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Freefile Irs Gov

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Freefile Irs Gov

Freefile irs gov 6. Freefile irs gov   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. Freefile irs gov  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). Freefile irs gov For more information, see the retiree drug subsidy frequently asked questions on IRS. Freefile irs gov gov. Freefile irs gov Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. Freefile irs gov However, you may have to capitalize certain insurance costs under the uniform capitalization rules. Freefile irs gov For more information, see Capitalized Premiums , later. Freefile irs gov Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. Freefile irs gov S. Freefile irs gov Individual Income Tax Return See chapter 12 for information about getting publications and forms. Freefile irs gov Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. Freefile irs gov Insurance that covers fire, storm, theft, accident, or similar losses. Freefile irs gov Credit insurance that covers losses from business bad debts. Freefile irs gov Group hospitalization and medical insurance for employees, including long-term care insurance. Freefile irs gov If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. Freefile irs gov If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. Freefile irs gov See Publication 15-B. Freefile irs gov Liability insurance. Freefile irs gov Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Freefile irs gov Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Freefile irs gov If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. Freefile irs gov If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. Freefile irs gov Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Freefile irs gov Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Freefile irs gov Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Freefile irs gov If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Freefile irs gov If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Freefile irs gov Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. Freefile irs gov Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Freefile irs gov Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. Freefile irs gov The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Freefile irs gov A child includes your son, daughter, stepchild, adopted child, or foster child. Freefile irs gov A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Freefile irs gov One of the following statements must be true. Freefile irs gov You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. Freefile irs gov You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Freefile irs gov , box 14, code A. Freefile irs gov You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. Freefile irs gov You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Freefile irs gov Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. Freefile irs gov The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. Freefile irs gov For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. Freefile irs gov For partners, a policy can be either in the name of the partnership or in the name of the partner. Freefile irs gov You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Freefile irs gov However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Freefile irs gov Otherwise, the insurance plan will not be considered to be established under your business. Freefile irs gov For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. Freefile irs gov You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. Freefile irs gov However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Freefile irs gov Otherwise, the insurance plan will not be considered to be established under your business. Freefile irs gov Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Freefile irs gov If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. Freefile irs gov For more information, see Form 1040X, Amended U. Freefile irs gov S. Freefile irs gov Individual Income Tax Return. Freefile irs gov Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Freefile irs gov Take the deduction on Form 1040, line 29. Freefile irs gov Qualified long-term care insurance. Freefile irs gov   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. Freefile irs gov But, for each person covered, you can include only the smaller of the following amounts. Freefile irs gov The amount paid for that person. Freefile irs gov The amount shown below. Freefile irs gov Use the person's age at the end of the tax year. Freefile irs gov Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. Freefile irs gov   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. Freefile irs gov The contract must meet all the following requirements. Freefile irs gov It must be guaranteed renewable. Freefile irs gov It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. Freefile irs gov It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. Freefile irs gov It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Freefile irs gov Qualified long-term care services. Freefile irs gov   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. Freefile irs gov The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. Freefile irs gov Worksheet 6-A. Freefile irs gov Self-Employed Health Insurance Deduction Worksheet Note. Freefile irs gov Use a separate worksheet for each trade or business under which an insurance plan is established. Freefile irs gov 1. Freefile irs gov Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. Freefile irs gov Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Freefile irs gov But do not include the following. Freefile irs gov   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Freefile irs gov Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. Freefile irs gov Any amounts you included on Form 8885, line 4. Freefile irs gov Any qualified