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Free tax return Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Free tax return Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Free tax return However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Free tax return Even then, the deductible amount of these types of expenses may be limited. Free tax return Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Free tax return To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Free tax return Additional tests for employee use. Free tax return   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Free tax return You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Free tax return If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Free tax return Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Free tax return The area used for business can be a room or other separately identifiable space. Free tax return The space does not need to be marked off by a permanent partition. Free tax return You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Free tax return Example. Free tax return You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Free tax return Your family also uses the den for recreation. Free tax return The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Free tax return Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Free tax return You use part of your home for the storage of inventory or product samples (discussed next). Free tax return You use part of your home as a daycare facility, discussed later under Daycare Facility . Free tax return Note. Free tax return With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Free tax return Storage of inventory or product samples. Free tax return    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Free tax return However, you must meet all the following tests. Free tax return You sell products at wholesale or retail as your trade or business. Free tax return You keep the inventory or product samples in your home for use in your trade or business. Free tax return Your home is the only fixed location of your trade or business. Free tax return You use the storage space on a regular basis. Free tax return The space you use is a separately identifiable space suitable for storage. Free tax return Example. Free tax return Your home is the only fixed location of your business of selling mechanics' tools at retail. Free tax return You regularly use half of your basement for storage of inventory and product samples. Free tax return You sometimes use the area for personal purposes. Free tax return The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Free tax return Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Free tax return Incidental or occasional business use is not regular use. Free tax return You must consider all facts and circumstances in determining whether your use is on a regular basis. Free tax return Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Free tax return If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Free tax return Example. Free tax return You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Free tax return You do not make investments as a broker or dealer. Free tax return So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Free tax return Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Free tax return To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Free tax return To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Free tax return Your home office will qualify as your principal place of business if you meet the following requirements. Free tax return You use it exclusively and regularly for administrative or management activities of your trade or business. Free tax return You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Free tax return If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Free tax return However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Free tax return Administrative or management activities. Free tax return   There are many activities that are administrative or managerial in nature. Free tax return The following are a few examples. Free tax return Billing customers, clients, or patients. Free tax return Keeping books and records. Free tax return Ordering supplies. Free tax return Setting up appointments. Free tax return Forwarding orders or writing reports. Free tax return Administrative or management activities performed at other locations. Free tax return   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Free tax return You have others conduct your administrative or management activities at locations other than your home. Free tax return (For example, another company does your billing from its place of business. Free tax return ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Free tax return You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Free tax return You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Free tax return (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Free tax return ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Free tax return Please click here for the text description of the image. Free tax return Can you deduct business use of the home expenses? Example 1. Free tax return John is a self-employed plumber. Free tax return Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Free tax return He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Free tax return John writes up estimates and records of work completed at his customers' premises. Free tax return He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Free tax return John does not do his own billing. Free tax return He uses a local bookkeeping service to bill his customers. Free tax return John's home office qualifies as his principal place of business for deducting expenses for its use. Free tax return He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Free tax return His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Free tax return He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Free tax return Example 2. Free tax return Pamela is a self-employed sales representative for several different product lines. Free tax return She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Free tax return She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Free tax return Pamela's business is selling products to customers at various locations throughout her territory. Free tax return To make these sales, she regularly visits customers to explain the available products and take orders. Free tax return Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Free tax return She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Free tax return The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Free tax return She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Free tax return Example 3. Free tax return Paul is a self-employed anesthesiologist. Free tax return He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Free tax return One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Free tax return Paul very rarely uses the office the hospital provides. Free tax return He uses a room in his home that he has converted to an office. Free tax return He uses this room exclusively and regularly to conduct all the following activities. Free tax return Contacting patients, surgeons, and hospitals regarding scheduling. Free tax return Preparing for treatments and presentations. Free tax return Maintaining billing records and patient logs. Free tax return Satisfying continuing medical education requirements. Free tax return Reading medical journals and books. Free tax return Paul's home office qualifies as his principal place of business for deducting expenses for its use. Free tax return He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Free tax return His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Free tax return His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Free tax return He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Free tax return Example 4. Free tax return Kathleen is employed as a teacher. Free tax return She is required to teach and meet with students at the school and to grade papers and tests. Free tax return The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Free tax return The school does not require her to work at home. Free tax return Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Free tax return She uses this home office exclusively and regularly for the administrative duties of her teaching job. Free tax return Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Free tax return Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Free tax return More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Free tax return Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Free tax return You must use the home office exclusively and regularly for one or more of the following purposes. Free tax return As the principal place of business for one or more of your trades or businesses. Free tax return As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Free tax return If your home office is a separate structure, in connection with one or more of your trades or businesses. Free tax return You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Free tax return e. Free tax return , personal) activities. Free tax return If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Free tax return See Rental to employer , later, if you rent part of your home to your employer. Free tax return Example. Free tax return Tracy White is employed as a teacher. Free tax return Her principal place of work is the school, which provides her office space to do her school work. Free tax return She also has a mail order jewelry business. Free tax return All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Free tax return If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Free tax return If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Free tax return As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Free tax return She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Free tax return Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Free tax return You physically meet with patients, clients, or customers on your premises. Free tax return Their use of your home is substantial and integral to the conduct of your business. Free tax return Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Free tax return Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Free tax return The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Free tax return Example. Free tax return June Quill, a self-employed attorney, works 3 days a week in her city office. Free tax return She works 2 days a week in her home office used only for business. Free tax return She regularly meets clients there. Free tax return Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Free tax return Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Free tax return The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Free tax return Example. Free tax return John Berry operates a floral shop in town. Free tax return He grows the plants for his shop in a greenhouse behind his home. Free tax return He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Free tax return Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Free tax return When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Free tax return Electing to use the simplified method. Free tax return   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Free tax return You choose whether or not to figure your deduction using the simplified method each taxable year. Free tax return See Using the Simplified Method , later. Free tax return Rental to employer. Free tax return   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Free tax return You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Free tax return However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Free tax return Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Free tax return You will also need to figure the percentage of your home used for business and the limit on the deduction. Free tax return If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Free tax return If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Free tax return Part-year use. Free tax return   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Free tax return For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Free tax return Expenses related to tax-exempt income. Free tax return   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Free tax return However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Free tax return No deduction is allowed for other expenses related to the tax-exempt allowance. Free tax return   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Free tax return Actual Expenses You must divide the expenses of operating your home between personal and business use. Free tax return The part of a home operating expense you can use to figure your deduction depends on both of the following. Free tax return Whether the expense is direct, indirect, or unrelated. Free tax return The percentage of your home used for business. Free tax return Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Free tax return Table 1. Free tax return Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Free tax return Deductible in full. Free tax return *   Examples:  Painting or repairs  only in the area  used for business. Free tax return Exception: May be only partially  deductible in a daycare facility. Free tax return See Daycare Facility , later. Free tax return Indirect Expenses for  keeping up and running your  entire home. Free tax return Deductible based on the percentage of your home used for business. Free tax return *   Examples:  Insurance, utilities, and  general repairs. Free tax return   Unrelated Expenses only for  the parts of your  home not used  for business. Free tax return Not deductible. Free tax return   Examples:  Lawn care or painting  a room not used  for business. Free tax return   *Subject to the deduction limit, discussed later. Free tax return Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Free tax return Certain expenses are deductible whether or not you use your home for business. Free tax return If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Free tax return These expenses include the following. Free tax return Real estate taxes. Free tax return Qualified mortgage insurance premiums. Free tax return Deductible mortgage interest. Free tax return Casualty losses. Free tax