Filing taxes for free If you did not have to use the General Rule, you could have chosen to use it. Filing taxes for free If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Filing taxes for free   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Filing taxes for free Who cannot use the General Rule. Filing taxes for free   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Filing taxes for free See Simplified Method , earlier. Filing taxes for free More information. Filing taxes for free   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Filing taxes for free Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Filing taxes for free Nonperiodic distributions are also known as amounts not received as an annuity. Filing taxes for free They include all payments other than periodic payments and corrective distributions. Filing taxes for free For example, the following items are treated as nonperiodic distributions. Filing taxes for free Cash withdrawals. Filing taxes for free Distributions of current earnings (dividends) on your investment. Filing taxes for free However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract. Filing taxes for free Certain loans. Filing taxes for free See Loans Treated as Distributions , later. Filing taxes for free The value of annuity contracts transferred without full and adequate consideration. Filing taxes for free See Transfers of Annuity Contracts , later. Filing taxes for free Corrective distributions of excess plan contributions. Filing taxes for free   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Filing taxes for free To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Filing taxes for free Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Filing taxes for free It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Filing taxes for free    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. Filing taxes for free   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Filing taxes for free Figuring the Taxable Amount How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. Filing taxes for free If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. Filing taxes for free If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. Filing taxes for free You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. Filing taxes for free See Rollovers, later. Filing taxes for free If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. Filing taxes for free See Lump-Sum Distributions, later. Filing taxes for free Annuity starting date. Filing taxes for free   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Filing taxes for free Distributions of employer securities. Filing taxes for free    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. Filing taxes for free The NUA is the net increase in the securities' value while they were in the trust. Filing taxes for free This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Filing taxes for free   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. Filing taxes for free    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. Filing taxes for free    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und
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Filing taxes for free 7. Filing taxes for free   Costs You Can Deduct or Capitalize Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Carrying Charges Research and Experimental CostsProduct. Filing taxes for free Costs not included. Filing taxes for free Intangible Drilling Costs Exploration CostsPartnerships and S corporations. Filing taxes for free Development Costs Circulation Costs Business Start-Up and Organizational Costs Reforestation Costs Retired Asset Removal Costs Barrier Removal CostsOther barrier removals. Filing taxes for free Film and Television Production Costs What's New Film and television productions costs. Filing taxes for free  The election to expense film and television production costs does not apply to productions that begin after December 31, 2013. Filing taxes for free See Film and Television Production Costs , later. Filing taxes for free Introduction This chapter discusses costs you can elect to deduct or capitalize. Filing taxes for free You generally deduct a cost as a current business expense by subtracting it from your income in either the year you incur it or the year you pay it. Filing taxes for free If you capitalize a cost, you may be able to recover it over a period of years through periodic deductions for amortization, depletion, or depreciation. Filing taxes for free When you capitalize a cost, you add it to the basis of property to which it relates. Filing taxes for free A partnership, corporation, estate, or trust makes the election to deduct or capitalize the costs discussed in this chapter except for exploration costs for mineral deposits. Filing taxes for free Each individual partner, shareholder, or beneficiary elects whether to deduct or capitalize exploration costs. Filing taxes for free You may be subject to the alternative minimum tax (AMT) if you deduct research and experimental, intangible drilling, exploration, development, circulation, or business organizational costs. Filing taxes for free For more information on the alternative minimum tax, see the instructions for the following forms. Filing taxes for free Form 6251, Alternative Minimum Tax—Individuals. Filing taxes for free Form 4626, Alternative Minimum Tax—Corporations. Filing taxes for free Topics - This chapter discusses: Carrying charges Research and experimental costs Intangible drilling costs Exploration costs Development costs Circulation costs Qualified disaster expenses Business start-up and organizational costs Reforestation costs Retired asset removal costs Barrier removal costs Film and television production costs Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 3468 Investment Credit 8826 Disabled Access Credit See chapter 12 for information about getting publications and forms. Filing taxes for free Carrying Charges Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. Filing taxes for free Certain carrying charges must be