health insurance premiums you paid to “U. Freefile irs gov S. Freefile irs gov Treasury-HCTC. Freefile irs gov ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. Freefile irs gov Any payments for qualified long-term care insurance (see line 2) 1. Freefile irs gov   2. Freefile irs gov For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. Freefile irs gov       a) Total payments made for that person during the year. Freefile irs gov       b) The amount shown below. Freefile irs gov Use the person's age at the end of the tax year. Freefile irs gov         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Freefile irs gov If more than one person is covered, figure separately the amount to enter for each person. Freefile irs gov Then enter the total of those amounts 2. Freefile irs gov   3. Freefile irs gov Add lines 1 and 2 3. Freefile irs gov   4. Freefile irs gov Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. Freefile irs gov Do not include Conservation Reserve Program payments exempt from self-employment tax. Freefile irs gov If the business is an S corporation, skip to line 11 4. Freefile irs gov   5. Freefile irs gov Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. Freefile irs gov Do not include Conservation Reserve Program payments exempt from self-employment tax. Freefile irs gov See the Instructions for Schedule SE (Form 1040). Freefile irs gov Do not include any net losses shown on these schedules. Freefile irs gov 5. Freefile irs gov   6. Freefile irs gov Divide line 4 by line 5 6. Freefile irs gov   7. Freefile irs gov Multiply Form 1040, line 27, by the percentage on line 6 7. Freefile irs gov   8. Freefile irs gov Subtract line 7 from line 4 8. Freefile irs gov   9. Freefile irs gov Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. Freefile irs gov   10. Freefile irs gov Subtract line 9 from line 8 10. Freefile irs gov   11. Freefile irs gov Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. Freefile irs gov   12. Freefile irs gov Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. Freefile irs gov   13. Freefile irs gov Subtract line 12 from line 10 or 11, whichever applies 13. Freefile irs gov   14. Freefile irs gov Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. Freefile irs gov Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). Freefile irs gov 14. Freefile irs gov   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. Freefile irs gov Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. Freefile irs gov * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. Freefile irs gov However, it does not include capital gain income. Freefile irs gov Chronically ill individual. Freefile irs gov   A chronically ill individual is a person who has been certified as one of the following. Freefile irs gov An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. Freefile irs gov Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. Freefile irs gov An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Freefile irs gov The certification must have been made by a licensed health care practitioner within the previous 12 months. Freefile irs gov Benefits received. Freefile irs gov   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. Freefile irs gov Other coverage. Freefile irs gov   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. Freefile irs gov In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. Freefile irs gov   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. Freefile irs gov However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. Freefile irs gov Effect on itemized deductions. Freefile irs gov   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. Freefile irs gov Effect on self-employment tax. Freefile irs gov   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. Freefile irs gov For more information, see Schedule SE (Form 1040). Freefile irs gov How to figure the deduction. Freefile irs gov   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Freefile irs gov However, if any of the following apply, you must use Worksheet 6-A in this chapter. Freefile irs gov You had more than one source of income subject to self-employment tax. Freefile irs gov You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Freefile irs gov You are using amounts paid for qualified long-term care insurance to figure the deduction. Freefile irs gov If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. Freefile irs gov Health coverage tax credit. Freefile irs gov   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. Freefile irs gov Use Form 8885 to figure the amount, if any, of this credit. Freefile irs gov   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. Freefile irs gov Any amounts you included on Form 8885, line 4. Freefile irs gov Any qualified health insurance premiums you paid to “U. Freefile irs gov S. Freefile irs gov Treasury-HCTC. Freefile irs gov ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Freefile irs gov More than one health plan and business. Freefile irs gov   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Freefile irs gov Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). Freefile irs gov For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. Freefile irs gov Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. Freefile irs gov Self-insurance reserve funds. Freefile irs gov You cannot deduct amounts credited to a reserve set up for self-insurance. Freefile irs gov This applies even if you cannot get business insurance coverage for certain business risks. Freefile irs gov However, your actual losses may be deductible. Freefile irs gov See Publication 547. Freefile irs gov Loss of earnings. Freefile irs gov You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. Freefile irs gov However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. Freefile irs gov Certain life insurance and annuities. Freefile irs gov For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Freefile irs gov You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Freefile