return Other expenses are deductible only if you use your home for business. Free tax return You can use the business percentage of these expenses to figure your total business use of the home deduction. Free tax return These expenses generally include (but are not limited to) the following. Free tax return Depreciation (covered under Depreciating Your Home , later). Free tax return Insurance. Free tax return Rent paid for the use of property you do not own but use in your trade or business. Free tax return Repairs. Free tax return Security system. Free tax return Utilities and services. Free tax return Real estate taxes. Free tax return   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Free tax return   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Free tax return Deductible mortgage interest. Free tax return   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Free tax return You can include interest on a second mortgage in this computation. Free tax return If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Free tax return For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Free tax return Qualified mortgage insurance premiums. Free tax return   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Free tax return You can include premiums for insurance on a second mortgage in this computation. Free tax return If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Free tax return For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Free tax return Casualty losses. Free tax return    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Free tax return A direct expense is the loss on the portion of the property you use only in your business. Free tax return Use the entire loss to figure the business use of the home deduction. Free tax return An indirect expense is the loss on property you use for both business and personal purposes. Free tax return Use only the business portion to figure the deduction. Free tax return An unrelated expense is the loss on property you do not use in your business. Free tax return Do not use any of the loss to figure the deduction. Free tax return Example. Free tax return You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Free tax return A storm damages your roof. Free tax return This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Free tax return You would complete Form 4684, Casualties and Thefts, to report your loss. Free tax return You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Free tax return Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Free tax return Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Free tax return Forms and worksheets to use. Free tax return   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Free tax return If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Free tax return You will also need to get Form 4684. Free tax return More information. Free tax return   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Free tax return Insurance. Free tax return   You can deduct the cost of insurance that covers the business part of your home. Free tax return However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Free tax return You can deduct the business percentage of the part that applies to the following year in that year. Free tax return Rent. Free tax return   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Free tax return To figure your deduction, multiply your rent payments by the percentage of your home used for business. Free tax return   If you own your home, you cannot deduct the fair rental value of your home. Free tax return However, see Depreciating Your Home , later. Free tax return Repairs. Free tax return   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Free tax return For example, a furnace repair benefits the entire home. Free tax return If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Free tax return   Repairs keep your home in good working order over its useful life. Free tax return Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Free tax return However, repairs are sometimes treated as a permanent improvement and are not deductible. Free tax return See Permanent improvements , later, under Depreciating Your Home. Free tax return Security system. Free tax return   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Free tax return You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Free tax return Utilities and services. Free tax return   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Free tax return However, if you use part of your home for business, you can deduct the business part of these expenses. Free tax return Generally, the business percentage for utilities is the same as the percentage of your home used for business. Free tax return Telephone. Free tax return   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Free tax return e. Free tax return , landline) is a nondeductible personal expense. Free tax return However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Free tax return Do not include these expenses as a cost of using your home for business. Free tax return Deduct these charges separately on the appropriate form or schedule. Free tax return For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Free tax return Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Free tax return Depreciation is an allowance for the wear and tear on the part of your home used for business. Free tax return You cannot depreciate the cost or value of the land. Free tax return You recover its cost when you sell or otherwise dispose of the property. Free tax return Before you figure your depreciation deduction, you need to know the following information. Free tax return The month and year you started using your home for business. Free tax return The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Free tax return The cost of any improvements before and after you began using the property for business. Free tax return The percentage of your home used for business. Free tax return See Business Percentage , later. Free tax return Adjusted basis defined. Free tax return   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Free tax return For a discussion of adjusted basis, see Publication 551. Free tax return Permanent improvements. Free tax return   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Free tax return Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Free tax return    You must carefully distinguish between repairs and improvements. Free tax return See Repairs , earlier, under Actual Expenses. Free tax return You also must keep accurate records of these expenses. Free tax return These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Free tax return However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Free tax return Example. Free tax return You buy an older home and fix up two rooms as a beauty salon. Free tax return You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Free tax return Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Free tax return However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Free tax return You cannot deduct any portion of it as a repair expense. Free tax return Adjusting for depreciation deducted in earlier years. Free tax return   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Free tax return If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Free tax return If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Free tax return   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Free tax return   If you deducted the incorrect amount of depreciation, see Publication 946. Free tax return Fair market value defined. Free tax return   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Free tax return Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Free tax return Figuring the depreciation deduction for the current year. Free tax return   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Free tax return   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Free tax return Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Free tax return For more information on MACRS and other methods of depreciation, see Publication 946. Free tax return   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Free tax return The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Free tax return The adjusted basis of your home (excluding land) on the date you began using your home for business. Free tax return The fair market value of your home (excluding land) on the date you began using your home for business. Free tax return Depreciation table. Free tax return   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Free tax return Table 2. Free tax return MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Free tax return 461% 2 2. Free tax return 247% 3 2. Free tax return 033% 4 1. Free tax return 819% 5 1. Free tax return 605% 6 1. Free tax return 391% 7 1. Free tax return 177% 8 0. Free tax return 963% 9 0. Free tax return 749% 10 0. Free tax return 535% 11 0. Free tax return 321% 12 0. Free tax return 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Free tax return See Publication 946 for the percentages for the remaining tax years of the recovery period. Free tax return Example. Free tax return In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Free tax return This room is 8% of the square footage of his home. Free tax return He bought the home in 2003 for $125,000. Free tax return He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Free tax return In May, the house had a fair market value of $165,000. Free tax return He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Free tax return The result is $9,200, his depreciable basis for the business part of the house. Free tax return George files his return based on the calendar year. Free tax return May is the 5th month of his tax year. Free tax return He multiplies his depreciable basis of $9,200 by 1. Free tax return 605% (. Free tax return 01605), the percentage from the table for the 5th month. Free tax return His depreciation deduction is $147. Free tax return 66. Free tax return Depreciating permanent improvements. Free tax return   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Free tax return Depreciate these costs as part of the cost of your home as explained earlier. Free tax return The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Free tax return Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Free tax return For improvements made this year, the recovery period is 39 years. Free tax return For the percentage to use for the first year, see Table 2, earlier. Free tax return For more information on recovery periods, see Publication 946. Free tax return Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Free tax return Use the resulting percentage to figure the business part of the expenses for operating your entire home. Free tax return You can use any reasonable method to determine the business percentage. Free tax return The following are two commonly used methods for figuring the percentage. Free tax return Divide the area (length multiplied by the width) used for business by the total area of your home. Free tax return If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Free tax return Example 1. Free tax return Your office is 240 square feet (12 feet × 20 feet). Free tax return Your home is 1,200 square feet. Free tax return Your office is 20% (240 ÷ 1,200) of the total area of your home. Free tax return Your business percentage is 20%. Free tax return Example 2. Free tax return You use one room in your home for business. Free tax return Your home has 10 rooms, all about equal size. Free tax return Your office is 10% (1 ÷ 10) of the total area of your home. Free tax return Your business percentage is 10%. Free tax return Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Free tax return Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Free tax return If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Free tax return Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Free tax return The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Free tax return These expenses are discussed in detail under Actual Expenses , earlier. Free tax return The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Free tax return If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Free tax return Carryover of unallowed expenses. Free tax return   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Free tax return They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Free tax return Figuring the deduction limit and carryover. Free tax return   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Free tax return If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Free tax return Example. Free tax return You meet the requirements for deducting expenses for the business use of your home. Free tax return You use 20% of your home for business. Free tax return In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Free tax return    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Free tax return You also can deduct all of your business expenses not related to the use of your home ($2,000). Free tax return Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Free tax return Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Free tax return You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Free tax return More than one place of business. Free tax return   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Free tax return In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Free tax return If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Free tax return For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free tax return Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Free tax return In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Free tax return The area you use to figure your deduction is limited to 300 square feet. Free tax return See Simplified Amount , later, for information about figuring the amount of the deduction. Free tax return For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Free tax return R. Free tax return B. Free tax return 478, available at www. Free tax return irs. Free tax return gov/irb/2013-06_IRB/ar09. Free tax return html. Free tax return Actual expenses and depreciation of your home. Free tax return   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Free tax return You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Free tax return The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Free tax return If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Free