capitalized under the uniform capitalization rules. Filing taxes for free (For information on capitalization of interest, see chapter 4 . Filing taxes for free ) You can elect to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible. Filing taxes for free You can elect to capitalize carrying charges separately for each project you have and for each type of carrying charge. Filing taxes for free For unimproved and unproductive real property, your election is good for only 1 year. Filing taxes for free You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. Filing taxes for free For other real property, your election to capitalize carrying charges remains in effect until construction or development is completed. Filing taxes for free For personal property, your election is effective until the date you install or first use it, whichever is later. Filing taxes for free How to make the election. Filing taxes for free   To make the election to capitalize a carrying charge, attach a statement to your original tax return for the year the election is to be effective indicating which charges you are electing to capitalize. Filing taxes for free However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Filing taxes for free Attach the statement to the amended return and write “Filed pursuant to section 301. Filing taxes for free 9100-2” on the statement. Filing taxes for free File the amended return at the same address you filed the original return. Filing taxes for free Research and Experimental Costs The costs of research and experimentation are generally capital expenses. Filing taxes for free However, you can elect to deduct these costs as a current business expense. Filing taxes for free Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change. Filing taxes for free If you meet certain requirements, you may elect to defer and amortize research and experimental costs. Filing taxes for free For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8. Filing taxes for free Research and experimental costs defined. Filing taxes for free   Research and experimental costs are reasonable costs you incur in your trade or business for activities intended to provide information that would eliminate uncertainty about the development or improvement of a product. Filing taxes for free Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product. Filing taxes for free Whether costs qualify as research and experimental costs depends on the nature of the activity to which the costs relate rather than on the nature of the product or improvement being developed or the level of technological advancement. Filing taxes for free      The costs of obtaining a patent, including attorneys' fees paid or incurred in making and perfecting a patent application, are research and experimental costs. Filing taxes for free However, costs paid or incurred to obtain another's patent are not research and experimental costs. Filing taxes for free Product. Filing taxes for free   The term “product” includes any of the following items. Filing taxes for free Formula. Filing taxes for free Invention. Filing taxes for free Patent. Filing taxes for free Pilot model. Filing taxes for free Process. Filing taxes for free Technique. Filing taxes for free Property similar to the items listed above. Filing taxes for free It also includes products used by you in your trade or business or held for sale, lease, or license. Filing taxes for free Costs not included. Filing taxes for free   Research and experimental costs do not include expenses for any of the following activities. Filing taxes for free Advertising or promotions. Filing taxes for free Consumer surveys. Filing taxes for free Efficiency surveys. Filing taxes for free Management studies. Filing taxes for free Quality control testing. Filing taxes for free Research in connection with literary, historical, or similar projects. Filing taxes for free The acquisition of another's patent, model, production, or process. Filing taxes for free When and how to elect. Filing taxes for free   You make the election to deduct research and experimental costs by deducting them on your tax return for the year in which you first pay or incur research and experimental costs. Filing taxes for free If you do not make the election to deduct research and experimental costs in the first year in which you pay or incur the costs, you can deduct the costs in a later year only with approval from the IRS. Filing taxes for free Deducting or Amortizing Research and Experimentation Costs IF you . Filing taxes for free . Filing taxes for free . Filing taxes for free THEN . Filing taxes for free . Filing taxes for free . Filing taxes for free Elect to deduct research and experimental costs as a current business expense Deduct all research and experimental costs in the first year you pay or incur the costs and all later years. Filing taxes for free Do not deduct research and experimental costs as a current business expense If you meet the requirements, amortize them over at least 60 months, starting with the month you first receive an economic benefit from the research. Filing taxes for free See Research and Experimental Costs in chapter 8. Filing taxes for free Research credit. Filing taxes for free   If you pay or incur qualified research expenses, you may be able to take the research credit. Filing taxes for free For more information see Form 6765, Credit for Increasing Research Activities and its instructions. Filing taxes for free Intangible Drilling Costs The costs of developing oil, gas, or geothermal wells are ordinarily capital expenditures. Filing taxes for free You can usually recover them through depreciation or depletion. Filing taxes for free However, you can elect to deduct intangible drilling costs (IDCs) as a current business expense. Filing taxes for free These are certain drilling and development costs for wells in the United States in which you hold an operating or working interest. Filing taxes for free You can deduct only costs for drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water. Filing taxes for free You can elect to deduct