irs gov A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Freefile irs gov For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Freefile irs gov The disallowance applies without regard to whom the policy covers. Freefile irs gov Partners. Freefile irs gov If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. Freefile irs gov You cannot deduct the insurance premiums. Freefile irs gov Insurance to secure a loan. Freefile irs gov If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Freefile irs gov Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Freefile irs gov In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. Freefile irs gov Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Freefile irs gov Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Freefile irs gov You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Freefile irs gov Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. Freefile irs gov Uniform capitalization rules. Freefile irs gov   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Freefile irs gov Produce real property or tangible personal property. Freefile irs gov For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Freefile irs gov Acquire property for resale. Freefile irs gov However, these rules do not apply to the following property. Freefile irs gov Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Freefile irs gov Property you produce if you meet either of the following conditions. Freefile irs gov Your indirect costs of producing the property are $200,000 or less. Freefile irs gov You use the cash method of accounting and do not account for inventories. Freefile irs gov More information. Freefile irs gov   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Freefile irs gov When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. Freefile irs gov Cash method. Freefile irs gov   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. Freefile irs gov However, see Prepayment , later. Freefile irs gov Accrual method. Freefile irs gov   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. Freefile irs gov In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). Freefile irs gov For more information about the accrual method of accounting, see chapter 1. Freefile irs gov For information about the exception for recurring items, see Publication 538. Freefile irs gov Prepayment. Freefile irs gov   You cannot deduct expenses in advance, even if you pay them in advance. Freefile irs gov This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Freefile irs gov   Expenses such as insurance are generally allocable to a period of time. Freefile irs gov You can deduct insurance expenses for the year to which they are allocable. Freefile irs gov Example. Freefile irs gov In 2013, you signed a 3-year insurance contract. Freefile irs gov Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Freefile irs gov You can deduct in 2014 and 2015 the premium allocable to those years. Freefile irs gov Dividends received. Freefile irs gov   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. Freefile irs gov For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. Freefile irs gov Prev  Up  Next   Home   More Online Publications
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The Freefile Irs Gov

Freefile irs gov 1. Freefile irs gov   Definitions You Need To Know Table of Contents Other options. Freefile irs gov Exception. Freefile irs gov Certain terms used in this publication are defined below. Freefile irs gov The same term used in another publication may have a slightly different meaning. Freefile irs gov Annual additions. Freefile irs gov   Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. Freefile irs gov Annual benefits. Freefile irs gov   Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. Freefile irs gov Business. Freefile irs gov   A business is an activity in which a profit motive is present and economic activity is involved. Freefile irs gov Service as a newspaper carrier under age 18 or as a public official is not a business. Freefile irs gov Common-law employee. Freefile irs gov   A common-law employee is any individual who, under common law, would have the status of an employee. Freefile irs gov A leased employee can also be a common-law employee. Freefile irs gov   A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. Freefile irs gov For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. Freefile irs gov   Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. Freefile irs gov For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. Freefile irs gov S. Freefile irs gov citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. Freefile irs gov   However, an individual may be a common-law employee and a self-employed person as well. Freefile irs gov For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. Freefile irs gov In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. Freefile irs gov However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. Freefile irs gov Compensation. Freefile irs gov   Compensation for plan allocations is the pay a participant received from you for personal services for a year. Freefile irs gov You can generally define compensation as including all the following payments. Freefile irs gov Wages and salaries. Freefile irs gov Fees for professional services. Freefile irs gov Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. Freefile irs gov Commissions and tips. Freefile irs gov Fringe benefits. Freefile irs gov Bonuses. Freefile irs gov   For a self-employed individual, compensation means the earned income, discussed later, of that individual. Freefile irs gov   Compensation generally includes amounts deferred in the following employee benefit plans. Freefile irs gov These amounts are elective deferrals. Freefile irs gov Qualified cash or deferred arrangement (section 401(k) plan). Freefile irs gov Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. Freefile irs gov Section 457 nonqualified