tax return More information. Free tax return   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Free tax return R. Free tax return B. Free tax return 478, available at www. Free tax return irs. Free tax return gov/irb/2013-06_IRB/ar09. Free tax return html. Free tax return See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Free tax return Expenses deductible without regard to business use. Free tax return   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Free tax return These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Free tax return See Where To Deduct , later. Free tax return If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Free tax return No deduction of carryover of actual expenses. Free tax return   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Free tax return Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Free tax return Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Free tax return Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Free tax return An election for a taxable year, once made, is irrevocable. Free tax return A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Free tax return Shared use. Free tax return   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Free tax return More than one qualified business use. Free tax return   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Free tax return More than one home. Free tax return   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Free tax return You must figure the deduction for any other home using actual expenses. Free tax return Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Free tax return To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Free tax return The allowable area of your home used in conducting the business. Free tax return If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Free tax return The gross income from the business use of your home. Free tax return The amount of the business expenses that are not related to the use of your home. Free tax return If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Free tax return To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Free tax return Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Free tax return See Allowable area and Space used regularly for daycare , later. Free tax return Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Free tax return If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Free tax return See Gross income limitation , later. Free tax return Take the smaller of the amounts from (1) and (2). Free tax return This is the amount you can deduct for this qualified business use of your home using the simplified method. Free tax return If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Free tax return If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Free tax return Allowable area. Free tax return   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Free tax return Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Free tax return You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Free tax return Area used by a qualified joint venture. Free tax return   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Free tax return Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Free tax return Then, each spouse will figure the allowable area separately. Free tax return For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Free tax return Shared use. Free tax return   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Free tax return You must allocate the shared space between you and the other person in a reasonable manner. Free tax return Example. Free tax return Kristin and Lindsey are roommates. Free tax return Kristin uses 300 square feet of their home for a qualified business use. Free tax return Lindsey uses 200 square feet of their home for a separate qualified business use. Free tax return The qualified business uses share 100 square feet. Free tax return In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Free tax return If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Free tax return More than one qualified business use. Free tax return   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Free tax return Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Free tax return However, do not allocate more square feet to a qualified business use than you actually use for that business. Free tax return Rental use. Free tax return   The simplified method does not apply to rental use. Free tax return A rental use that qualifies for the deduction must be figured using actual expenses. Free tax return If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Free tax return You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Free tax return Part-year use or area changes. Free tax return   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Free tax return You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Free tax return When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Free tax return Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Free tax return Example 1. Free tax return Andy files his federal income tax return on a calendar year basis. Free tax return On July 20, he began using 420 square feet of his home for a qualified business use. Free tax return He continued to use the 420 square feet until the end of the year. Free tax return His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Free tax return Example 2. Free tax return Amy files her federal income tax return on a calendar year basis. Free tax return On April 20, she began using 100 square feet of her home for a qualified business use. Free tax return On August 5, she expanded the area of her qualified use to 330 square feet. Free tax return Amy continued to use the 330 square feet until the end of the year. Free tax return Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Free tax return Gross income limitation. Free tax return   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Free tax return If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Free tax return Business expenses not related to use of the home. Free tax return   These expenses relate to the business activity in the home, but not to the use of the home itself. Free tax return You can still deduct business expenses that are unrelated to the use of the home. Free tax return See Where To Deduct , later. Free tax return Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Free tax return Space used regularly for daycare. Free tax return   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Free tax return The reduced rate will equal the prescribed rate times a fraction. Free tax return The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Free tax return You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Free tax return    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Free tax return Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Free tax return To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Free tax return You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Free tax return You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Free tax return You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Free tax return Figuring the deduction. Free tax return   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Free tax return    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Free tax return If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Free tax return   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Free tax return A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Free tax return You do not have to keep records to show the specific hours the area was used for business. Free tax return You can use the area occasionally for personal reasons. Free tax return However, a room you use only occasionally for business does not qualify for the deduction. Free tax return To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Free tax return You can compare the hours of business use in a week with the number of hours in a week (168). Free tax return Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Free tax return If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Free tax return Example 1. Free tax return Mary Lake used her basement to operate a daycare business for children. Free tax return She figures the business percentage of the basement as follows. Free tax return Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Free tax return During the other 12 hours a day, the family could use the basement. Free tax return She figures the percentage of time the basement was used for daycare as follows. Free tax return Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Free tax return 25%           Mary can deduct 34. Free tax return 25% of any direct expenses for the basement. Free tax return However, because her indirect expenses are for the entire house, she can deduct only 17. Free tax return 13% of the indirect expenses. Free tax return She figures the percentage for her indirect expenses as follows. Free tax return Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Free tax return 25% Percentage for indirect expenses 17. Free tax return 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Free tax return In Part II, Mary figures her deductible expenses. Free tax return She uses the following information to complete Part II. Free tax return Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Free tax return (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Free tax return ) The expenses she paid for rent and utilities relate to her entire home. Free tax return Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Free tax return She shows the total of these expenses on line 22, column (b). Free tax return For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Free tax return Mary paid $500 to have the basement painted. Free tax return The painting is a direct expense. Free tax return However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Free tax return 25% – line 6). Free tax return She enters $171 (34. Free tax return 25% × $500) on line 19, column (a). Free tax return She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Free tax return This is less than her deduction limit (line 15), so she can deduct the entire amount. Free tax return She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Free tax return She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Free tax return Example 2. Free tax return Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Free tax return Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Free tax return Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Free tax return The basement and room are 60% of the total area of her home. Free tax return In figuring her expenses, 34. Free tax return 25% of any direct expenses for the basement and room are deductible. Free tax return In addition, 20. Free tax return 55% (34. Free tax return 25% × 60%) of her indirect expenses are deductible. Free tax return Example 3. Free tax return Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Free tax return She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Free tax return During the other 12 hours a day, the family could still use the basement. Free tax return She figures the percentage of time the basement was used for business as follows. Free tax return Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Free tax return 71%           Mary can deduct 35. Free tax return 71% of any direct expenses for the basement. Free tax return However, because her indirect expenses are for the entire house, she can deduct only 17. Free tax return 86% of the indirect expenses. Free tax return She figures the percentage for her indirect expenses as follows. Free tax return Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Free tax return 71% Percentage for indirect expenses 17. Free tax return 86% Meals. Free tax return   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Free tax return Claim it as a separate deduction on your Schedule C (Form 1040). Free tax return You can never deduct the cost of food consumed by you or your family. Free tax return You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Free tax return However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Free tax return For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free tax return   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Free tax return   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Free tax return If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Free tax return If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Free tax return Do not include payments or expenses for your own children if they are eligible for the program. Free tax return Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Free tax return Standard meal and snack rates. Free tax return   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Free tax return For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Free tax return Family daycare is childcare provided to eligible children in the home of the family daycare provider. Free tax return The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Free tax return Eligible children are minor children receiving family daycare in the home of the family daycare provider. Free tax return Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Free tax return Eligible children do not include children who receive daycare services for personal reasons of the provider. Free tax return For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Free tax return   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Free tax return You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Free tax return If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Free tax return   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Free tax return If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Free tax return However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Free tax return   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Free tax return The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Free tax return This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Free tax return   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Free tax return These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Free tax return     Table 3. Free tax return Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an
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Social Media Registry API Documentation