only the costs of items with no salvage value. Filing taxes for free These include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing them for production. Filing taxes for free Your cost for any drilling or development work done by contractors under any form of contract is also an IDC. Filing taxes for free However, see Amounts paid to contractor that must be capitalized , later. Filing taxes for free You can also elect to deduct the cost of drilling exploratory bore holes to determine the location and delineation of offshore hydrocarbon deposits if the shaft is capable of conducting hydrocarbons to the surface on completion. Filing taxes for free It does not matter whether there is any intent to produce hydrocarbons. Filing taxes for free If you do not elect to deduct your IDCs as a current business expense, you can elect to deduct them over the 60-month period beginning with the month they were paid or incurred. Filing taxes for free Amounts paid to contractor that must be capitalized. Filing taxes for free   Amounts paid to a contractor must be capitalized if they are either: Amounts properly allocable to the cost of depreciable property, or Amounts paid only out of production or proceeds from production if these amounts are depletable income to the recipient. Filing taxes for free How to make the election. Filing taxes for free   You elect to deduct IDCs as a current business expense by taking the deduction on your income tax return for the first tax year you have eligible costs. Filing taxes for free No formal statement is required. Filing taxes for free If you file Schedule C (Form 1040), enter these costs under “Other expenses. Filing taxes for free ”   For oil and gas wells, your election is binding for the year it is made and for all later years. Filing taxes for free For geothermal wells, your election can be revoked by the filing of an amended return on which you do not take the deduction. Filing taxes for free You can file the amended return for the year up to the normal time of expiration for filing a claim for credit or refund, generally, within 3 years after the date you filed the original return or within 2 years after the date you paid the tax, whichever is later. Filing taxes for free Energy credit for costs of geothermal wells. Filing taxes for free   If you capitalize the drilling and development costs of geothermal wells that you place in service during the tax year, you may be able to claim a business energy credit. Filing taxes for free See the Instructions for Form 3468 for more information. Filing taxes for free Nonproductive well. Filing taxes for free   If you capitalize your IDCs, you have another option if the well is nonproductive. Filing taxes for free You can deduct the IDCs of the nonproductive well as an ordinary loss. Filing taxes for free You must indicate and clearly state your election on your tax return for the year the well is completed. Filing taxes for free Once made, the election for oil and gas wells is binding for all later years. Filing taxes for free You can revoke your election for a geothermal well by filing an amended return that does not claim the loss. Filing taxes for free Costs incurred outside the United States. Filing taxes for free   You cannot deduct as a current business expense all the IDCs paid or incurred for an oil, gas, or geothermal well located outside the United States. Filing taxes for free However, you can elect to include the costs in the adjusted basis of the well to figure depletion or depreciation. Filing taxes for free If you do not make this election, you can deduct the costs over the 10-year period beginning with the tax year in which you paid or incurred them. Filing taxes for free These rules do not apply to a nonproductive well. Filing taxes for free Exploration Costs The costs of determining the existence, location, extent, or quality of any mineral deposit are ordinarily capital expenditures if the costs lead to the development of a mine. Filing taxes for free You recover these costs through depletion as the mineral is removed from the ground. Filing taxes for free However, you can elect to deduct domestic exploration costs paid or incurred before the beginning of the development stage of the mine (except those for oil and gas wells). Filing taxes for free How to make the election. Filing taxes for free   You elect to deduct exploration costs by taking the deduction on your income tax return, or on an amended income tax return, for the first tax year for which you wish to deduct the costs paid or incurred during the tax year. Filing taxes for free Your return must adequately describe and identify each property or mine, and clearly state how much is being deducted for each one. Filing taxes for free The election applies to the tax year you make this election and all later tax years. Filing taxes for free Partnerships and S corporations. Filing taxes for free   Each partner, not the partnership, elects whether to capitalize or to deduct that partner's share of exploration costs. Filing taxes for free Each shareholder, not the S corporation, elects whether to capitalize or to deduct that shareholder's share of exploration costs. Filing taxes for free Reduced corporate deductions for exploration costs. Filing taxes for free   A corporation (other than an S corporation) can deduct only 70% of its domestic exploration costs. Filing taxes for free It must capitalize the remaining 30% of costs and amortize them over the 60-month period starting with the month the exploration costs are paid or incurred. Filing taxes for free A corporation may also elect to capitalize and amortize mining exploration costs over a 10-year period. Filing taxes for free For more information on this method of amortization, see Internal Revenue Code section 59(e). Filing taxes for free   The 30% the corporation capitalizes cannot be added to its basis in the property to figure cost depletion. Filing taxes for free However, the amount amortized is treated as additional depreciation and is subject to recapture as ordinary income on a disposition of the property. Filing taxes