deferred compensation plan. Freefile irs gov Section 125 cafeteria plan. Freefile irs gov   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. Freefile irs gov The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. Freefile irs gov Other options. Freefile irs gov   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. Freefile irs gov The employee's wages as defined for income tax withholding purposes. Freefile irs gov The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. Freefile irs gov The employee's social security wages (including elective deferrals). Freefile irs gov   Compensation generally cannot include either of the following items. Freefile irs gov Nontaxable reimbursements or other expense allowances. Freefile irs gov Deferred compensation (other than elective deferrals). Freefile irs gov SIMPLE plans. Freefile irs gov   A special definition of compensation applies for SIMPLE plans. Freefile irs gov See chapter 3. Freefile irs gov Contribution. Freefile irs gov   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. Freefile irs gov Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. Freefile irs gov Deduction. Freefile irs gov   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. Freefile irs gov Limits apply to the amount deductible. Freefile irs gov Earned income. Freefile irs gov   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. Freefile irs gov   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. Freefile irs gov Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. Freefile irs gov It includes income from licensing the use of property other than goodwill. Freefile irs gov   Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. Freefile irs gov   If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. Freefile irs gov Employer. Freefile irs gov   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. Freefile irs gov A sole proprietor is treated as his or her own employer for retirement plan purposes. Freefile irs gov However, a partner is not an employer for retirement plan purposes. Freefile irs gov Instead, the partnership is treated as the employer of each partner. Freefile irs gov Highly compensated employee. Freefile irs gov   A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. Freefile irs gov Leased employee. Freefile irs gov   A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. Freefile irs gov Provides services to you under an agreement between you and a leasing organization. Freefile irs gov Has performed services for you (or for you and related persons) substantially full time for at least 1 year. Freefile irs gov Performs services under your primary direction or control. Freefile irs gov Exception. Freefile irs gov   A leased employee is not treated as your employee if all the following conditions are met. Freefile irs gov Leased employees are not more than 20% of your non-highly compensated work force. Freefile irs gov The employee is covered under the leasing organization's qualified pension plan. Freefile irs gov The leasing organization's plan is a money purchase pension plan that has all the following provisions. Freefile irs gov Immediate participation. Freefile irs gov (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. Freefile irs gov ) Full and immediate vesting. Freefile irs gov A nonintegrated employer contribution rate of at least 10% of compensation for each participant. Freefile irs gov However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. Freefile irs gov Net earnings from self-employment. Freefile irs gov   For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. Freefile irs gov Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. Freefile irs gov   Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. Freefile irs gov   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. Freefile irs gov You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. Freefile irs gov   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). Freefile irs gov It does not include income passed through to shareholders of S corporations. Freefile irs gov Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. Freefile irs gov Distributions of other income or loss to limited partners are not net earnings from self-employment. Freefile irs gov   For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. Freefile irs gov Qualified plan. Freefile irs gov   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. Freefile irs gov You can deduct contributions made to the plan for your employees. Freefile irs gov Earnings on these contributions are generally tax free until distributed at retirement. Freefile irs gov Profit-sharing, money purchase, and defined benefit plans are qualified plans. Freefile irs gov A 401(k) plan is also a qualified plan. Freefile irs gov Participant. Freefile irs gov   A participant is an eligible employee who is covered by your retirement plan. Freefile irs gov See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. Freefile irs gov Partner. Freefile irs gov   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. Freefile irs gov For retirement plans, a partner is treated as an employee of the partnership. Freefile irs gov Self-employed individual. Freefile irs gov   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. Freefile irs gov Sole proprietors and partners are self-employed. Freefile irs gov Self-employment can include part-time work. Freefile irs gov   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. Freefile irs gov See Common-law employee and Net earnings from self-employment , earlier. Freefile irs gov   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. Freefile irs gov See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. Freefile irs gov Sole proprietor. Freefile irs gov   A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. Freefile irs gov For retirement plans, a sole proprietor is treated as both an employer and an employee. Freefile irs gov Prev  Up  Next   Home   More Online Publications