About the API

This documentation describes methods to use the Social Media Registry API to access the contents of the Social Media Registry.

The Social Media Registry is an official source of information about social media accounts that represent official U.S. federal government agencies, elected officials, or members of the President’s Cabinet.

If you work for the federal government and have a .gov or .mil e-mail address, you can register official U.S. federal accounts at HowTo.gov.

If you have feedback, questions, or want to tell us about the product you built with the Social Media Registry API, please e-mail us.

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Accessing the API

The interface described here uses the same method URLs and parameters for all response formats, including HTML5, JSON, and XML. If no response format is specified at request time, the results are returned as HTML5 (with the assumption that a user is accessing the API via a web browser). To specify alternate formats, append the result format to the method call:

http://registry.usa.gov/accounts?agency_id=usda
http://registry.usa.gov/accounts.json?agency_id=usda
http://registry.usa.gov/accounts.xml?agency_id=usda

API requests can be called from remote sites via Javascript using the Cross-Origin Resource Sharing mechanism (CORS) supported in most browsers. All published API methods may be called from any domain.

If support for older browsers is required, JSON requests can be made with a callback parameter in order to return JSONP responses:

http://registry.usa.gov/accounts.json?agency_id=usda&callback=listaccounts

API Updates Using Feeds

Some API methods are also available as feeds in the ATOM format. These feeds can be added to any news feed reader to list recent changes.

The ATOM format is an XML feed standard; each entry contains a summary of the Registry change and a link to the Registry API to view more information.

Feed Examples

List the most recently updated official Twitter accounts: http://registry.usa.gov/accounts.atom?service_id=twitter

List the most recently updated official accounts from the U.S. Department of Agriculture: http://registry.usa.gov/accounts.atom?agency_id=usda

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API Methods

/accounts (GET)

List official U.S. government social media accounts entries in the registry. This method is also available as an ATOM feed.

Parameters

  • agency_id: ID (from /agencies)
  • service_id: ID (from /services)
  • tag: text
  • page_size: integer
  • page_number: integer

Output

  • page_count: integer
  • page_number: integer
  • total_items: integer

Accounts

  • service_url: text
  • verified : boolean
  • service_id: ID
  • account: text
  • details_url: text
  • organization: text
  • agencies
    • agency_id: text
    • agency_name: text
    • agency_url: text

Example Calls

List all official accounts from the U.S. Department of Agriculture: http://registry.usa.gov/accounts?agency_id=usda

List all official Twitter accounts from the U.S. Department of Health and Human Services:
http://registry.usa.gov/accounts?service=twitter&agency_id=hhs

/accounts/{service ID} (GET)

A synonym for /accounts?service_id={service}, provided for REST-style browsing.

/accounts/{service ID}/{account} (GET)

A synonym for the /accounts/verify method, using a canonical service and account ID provided by that method. For example, the service and account ID for http://twitter.com/JPL_Bear might be twitter/JPL_Bear, making the canonical URL take the form http://registry.usa.gov/accounts/twitter/JPL_Bear

This is provided primarily for REST-style browsing.

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/accounts/verify (GET)

Check whether the provided URL is registered as an official government social media account.

Example: /accounts/verify?service_url=https%3A%2F%2Ftwitter.com%2F%23%21%2FJPL_Bear

Parameters

  • service_url: URL (required)

Output

  • verified: boolean
  • service_url: URL
  • service_id: ID (from /services list)
  • account: text

(if verified is true:)

  • details_url: URL
  • organization: text
  • info_url: text
  • agencies
    • agency_id: text
    • agency_name: text
    • agency_url: text
  • tags: list
  • language: text
  • display_name: text
  • updated_by: text
  • updated_at: ISO 8601 date

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/agencies (GET) 

List the sponsoring agencies that may be specified in the /accounts/add method.

Parameters

  • none

Output

  • page_count: integer
  • total_items: integer
  • page_number: integer
  • agencies: list
    • agency_id: text
    • agency_name: text
    • agency_url: text

/services (GET)

List the social media services that are currently supported in the /accounts/add method.

Parameters

  • none

Output

  • page_count: integer
  • total_items: integer
  • page_number: integer
  • services: list
    • service_id: text
    • service_name: text

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/tags (GET) 

List tags that are suggested for describing an account.

Parameters

  • keywords: text

Output

  • tags: list
  • tag_id: text
  • tag_text: text

Source Code

The code for the Social Media Registry is open source and available on GitHub. It is written in Ruby.

Example Applications

Terms of Service

By using this data, you agree to the Terms of Service.