for free See Section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Filing taxes for free   These rules also apply to the deduction of development costs by corporations. Filing taxes for free See Development Costs , later. Filing taxes for free Recapture of exploration expenses. Filing taxes for free   When your mine reaches the producing stage, you must recapture any exploration costs you elected to deduct. Filing taxes for free Use either of the following methods. Filing taxes for free Method 1—Include the deducted costs in gross income for the tax year the mine reaches the producing stage. Filing taxes for free Your election must be clearly indicated on the return. Filing taxes for free Increase your adjusted basis in the mine by the amount included in income. Filing taxes for free Generally, you must elect this recapture method by the due date (including extensions) of your return. Filing taxes for free However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Filing taxes for free Make the election on your amended return and write “Filed pursuant to section 301. Filing taxes for free 9100-2” on the form where you are including the income. Filing taxes for free File the amended return at the same address you filed the original return. Filing taxes for free Method 2—Do not claim any depletion deduction for the tax year the mine reaches the producing stage and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. Filing taxes for free   You also must recapture deducted exploration costs if you receive a bonus or royalty from mine property before it reaches the producing stage. Filing taxes for free Do not claim any depletion deduction for the tax year you receive the bonus or royalty and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. Filing taxes for free   Generally, if you dispose of the mine before you have fully recaptured the exploration costs you deducted, recapture the balance by treating all or part of your gain as ordinary income. Filing taxes for free Under these circumstances, you generally treat as ordinary income all of your gain if it is less than your adjusted exploration costs with respect to the mine. Filing taxes for free If your gain is more than your adjusted exploration costs, treat as ordinary income only a part of your gain, up to the amount of your adjusted exploration costs. Filing taxes for free Foreign exploration costs. Filing taxes for free   If you pay or incur exploration costs for a mine or other natural deposit located outside the United States, you cannot deduct all the costs in the current year. Filing taxes for free You can elect to include the costs (other than for an oil, gas, or geothermal well) in the adjusted basis of the mineral property to figure cost depletion. Filing taxes for free (Cost depletion is discussed in chapter 9 . Filing taxes for free ) If you do not make this election, you must deduct the costs over the 10-year period beginning with the tax year in which you pay or incur them. Filing taxes for free These rules also apply to foreign development costs. Filing taxes for free Development Costs You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. Filing taxes for free These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. Filing taxes for free Development costs also include depreciation on improvements used in the development of ores or minerals and costs incurred for you by a contractor. Filing taxes for free Development costs do not include the costs for the acquisition or improvement of depreciable property. Filing taxes for free Instead of deducting development costs in the year paid or incurred, you can elect to treat the cost as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. Filing taxes for free This election applies each tax year to expenses paid or incurred in that year. Filing taxes for free Once made, the election is binding for the year and cannot be revoked for any reason. Filing taxes for free How to make the election. Filing taxes for free   The election to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indication on your return or by a statement filed with the IRS office where you file your return. Filing taxes for free Generally, you must make the election by the due date of the return (including extensions). Filing taxes for free However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Filing taxes for free Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Filing taxes for free 9100-2. Filing taxes for free ” File the amended return at the same address you filed the original return. Filing taxes for free Foreign development costs. Filing taxes for free   The rules discussed earlier for foreign exploration costs apply to foreign development costs. Filing taxes for free Reduced corporate deductions for development costs. Filing taxes for free   The rules discussed earlier for reduced corporate deductions for exploration costs also apply to corporate deductions for development costs. Filing taxes for free Circulation Costs A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. Filing taxes for free For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new subscriptions through telephone calls. Filing taxes for free Circulation costs are deductible even if they normally would be capitalized. Filing taxes for free This rule does not apply to the following costs that must be capitalized. Filing taxes for free The purchase of land or depreciable property. Filing taxes for free The acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical, including the purchase of another publisher's list of subscribers. Filing taxes for free Other treatment of circulation costs. Filing taxes for free   If you do not want to deduct circulation costs as a current business expense, you can elect one of the following ways to recover these costs. Filing taxes for free Capitalize all circulation costs that are properly chargeable to a capital account (see chapter 1 ). Filing taxes for free Amortize circulation costs over the 3-year period beginning with the tax year they were paid or incurred. Filing taxes for free How to make the