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The Free Tax Return

Free tax return Publication 15-A - Main Content Table of Contents 1. Free tax return Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Free tax return Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Free tax return Employees of Exempt OrganizationsSocial security and Medicare taxes. Free tax return FUTA tax. Free tax return 4. Free tax return Religious Exemptions and Special Rules for MinistersForm W-2. Free tax return Self-employed. Free tax return Employees. Free tax return 5. Free tax return Wages and Other CompensationRelocating for Temporary Work Assignments Employee Achievement Awards Scholarship and Fellowship Payments Outplacement Services Withholding for Idle Time Back Pay Supplemental Unemployment Benefits Golden Parachute Payments Interest-Free and Below-Market-Interest-Rate Loans Leave Sharing Plans Nonqualified Deferred Compensation Plans Tax-Sheltered Annuities Contributions to a Simplified Employee Pension (SEP) SIMPLE Retirement Plans 6. Free tax return Sick Pay ReportingSick Pay Payments That Are Not Sick Pay Sick Pay Plan Third-Party Payers of Sick Pay Social Security, Medicare, and FUTA Taxes on Sick Pay Income Tax Withholding on Sick Pay Depositing and Reporting Example of Figuring and Reporting Sick Pay 7. Free tax return Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Free tax return Pensions and AnnuitiesFederal Income Tax Withholding 9. Free tax return Alternative Methods for Figuring WithholdingTerm of continuous employment. Free tax return Formula Tables for Percentage Method Withholding (for Automated Payroll Systems) Wage Bracket Percentage Method Tables (for Automated Payroll Systems) Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables 10. Free tax return Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Free tax return Who Are Employees? Before you can know how to treat payments that you make to workers for services, you must first know the business relationship that exists between you and the person performing the services. Free tax return The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Free tax return This discussion explains these four categories. Free tax return A later discussion, Employee or Independent Contractor in section 2, points out the differences between an independent contractor and an employee and gives examples from various types of occupations. Free tax return If an individual who works for you is not an employee under the common-law rules (see section 2), you generally do not have to withhold federal income tax from that individual's pay. Free tax return However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Free tax return See Publication 15 (Circular E) for information on backup withholding. Free tax return Independent Contractors People such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. Free tax return However, whether such people are employees or independent contractors depends on the facts in each case. Free tax return The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Free tax return Common-Law Employees Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. Free tax return This is so even when you give the employee freedom of action. Free tax return What matters is that you have the right to control the details of how the services are performed. Free tax return For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. 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Free tax return However, the wages of certain employees may be exempt from one or more of these taxes. Free tax return See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Free tax return Leased employees. Free tax return   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Free tax return For example, a temporary staffing service may provide the services of secretaries, nurses, and other similarly trained workers to its clients on a temporary basis. Free tax return   The staffing service enters into contracts with the clients under which the clients specify the services to be provided and a fee is paid to the staffing service for each individual furnished. Free tax return The staffing service has the right to control and direct the worker's services for the client, including the right to discharge or reassign the worker. Free tax return The staffing service hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. Free tax return For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Free tax return Additional information. Free tax return   For more information about the treatment of special types of employment, the treatment of special types of payments, and similar subjects, see Publication 15 (Circular E) or Publication 51 (Circular A), Agricultural Employer's Tax Guide. Free tax return Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute, (also known as “statutory employees”) for certain employment tax purposes. Free tax return This would happen if they fall within any one of the following four categories and meet the three conditions described next under Social security and Medicare taxes . Free tax return A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. Free tax return A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. Free tax return An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. Free tax return A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. Free tax return The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Free tax return The work performed for you must be the salesperson's principal business activity. Free tax return See Salesperson in section 2. Free tax return Social security and Medicare taxes. Free tax return   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Free tax return The service contract states or implies that substantially all the services are to be performed personally by them. Free tax return They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation, such as a car or truck). Free tax return The services are performed on a continuing basis for the same payer. Free tax return Federal unemployment (FUTA) tax. Free tax return   For FUTA tax (the unemployment tax paid under the Federal Unemployment Tax Act), the term “employee” means the same as it does for social security and Medicare taxes, except that it does not include statutory employees defined above in categories 2 and 3. Free tax return Any individual who is a statutory employee described above under category 1 or 4 is also an employee for FUTA tax purposes and subject to FUTA tax. Free tax return Income tax. Free tax return   Do not withhold federal income tax from the wages of statutory employees. Free tax return Reporting payments to statutory employees. Free tax return   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Free tax return Show your payments to the employee as “other compensation” in box 1. Free tax return Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. Free tax return The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Free tax return He or she reports earnings as a statutory employee on line 1 of Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Free tax return A statutory employee's business expenses are deductible on Schedule C (Form 1040) or C-EZ (Form 1040) and are not subject to the reduction by 2% of his or her adjusted gross income that applies to common-law employees. Free tax return H-2A agricultural workers. Free tax return   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Free tax return Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Free tax return Direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. Free tax return Direct sellers. Free tax return   Direct sellers include persons falling within any of the following three groups. Free tax return Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment. Free tax return Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment. Free tax return Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution). Free tax return   Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of their direct sellers. Free tax return Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Free tax return Licensed real estate agents. Free tax return   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Free tax return Companion sitters. Free tax return   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Free tax return A person engaged in the trade or business of putting the sitters in touch with individuals who wish to employ them (that is, a companion sitting placement service) will not be treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. Free tax return Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Free tax return Misclassification of Employees Consequences of treating an employee as an independent contractor. Free tax return   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker and the relief provision, discussed next, will not apply. Free tax return See section 2 in Publication 15 (Circular E) for more information. Free tax return Relief provision. Free tax return   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Free tax return To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Free tax return You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Free tax return Technical service specialists. Free tax return   This relief provision does not apply for a technical services specialist you provide to another business under an arrangement between you and the other business. Free tax return A technical service specialist is an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. Free tax return   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Free tax return The common-law rules control whether the specialist is treated as an employee or an independent contractor. Free tax return However, if you directly contract with a technical service specialist to provide services for your business and not for another business, you may still be entitled to the relief provision. Free tax return Test proctors and room supervisors. Free tax return   The consistent treatment requirement does not apply to services performed after December 31, 2006, by an individual as a test proctor or room supervisor assisting in the administration of college entrance or placement examinations if the individual: Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the code, and Is not otherwise treated as an employee of the organization for employment taxes. Free tax return Voluntary Classification Settlement Program (VCSP). Free tax return   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Free tax return To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Free tax return For more information, visit IRS. Free tax return gov and enter “VCSP” in the search box. Free tax return 2. Free tax return Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Free tax return An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Free tax return Common-Law Rules To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. Free tax return In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Free tax return Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Free tax return These facts are discussed next. Free tax return Behavioral control. Free tax return   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. Free tax return   An employee is generally subject to the business' instructions about when, where, and how to work. Free tax return All of the following are examples of types of instructions about how to do work. Free tax return When and where to do the work. Free tax return What tools or equipment to use. Free tax return What workers to hire or to assist with the work. Free tax return Where to purchase supplies and services. Free tax return What work must be performed by a specified  individual. Free tax return What order or sequence to follow. Free tax return   The amount of instruction needed varies among different jobs. Free tax return Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. Free tax return A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Free tax return The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Free tax return Training that the business gives to the worker. Free tax return   An employee may be trained to perform services in a particular manner. Free tax return Independent contractors ordinarily use their own methods. Free tax return Financial control. Free tax return   Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. Free tax return   Independent contractors are more likely to have unreimbursed expenses than are employees. Free tax return Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Free tax return However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Free tax return The extent of the worker's investment. Free tax return   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Free tax return However, a significant investment is not necessary for independent contractor status. Free tax return The extent to which the worker makes his or her services available to the relevant market. Free tax return   An independent contractor is generally free to seek out business opportunities. Free tax return Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Free tax return How the business pays the worker. Free tax return   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Free tax return This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Free tax return An independent contractor is often paid a flat fee or on a time