election. Filing taxes for free   You elect to capitalize circulation costs by attaching a statement to your return for the first tax year the election applies. Filing taxes for free Your election is binding for the year it is made and for all later years, unless you get IRS approval to revoke it. Filing taxes for free Business Start-Up and Organizational Costs Business start-up and organizational costs are generally capital expenditures. Filing taxes for free However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. Filing taxes for free The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Filing taxes for free Any remaining costs must be amortized. Filing taxes for free For information about amortizing start-up and organizational costs, see chapter 8 . Filing taxes for free Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Filing taxes for free Organizational costs include the costs of creating a corporation. Filing taxes for free For more information on start-up and organizational costs, see chapter 8 . Filing taxes for free How to make the election. Filing taxes for free   You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins. Filing taxes for free However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Filing taxes for free Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Filing taxes for free 9100-2. Filing taxes for free ” File the amended return at the same address you filed the original return. Filing taxes for free The election applies when computing taxable income for the current tax year and all subsequent years. Filing taxes for free Reforestation Costs Reforestation costs are generally capital expenditures. Filing taxes for free However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. Filing taxes for free The remaining costs can be amortized over an 84-month period. Filing taxes for free For information about amortizing reforestation costs, see chapter 8 . Filing taxes for free Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Filing taxes for free Qualified timber property is property that contains trees in significant commercial quantities. Filing taxes for free See chapter 8 for more information on qualifying reforestation costs and qualified timber property. Filing taxes for free If you elect to deduct qualified reforestation costs, create and maintain separate timber accounts for each qualified timber property and include all reforestation costs and the dates each was applied. Filing taxes for free Do not include this qualified timber property in any account (for example, depletion block) for which depletion is allowed. Filing taxes for free How to make the election. Filing taxes for free   You elect to deduct qualifying reforestation costs by claiming the deduction on your timely filed income tax return (including extensions) for the tax year the expenses were paid or incurred. Filing taxes for free If Form T (Timber), Forest Activities Schedule, is required, complete Part IV of Form T. Filing taxes for free If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made. Filing taxes for free The unique stand identification numbers. Filing taxes for free The total number of acres reforested during the tax year. Filing taxes for free The nature of the reforestation treatments. Filing taxes for free The total amounts of qualified reforestation expenditures eligible to be amortized or deducted. Filing taxes for free   If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Filing taxes for free Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Filing taxes for free 9100-2. Filing taxes for free ” File the amended return at the same address you filed the original return. Filing taxes for free The election applies when computing taxable income for the current tax year and all subsequent years. Filing taxes for free   For additional information on reforestation costs, see chapter 8 . Filing taxes for free Recapture. Filing taxes for free   This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. Filing taxes for free For more information on recapturing the deduction, see Depreciation Recapture in Publication 544. Filing taxes for free Retired Asset Removal Costs If you retire and remove a depreciable asset in connection with the installation or production of a replacement asset, you can deduct the costs of removing the retired asset. Filing taxes for free However, if you replace a component (part) of a depreciable asset, capitalize the removal costs if the replacement is an improvement and deduct the costs if the replacement is a repair. Filing taxes for free Barrier Removal Costs The cost of an improvement to a business asset is normally a capital expense. Filing taxes for free However, you can elect to deduct the costs of making a facility or public transportation vehicle more accessible to and usable by those who are disabled or elderly. Filing taxes for free You must own or lease the facility or vehicle for use in connection with your trade or business. Filing taxes for free A facility is all or any part of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property. Filing taxes for free A public transportation vehicle is a vehicle, such as a bus or railroad car, that provides transportation service to the public (including service for your customers, even if you are not in the business of providing transportation services). Filing taxes for free You cannot deduct any costs that you paid or incurred to completely renovate or build a facility or public transportation vehicle or to replace depreciable property in the normal course of business. Filing taxes for free Deduction limit. Filing taxes for free   The most you can deduct as a cost of removing barriers to the disabled and the elderly for any tax year is $15,000. Filing taxes for free However, you can add any costs over this limit to the basis of the property and depreciate these excess costs. Filing taxes for free Partners and partnerships. Filing taxes for free   The $15,000 limit applies to a partnership and also to each partner in the partnership. Filing taxes for free A partner can allocate the $15,000 limit in any manner