and materials basis for the job. Free tax return However, it is common in some professions, such as law, to pay independent contractors hourly. Free tax return The extent to which the worker can realize a profit or loss. Free tax return   An independent contractor can make a profit or loss. Free tax return Type of relationship. Free tax return   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Free tax return Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Free tax return The permanency of the relationship. Free tax return If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. Free tax return The extent to which services performed by the worker are a key aspect of the regular business of the company. Free tax return If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. Free tax return For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. Free tax return This would indicate an employer-employee relationship. Free tax return IRS help. Free tax return   If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. Free tax return Industry Examples The following examples may help you properly classify your workers. Free tax return Building and Construction Industry Example 1. Free tax return Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Free tax return She did not advance funds to help him carry on the work. Free tax return She makes direct payments to the suppliers for all necessary materials. Free tax return She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Free tax return She pays them an hourly rate and exercises almost constant supervision over the work. Free tax return Jerry is not free to transfer his assistants to other jobs. Free tax return He may not work on other jobs while working for Wilma. Free tax return He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Free tax return He and his assistants perform personal services for hourly wages. Free tax return Jerry Jones and his assistants are employees of Wilma White. Free tax return Example 2. Free tax return Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Free tax return He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Free tax return The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Free tax return He does not have a place of business or hold himself out to perform similar services for others. Free tax return Either party can end the services at any time. Free tax return Milton Manning is an employee of the corporation. Free tax return Example 3. Free tax return Wallace Black agreed with the Sawdust Co. Free tax return to supply the construction labor for a group of houses. Free tax return The company agreed to pay all construction costs. Free tax return However, he supplies all the tools and equipment. Free tax return He performs personal services as a carpenter and mechanic for an hourly wage. Free tax return He also acts as superintendent and foreman and engages other individuals to assist him. Free tax return The company has the right to select, approve, or discharge any helper. Free tax return A company representative makes frequent inspections of the construction site. Free tax return When a house is finished, Wallace is paid a certain percentage of its costs. Free tax return He is not responsible for faults, defects of construction, or wasteful operation. Free tax return At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Free tax return The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Free tax return Wallace Black and his assistants are employees of the Sawdust Co. Free tax return Example 4. Free tax return Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Free tax return A signed contract established a flat amount for the services rendered by Bill Plum. Free tax return Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Free tax return He hires his own roofers who are treated as employees for federal employment tax purposes. Free tax return If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Free tax return Bill Plum, doing business as Plum Roofing, is an independent contractor. Free tax return Example 5. Free tax return Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Free tax return She is to receive $1,280 every 2 weeks for the next 10 weeks. Free tax return This is not considered payment by the hour. Free tax return Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Free tax return She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Free tax return Vera is an independent contractor. Free tax return Trucking Industry Example. Free tax return Rose Trucking contracts to deliver material for Forest, Inc. Free tax return , at $140 per ton. Free tax return Rose Trucking is not paid for any articles that are not delivered. Free tax return At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Free tax return All operating expenses, including insurance coverage, are paid by Jan Rose. Free tax return All equipment is owned or rented by Jan and she is responsible for all maintenance. Free tax return None of the drivers are provided by Forest, Inc. Free tax return Jan Rose, operating as Rose Trucking, is an independent contractor. Free tax return Computer Industry Example. Free tax return Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Free tax return , downsizes. Free tax return Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Free tax return It is not clear how long that it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. Free tax return Megabyte provides Steve with no instructions beyond the specifications for the product itself. Free tax return Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Free tax return Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Free tax return Steve works at home and is not expected or allowed to attend meetings of the software development group. Free tax return Steve is an independent contractor. Free tax return Automobile Industry Example 1. Free tax return Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Free tax return She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Free tax return She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Free tax return Lists of prospective customers belong to the dealer. Free tax return She is required to develop leads and report results to the sales manager. Free tax return Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Free tax return She is paid a commission and is eligible for prizes and bonuses offered by Bob. Free tax return Bob also pays the cost of health insurance and group-term life insurance for Donna. Free tax return Donna is an employee of Bob Blue. Free tax return Example 2. Free tax return Sam Sparks performs auto repair services in the repair department of an auto sales company. Free tax return He works regular hours and is paid on a percentage basis. Free tax return He has no investment in the repair department. Free tax return The sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job; and checks all estimates and repair orders. Free tax return Sam is an employee of the sales company. Free tax return Example 3. Free tax return An auto sales agency furnishes space for Helen Bach to perform auto repair services. Free tax return She provides her own tools, equipment, and supplies. Free tax return She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Free tax return She hires and discharges her own helpers, determines her own and her helpers' working hours, quotes prices for repair work, makes all necessary adjustments, assumes all losses from uncollectible accounts, and receives, as compensation for her services, a large percentage of the gross collections from the auto repair shop. Free tax return Helen is an independent contractor and the helpers are her employees. Free tax return Attorney Example. Free tax return Donna Yuma is a sole practitioner who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. Free tax return Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Free tax return Donna has a part-time receptionist who also does the bookkeeping. Free tax return She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Free tax return For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Free tax return Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Free tax return The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. Free tax return Donna is an independent contractor. Free tax return Taxicab Driver Example. Free tax return Tom Spruce rents a cab from Taft Cab Co. Free tax return for $150 per day. Free tax return He pays the costs of maintaining and operating the cab. Free tax return Tom Spruce keeps all fares that he receives from customers. Free tax return Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Free tax return Tom Spruce is an independent contractor. Free tax return Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Free tax return If a salesperson who works for you does not meet the tests for a common-law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay (see Statutory Employees in section 1). Free tax return However, even if a salesperson is not an employee under the usual common-law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. Free tax return To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. Free tax return A salesperson is a statutory employee for social security, Medicare, and FUTA tax purposes if he or she: Works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, Sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, Sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, Sells merchandise for resale, or supplies for use in the customer's business, Agrees to do substantially all of this work personally, Has no substantial investment in the facilities used to do the work, other than in facilities for transportation, Maintains a continuing relationship with the person or company for which he or she works, and Is not an employee under common-law rules. Free tax return 3. Free tax return Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Free tax return Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Free tax return However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Free tax return Section 501(c)(3) organizations. Free tax return   Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Free tax return These organizations are usually corporations and are exempt from federal income tax under section 501(a). Free tax return Social security and Medicare taxes. Free tax return   Wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes unless one of the following situations applies. Free tax return The organization pays an employee less than $100 in a calendar year. Free tax return The organization is a church or church-controlled organization opposed for religious reasons to the payment of social security and Medicare taxes and has filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, to elect exemption from social security and Medicare taxes. Free tax return The organization must have filed for exemption before the first date on which a quarterly employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due. Free tax return   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes must pay self-employment tax if the employee is paid $108. Free tax return 28 or more in a year. Free tax return However, an employee who is a member of a qualified religious sect can apply for an exemption from the self-employment tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Free tax return See Members of recognized religious sects opposed to insurance in section 4. Free tax return FUTA tax. Free tax return   An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. Free tax return This exemption cannot be waived. Free tax return Do not file Form 940 to report wages paid by these organizations or pay the tax. Free tax return Note. Free tax return An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees. Free tax return Other than section 501(c)(3) organizations. Free tax return   Nonprofit organizations that are not section 501(c)(3) organizations may also be exempt from federal income tax under section 501(a) or section 521. Free tax return However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Free tax return Two special rules for social security, Medicare, and FUTA taxes apply. Free tax return If an employee is paid less than $100 during a calendar year, his or her wages are not subject to social security and Medicare taxes. Free tax return If an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for the quarter. Free tax return The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Free tax return 4. Free tax return Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Free tax return An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Free tax return For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Free tax return Ministers. Free tax return   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Free tax return They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that religious organization. Free tax return   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Free tax return The common-law rules discussed in section 1 and section 2 should be applied to determine whether a minister is your employee or is self-employed. Free tax return Whether the minister is an employee or self-employed, the earnings of a minister are not subject to federal income, social security, and Medicare tax withholding. Free tax return However, even if the minister is a common law employee, the earnings as reported on the minister's Form 1040 are subject to self-employment tax and federal income tax. Free tax return You do not withhold these taxes from wages earned by a minister, but if the minister is your employee, you may agree with the minister to voluntarily withhold tax to cover the minister's liability for self-employment tax and federal income tax. Free tax return For more information, see Publication 517. Free tax return Form W-2. Free tax return   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Free tax return Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Free tax return Do not include a parsonage allowance (excludable housing allowance) in this amount. Free tax return You may report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value of housing provided in a separate statement or in box 14 on Form W-2. Free tax return Do not show on Form W-2, Form 941, or Form 944 any amount as social security or Medicare wages, or any withholding for social security or Medicare taxes. Free tax return If you withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2 on Form W-2 as federal income tax withheld. Free tax return For more information on ministers, see Publication 517. Free tax return Exemptions for ministers and others. Free tax return   Certain ordained ministers, Christian Science practitioners, and members of religious orders who have not taken a vow of poverty may apply to exempt their earnings from self-employment tax on religious grounds. Free tax return The application must be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care, including social security and Medicare benefits. Free tax return The exemption applies only to qualified services performed for the religious organization. Free tax return See Revenue Procedure 91-20, 1991-1 C. Free tax return B. Free tax return 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Free tax return   To apply for the exemption, the employee should file Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. Free tax return See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Free tax return Members of recognized religious sects opposed to insurance. Free tax return   If you belong to a recognized religious sect or to a division of such sect that is opposed to insurance, you may qualify for an exemption from the self-employment tax. Free tax return To qualify, you must be conscientiously opposed to accepting the benefits of any public or private insurance that makes payments because of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including social security and Medicare benefits). Free tax return If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Free tax return Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Free tax return In addition, your religious sect (or division) must have existed since December 31, 1950. Free tax return Self-employed. Free tax return   If you are self-employed and a member of a recognized religious sect opposed to insurance, you can apply for exemption by filing Form 4029 to waive all social security and Medicare benefits. Free tax return Employees. Free tax return   The social security and Medicare tax exemption available to the self-employed who are members of a recognized religious sect opposed to insurance is also available to their employees who are members of such a sect. Free tax return This applies to partnerships only if each partner is a member of the sect. Free tax return This exemption for employees applies only if both the employee and the employer are members of such a sect, and the employer has an exemption. Free tax return To get the exemption, the employee must file Form 4029. Free tax return   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes can also apply for an exemption on Form 4029. Free tax return 5. Free tax return Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Free tax return Publication 15-B discusses fringe benefits. Free tax return The following topics supplement those discussions. Free tax return Relocating for Temporary Work Assignments If an employee is given a temporary work assignment away from his or her regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 in Publication 15 (Circular E)) may be excludable from the employee's wages. Free tax return Generally, a temporary work assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Free tax return If the employee's new work assignment is indefinite, any living expenses reimbursed or paid by the employer (other than qualified moving expenses) must be included in the employee's wages as compensation. Free tax return For the travel expenses to be excludable: The new work location must be outside of the city or general area of the employee's regular work place or post of duty, The travel expenses must otherwise qualify as deductible by the employee, and The expenses must be for the period during which the employee is at the temporary work location. Free tax return If you reimburse or pay any personal expenses of an employee during his or her temporary work assignment, such as expenses for home leave for family members or for vacations, these amounts must be included in the employee's wages. Free tax return See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Free tax return These rules generally apply to temporary work assignments both inside and outside the U. Free tax return S. Free tax return Employee Achievement Awards Do not withhold federal income, social security, or Medicare taxes on the fair market value of an employee achievement award if it is excludable from your employee's gross income. Free tax return To be excludable from your employee's gross income, the award must be tangible personal property (not cash, gift certificates, or securities) given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised compensation. Free tax return Excludable employee achievement awards also are not subject to FUTA tax. Free tax return Limits. Free tax return   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Free tax return A higher limit of $1,600 applies to qualified plan awards. Free tax return Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Free tax return An award cannot be treated as a qualified plan award if the average cost per recipient of all awards under all of your qualified plans is more than $400. Free tax return   If during the year an employee receives awards not made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all awards to that employee cannot be more than $1,600. Free tax return The $400 and $1,600 limits cannot be added together to exclude more than $1,600 for the cost of awards to any one employee during the year. Free tax return Scholarship and Fellowship Payments Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient's gross income. Free tax return A qualified scholarship is any amount granted as a scholarship or fellowship that is used for: Tuition and fees required to enroll in, or to attend, an educational institution, or Fees, books, supplies, and equipment that are required for courses at the educational institution. Free tax return The exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research, or other services required as a condition of receiving the scholarship or tuition reduction. Free tax return These amounts are reportable on Form W-2. Free tax return However, the exclusion will still apply for any amount received under two specific programs—the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program—despite any service condition attached to those amounts. Free tax return Any amounts that you pay for room and board are not excludable from the recipient's gross income. Free tax return A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Free tax return For more information, see Publication 970, Tax Benefits for Education. Free tax return Outplacement Services If you provide outplacement services to your employees to help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of these benefits may be income to them and subject to all withholding taxes. Free tax return However, the value of these services will not be subject to any employment taxes if: You derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit that you would receive from the mere payment of additional compensation, and The employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them. Free tax return However, if you receive no additional benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is treated as wages and is subject to federal income tax withholding and social security and Medicare taxes. Free tax return Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes. Free tax return Withholding for Idle Time Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social security, Medicare, and FUTA taxes, and federal income tax withholding. Free tax return Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Free tax return If back pay was awarded by a court or government agency to enforce a federal or state statute protecting an employee's right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. Free tax return These rules also apply to litigation actions and settlement agreements or agency directives that are resolved out of court and not under a court decree or order. Free tax return Examples of pertinent statutes include, but are not limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and Age Discrimination in Employment Act. Free tax return See Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for details. Free tax return Supplemental Unemployment Benefits If you pay, under a plan, supplemental unemployment benefits to a former employee, all or part of the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. Free tax return Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Free tax return You should withhold federal income tax on the taxable part of the payments made, under a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or operation, or other similar condition. Free tax return It does not matter whether the separation is temporary or permanent. Free tax return There are special rules that apply in determining whether benefits qualify as supplemental unemployment benefits that are excluded from wages for social security, Medicare, and FUTA tax purposes. Free tax return To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Free tax return Benefits are paid only to unemployed former employees who are laid off by the employer. Free tax return Eligibility for benefits depends on meeting prescribed conditions after termination. Free tax return The amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state law, and the amount of regular weekly pay. Free tax return The right to benefits does not accrue until a prescribed period after termination. Free tax return Benefits are not attributable to the performance of particular services. Free tax return No employee has any right to the benefits until qualified and eligible to receive benefits. Free tax return Benefits may not be paid in a lump sum. Free tax return Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Free tax return Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Free tax return Under the agreement, the corporation agrees to pay certain amounts to its key personnel in the event of a change in ownership or control of the corporation. Free tax return Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Free tax return See Regulations section 1. Free tax return 280G-1 for more information. Free tax return No deduction is allowed to the corporation for any excess parachute payment. Free tax return To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Free tax return A parachute payment for purposes of section 280G is any payment that meets all of the following. Free tax return The payment is in the nature of compensation. Free tax return The payment is to, or for the benefit of, a disqualified individual. Free tax return A disqualified individual is anyone who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or highly compensated individual. Free tax return The payment is contingent on a change in ownership of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the assets of the corporation. Free tax return The payment has an aggregate present value of at least three times the individual's base amount. Free tax return The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Free tax return An excess parachute payment amount is the excess of any parachute payment over the base amount. Free tax return For more information, see Regulations section 1. Free tax return 280G-1. Free tax return The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Free tax return If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Free tax return Example. Free tax return An officer of a corporation receives a golden parachute payment of $400,000. Free tax return This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Free tax return The excess parachute payment is $300,000 ($400,000 minus $100,000). Free tax return The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Free tax return Reporting golden parachute payments. Free tax return   Golden parachute payments to employees must be reported on Form W-2. Free tax return See the General Instructions for Forms W-2 and W-3 for details. Free tax return For nonemployee reporting of these payments, see Box 7. Free tax return Nonemployee Compensation in the Instructions for Form 1099-MISC. Free tax return Exempt payments. Free tax return   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Free