among the partner's individually incurred costs and the partner's distributive share of partnership costs. Filing taxes for free If the partner cannot deduct the entire share of partnership costs, the partnership can add any costs not deducted to the basis of the improved property. Filing taxes for free   A partnership must be able to show that any amount added to basis was not deducted by the partner and that it was over a partner's $15,000 limit (as determined by the partner). Filing taxes for free If the partnership cannot show this, it is presumed that the partner was able to deduct the distributive share of the partnership's costs in full. Filing taxes for free Example. Filing taxes for free Emilio Azul's distributive share of ABC partnership's deductible expenses for the removal of architectural barriers was $14,000. Filing taxes for free Emilio had $12,000 of similar expenses in his sole proprietorship. Filing taxes for free He elected to deduct $7,000 of them. Filing taxes for free Emilio allocated the remaining $8,000 of the $15,000 limit to his share of ABC's expenses. Filing taxes for free Emilio can add the excess $5,000 of his own expenses to the basis of the property used in his business. Filing taxes for free Also, if ABC can show that Emilio could not deduct $6,000 ($14,000 – $8,000) of his share of the partnership's expenses because of how Emilio applied the limit, ABC can add $6,000 to the basis of its property. Filing taxes for free Qualification standards. Filing taxes for free   You can deduct your costs as a current expense only if the barrier removal meets the guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board under the Americans with Disabilities Act (ADA) of 1990. Filing taxes for free You can view the Americans with Disabilities Act at www. Filing taxes for free ada. Filing taxes for free gov/pubs/ada. Filing taxes for free htm. Filing taxes for free   The following is a list of some architectural barrier removal costs that can be deducted. Filing taxes for free Ground and floor surfaces. Filing taxes for free Walks. Filing taxes for free Parking lots. Filing taxes for free Ramps. Filing taxes for free Entrances. Filing taxes for free Doors and doorways. Filing taxes for free Stairs. Filing taxes for free Floors. Filing taxes for free Toilet rooms. Filing taxes for free Water fountains. Filing taxes for free Public telephones. Filing taxes for free Elevators. Filing taxes for free Controls. Filing taxes for free Signage. Filing taxes for free Alarms. Filing taxes for free Protruding objects. Filing taxes for free Symbols of accessibility. Filing taxes for free You can find the ADA guidelines and requirements for architectural barrier removal at www. Filing taxes for free usdoj. Filing taxes for free gov/crt/ada/reg3a. Filing taxes for free html. Filing taxes for free   The costs for removal of transportation barriers from rail facilities, buses, and rapid and light rail vehicles are deductible. Filing taxes for free You can find the guidelines and requirements for transportation barrier removal at www. Filing taxes for free fta. Filing taxes for free dot. Filing taxes for free gov. Filing taxes for free   Also, you can access the ADA website at www. Filing taxes for free ada. Filing taxes for free gov for additional information. Filing taxes for free Other barrier removals. Filing taxes for free   To be deductible, expenses of removing any barrier not covered by the above standards must meet all three of the following tests. Filing taxes for free The removed barrier must be a substantial barrier to access or use of a facility or public transportation vehicle by persons who have a disability or are elderly. Filing taxes for free The removed barrier must have been a barrier for at least one major group of persons who have a disability or are elderly (such as people who are blind, deaf, or wheelchair users). Filing taxes for free The barrier must be removed without creating any new barrier that significantly impairs access to or use of the facility or vehicle by a major group of persons who have a disability or are elderly. Filing taxes for free How to make the election. Filing taxes for free   If you elect to deduct your costs for removing barriers to the disabled or the elderly, claim the deduction on your income tax return (partnership return for partnerships) for the tax year the expenses were paid or incurred. Filing taxes for free Identify the deduction as a separate item. Filing taxes for free The election applies to all the qualifying costs you have during the year, up to the $15,000 limit. Filing taxes for free If you make this election, you must maintain adequate records to support your deduction. Filing taxes for free   For your election to be valid, you generally must file your return by its due date, including extensions. Filing taxes for free However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Filing taxes for free Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Filing taxes for free 9100-2. Filing taxes for free ” File the amended return at the same address you filed the original return. Filing taxes for free Your election is irrevocable after the due date, including extensions, of your return. Filing taxes for free Disabled access credit. Filing taxes for free   If you make your business accessible to persons with disabilities and your business is an eligible small business, you may be able to claim the disabled access credit. Filing taxes for free If you choose to claim the credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Filing taxes for free   For more information, see Form 8826, Disabled Access Credit. Filing taxes for free Film and Television Production Costs Film and television production costs are generally capital expenses. Filing taxes for free However, you can elect to deduct costs paid or incurred for certain productions commencing before January 1, 2014. Filing taxes for free For more information, see section 181 of the Internal Revenue Code and the related Treasury Regulations. Filing taxes for free Prev  Up  Next   Home   More Online Publications