tax return See section 280G(b)(5) and (6) for more information. Free tax return Interest-Free and Below-Market-Interest-Rate Loans In general, if an employer lends an employee more than $10,000 at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. Free tax return This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Free tax return This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Free tax return Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Free tax return The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Free tax return You can get these rates by calling 1-800-829-4933 or by visiting IRS. Free tax return gov. Free tax return For more information, see section 7872 and its related regulations. Free tax return Leave Sharing Plans If you establish a leave sharing plan for your employees that allows them to transfer leave to other employees for medical emergencies, the amounts paid to the recipients of the leave are considered wages. Free tax return These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Free tax return Do not include these amounts in the income of the transferors. Free tax return These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Free tax return Nonqualified Deferred Compensation Plans Income Tax and Reporting Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income (to the extent not subject to a substantial risk of forfeiture and not previously included in gross income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things, elections to defer compensation and distributions under a NQDC plan. Free tax return Section 409A also includes rules that apply to certain trusts or similar arrangements associated with NQDC plans if the trusts or arrangements are located outside of the United States, are restricted to the provision of benefits in connection with a decline in the financial health of the plan sponsor, or contributions are made to the trust during certain periods such as when a qualified plan of the service recipient is underfunded. Free tax return Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Free tax return Other changes to the Internal Revenue Code provide that the deferrals under a NQDC plan must be reported separately on Form W-2 or Form 1099-MISC, whichever applies. Free tax return Specific rules for reporting are provided in the instructions to the forms. Free tax return The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Free tax return The provisions do not prevent the inclusion of amounts in income or wages under other provisions of the Internal Revenue Code or common law principles, such as when amounts are actually or constructively received or irrevocably contributed to a separate fund. Free tax return For more information about nonqualified deferred compensation plans, see Regulations sections 1. Free tax return 409A-1 through 1. Free tax return 409A-6. Free tax return Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Free tax return Notice 2008-113, 2008-51 I. Free tax return R. Free tax return B. Free tax return 1305, is available at www. Free tax return irs. Free tax return gov/irb/2008-51_IRB/ar12. Free tax return html. Free tax return Also see Notice 2010-6, 2010-3 I. Free tax return R. Free tax return B. Free tax return 275, available at www. Free tax return irs. Free tax return gov/irb/2010-03_IRB/ar08. Free tax return html and Notice 2010-80, 2010-51 I. Free tax return R. Free tax return B. Free tax return 853, available at www. Free tax return irs. Free tax return gov/irb/2010-51_IRB/ar08. Free tax return html. Free tax return Social security, Medicare, and FUTA taxes. Free tax return   Employer contributions to nonqualified deferred compensation (NQDC) plans, as defined in the applicable regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of forfeiting the right to the deferred compensation, whichever is later. Free tax return   Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that is deferred cannot be reasonably ascertained; for example, if benefits are based on final pay. Free tax return If the value of the future benefit is based on any factors that are not yet reasonably ascertainable, you may choose to estimate the value of the future benefit and withhold and pay social security, Medicare, and FUTA taxes on that amount. Free tax return You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Free tax return If taxes are not paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable they are subject to social security, Medicare, and FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. Free tax return For more information, see Regulations sections 31. Free tax return 3121(v)(2)-1 and 31. Free tax return 3306(r)(2)-1. Free tax return Tax-Sheltered Annuities Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's social security and Medicare wages, if the payments are made because of a salary reduction agreement. Free tax return However, they are not included in box 1 on Form W-2 in the year the deferrals are made and are not subject to federal income tax withholding. Free tax return See Regulations section 31. Free tax return 3121(a)(5)-2 for the definition of a salary reduction agreement. Free tax return Contributions to a Simplified Employee Pension (SEP) An employer's SEP contributions to an employee's individual retirement arrangement (IRA) are excluded from the employee's gross income. Free tax return These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Free tax return However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Free tax return See Publication 560 for more information about SEPs. Free tax return Salary reduction simplified employee pensions (SARSEP) repealed. Free tax return   You may not establish a SARSEP after 1996. Free tax return However, SARSEPs established before January 1, 1997, may continue to receive contributions. Free tax return SIMPLE Retirement Plans Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee's income and are exempt from federal income tax withholding. Free tax return An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Free tax return However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Free tax return For more information about SIMPLE retirement plans, see Publication 560. Free tax return 6. Free tax return Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Free tax return Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Free tax return gov in December 2014. Free tax return Special rules apply to the reporting of sick pay payments to employees. Free tax return How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Free tax return Sick pay is usually subject to social security, Medicare, and FUTA taxes. Free tax return For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Free tax return Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Free tax return Sick Pay Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. Free tax return It may be paid by either the employer or a third party, such as an insurance company. Free tax return Sick pay includes both short- and long-term benefits. Free tax return It is often expressed as a percentage of the employee's regular wages. Free tax return Payments That Are Not Sick Pay Sick pay does not include the following payments. Free tax return Disability retirement payments. Free tax return Disability retirement payments are not sick pay and are not discussed in this section. Free tax return Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Free tax return See section 8. Free tax return Workers' compensation. Free tax return Payments because of a work-related injury or sickness that are made under a workers' compensation law are not sick pay and are not subject to employment taxes. Free tax return But see Payments in the nature of workers' compensation—public employees next. Free tax return Payments in the nature of workers' compensation—public employees. Free tax return State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in the line of duty under a statute that is not the general workers' compensation law of a state. Free tax return If the statute limits benefits to work-related injuries or sickness and does not base payments on the employee's age, length of service, or prior contributions, the statute is “in the nature of” a workers' compensation law. Free tax return Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Free tax return For more information, see Regulations section 31. Free tax return 3121(a)(2)-1. Free tax return Medical expense payments. Free tax return Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses, are not sick pay and are not subject to employment taxes. Free tax return Payments unrelated to absence from work. Free tax return Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Free tax return These include payments for: Permanent loss of a member or function of the body, Permanent loss of the use of a member or function of the body, or Permanent disfigurement of the body. Free tax return Example. Free tax return Donald was injured in a car accident and lost an eye. Free tax return Under a policy paid for by Donald's employer, Delta Insurance Co. Free tax return paid Donald $20,000 as compensation for the loss of his eye. Free tax return Because the payment was determined by the type of injury and was unrelated to Donald's absence from work, it is not sick pay and is not subject to federal employment taxes. Free tax return Sick Pay Plan A sick pay plan is a plan or system established by an employer under which sick pay is available to employees generally or to a class or classes of employees. Free tax return This does not include a situation in which benefits are provided on a discretionary or occasional basis with merely an intention to aid particular employees in time of need. Free tax return You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by a bulletin board notice or your long and established practice. Free tax return Some indications that you have a sick pay plan or system include references to the plan or system in the contract of employment, employer contributions to a plan, or segregated accounts for the payment of benefits. Free tax return Definition of employer. Free tax return   The employer for whom the employee normally works, a term used in the following discussion, is either the employer for whom the employee was working at the time that the employee became sick or disabled or the last employer for whom the employee worked before becoming sick or disabled, if that employer made contributions to the sick pay plan on behalf of the sick or disabled employee. Free tax return Note. Free tax return Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee contributions (that is, included in taxable wages). Free tax return Third-Party Payers of Sick Pay Employer's agent. Free tax return   An employer's agent is a third party that bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts. Free tax return A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Free tax return For example, if a third party provides administrative services only, the third party is your agent. Free tax return If the third party is paid an insurance premium and is not reimbursed on a cost-plus-fee basis, the third party is not your agent. Free tax return Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Free tax return   A third party that makes payments of sick pay as your agent is not considered the employer and generally has no responsibility for employment taxes. Free tax return This responsibility remains with you. Free tax return However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Free tax return In this situation, the third-party agent should use its own name and EIN (rather than your name and EIN) for the responsibilities that it has assumed. Free tax return Third party not employer's agent. Free tax return   A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the social security and Medicare taxes. Free tax return   The third party is also liable for the employer part of the social security and Medicare taxes, and the FUTA tax, unless the third party transfers this liability to the employer for whom the employee normally works. Free tax return This liability is transferred if the third party takes the following steps. Free tax return Withholds the employee social security and Medicare taxes from the sick pay payments. Free tax return Makes timely deposits of the employee social security and Medicare taxes. Free tax return Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Free tax return The third party must notify the employer within the time required for the third party's deposit of the employee part of the social security and Medicare taxes. Free tax return For instance, if the third party is a monthly schedule depositor, it must notify the employer by the 15th day of the month following the month in which the sick pay payment is made because that is the day by which the deposit is required to be made. Free tax return The third party should notify the employer as soon as information on payments is available so that an employer required to make electronic deposits can make them timely. Free tax return For multi-employer plans, see the special rule discussed next. Free tax return Multi-employer plan timing rule. Free tax return   A special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a multi-employer plan established under a collectively bargained agreement. Free tax return If the third-party insurer making the payments complies wi