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Irs Efile

Irs efile 4. Irs efile   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. Irs efile Loan secured by benefits. Irs efile Waiver of survivor benefits. Irs efile Waiver of 30-day waiting period before annuity starting date. Irs efile Involuntary cash-out of benefits not more than dollar limit. Irs efile Exception for certain loans. Irs efile Exception for QDRO. Irs efile SIMPLE and safe harbor 401(k) plan exception. Irs efile Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Irs efile Installment percentage. Irs efile Extended period for making contributions. Irs efile ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. Irs efile Caution: Form 5500-EZ not required. Irs efile Form 5500. Irs efile Electronic filing of Forms 5500 and 5500-SF. Irs efile Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. Irs efile dol. Irs efile gov/ebsa/pdf/2013-5500. Irs efile pdf www. Irs efile dol. Irs efile gov/ebsa/pdf/2013-5500-SF. Irs efile pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Irs efile 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Irs efile 1040 U. Irs efile S. Irs efile Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. Irs efile For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. Irs efile For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. Irs efile R. Irs efile 10 plans. Irs efile A sole proprietor or a partnership can set up one of these plans. Irs efile A common-law employee or a partner cannot set up one of these plans. Irs efile The plans described here can also be set up and maintained by employers that are corporations. Irs efile All the rules discussed here apply to corporations except where specifically limited to the self-employed. Irs efile The plan must be for the exclusive benefit of employees or their beneficiaries. Irs efile These qualified plans can include coverage for a self-employed individual. Irs efile As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Irs efile The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Irs efile Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Irs efile You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. Irs efile Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Irs efile It provides benefits to a participant largely based on the amount contributed to that participant's account. Irs efile Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Irs efile A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Irs efile Profit-sharing plan. Irs efile   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). Irs efile A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Irs efile An employer may even make no contribution to the plan for a given year. Irs efile   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. Irs efile   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). Irs efile Money purchase pension plan. Irs efile   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Irs efile For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. Irs efile This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Irs efile Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Irs efile Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Irs efile Actuarial assumptions and computations are required to figure these contributions. Irs efile Generally, you will need continuing professional help to have a defined benefit plan. Irs efile Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Irs efile Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. Irs efile The following is a brief overview of important qualification rules that generally have not yet been discussed. Irs efile It is not intended to be all-inclusive. Irs efile See Setting Up a Qualified Plan , later. Irs efile Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Irs efile A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. Irs efile Plan assets must not be diverted. Irs efile   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. Irs efile As a general rule, the assets cannot be diverted to the employer. Irs efile Minimum coverage requirement must be met. Irs efile   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Irs efile 50 employees, or The greater of: 40% of all employees, or Two employees. Irs efile If there is only one employee, the plan must benefit that employee. Irs efile Contributions or benefits must not discriminate. Irs efile   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Irs efile Contributions and benefits must not be more than certain limits. Irs efile   Your plan must not provide for contributions or benefits that are more than certain limits. Irs efile The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. Irs efile These limits are discussed later in this chapter under Contributions. Irs efile Minimum vesting standard must be met. Irs efile   Your plan must satisfy certain requirements regarding when benefits vest. Irs efile A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Irs efile A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Irs efile Special rules apply to forfeited benefit amounts. Irs efile In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. Irs efile   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Irs efile Forfeitures must be used instead to reduce employer contributions. Irs efile Participation. Irs efile   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Irs efile Has reached age 21. Irs efile Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). Irs efile A plan cannot exclude an employee because he or she has reached a specified age. Irs efile Leased employee. Irs efile   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. Irs efile These rules include those in all the following areas. Irs efile Nondiscrimination in coverage, contributions, and benefits. Irs efile Minimum age and service requirements. Irs efile Vesting. Irs efile Limits on contributions and benefits. Irs efile Top-heavy plan requirements. Irs efile Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Irs efile Benefit payment must begin when required. Irs efile   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. Irs efile The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Irs efile The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Irs efile The plan year in which the participant separates from service. Irs efile Early retirement. Irs efile   Your plan can provide for payment of retirement benefits before the normal retirement age. Irs efile If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. Irs efile Satisfies the service requirement for the early retirement benefit. Irs efile Separates from service with a nonforfeitable right to an accrued benefit. Irs efile The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Irs efile Required minimum distributions. Irs efile   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Irs efile See Required Distributions , under Distributions, later. Irs efile Survivor benefits. Irs efile   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Irs efile A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Irs efile A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Irs efile   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Irs efile The participant does not choose benefits in the form of a life annuity. Irs efile The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. Irs efile The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Irs efile Loan secured by benefits. Irs efile   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. Irs efile Waiver of survivor benefits. Irs efile   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. Irs efile The plan also must allow the participant to withdraw the waiver. Irs efile The spouse's consent must be witnessed by a plan representative or notary public. Irs efile Waiver of 30-day waiting period before annuity starting date. Irs efile    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. Irs efile   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Irs efile Involuntary cash-out of benefits not more than dollar limit. Irs efile   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. Irs efile   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. Irs efile If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. Irs efile   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Irs efile   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. Irs efile A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Irs efile See Section 402(f) Notice under Distributions, later, for more details. Irs efile Consolidation, merger, or transfer of assets or liabilities. Irs efile   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. Irs efile (if the plan had then terminated). Irs efile Benefits must not be assigned or alienated. Irs efile   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. Irs efile Exception for certain loans. Irs efile   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. Irs efile A disqualified person is defined later in this chapter under Prohibited Transactions. Irs efile Exception for QDRO. Irs efile   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Irs efile   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. Irs efile Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. Irs efile No benefit reduction for social security increases. Irs efile   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. Irs efile This rule also applies to plans supplementing the benefits provided by other federal or state laws. Irs efile Elective deferrals must be limited. Irs efile   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Irs efile See Limit on Elective Deferrals later in this chapter. Irs efile Top-heavy plan requirements. Irs efile   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Irs efile   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. Irs efile Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Irs efile   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. Irs efile These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Irs efile SIMPLE and safe harbor 401(k) plan exception. Irs efile   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. Irs efile QACAs (discussed later) also are not subject to top-heavy requirements. Irs efile Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Irs efile First you adopt a written plan. Irs efile Then you invest the plan assets. Irs efile You, the employer, are responsible for setting up and maintaining the plan. Irs efile If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Irs efile If you have employees, see Participation, under Qualification Rules, earlier. Irs efile Set-up deadline. Irs efile   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). Irs efile Credit for startup costs. Irs efile   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. Irs efile For more information, see Credit for startup costs under Reminders, earlier. Irs efile Adopting a Written Plan You must adopt a written plan. Irs efile The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Irs efile Or it can be an individually designed plan. Irs efile Written plan requirement. Irs efile   To qualify, the plan you set up must be in writing and must be communicated to your employees. Irs efile The plan's provisions must be stated in the plan. Irs efile It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Irs efile Master or prototype plans. Irs efile   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Irs efile Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Irs efile Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. Irs efile Under a prototype plan, a separate trust or custodial account is established for each employer. Irs efile Plan providers. Irs efile   The following organizations generally can provide IRS-approved master or prototype plans. Irs efile Banks (including some savings and loan associations and federally insured credit unions). Irs efile Trade or professional organizations. Irs efile Insurance companies. Irs efile Mutual funds. Irs efile Individually designed plan. Irs efile   If you prefer, you can set up an individually designed plan to meet specific needs. Irs efile Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Irs efile You may need professional help for this. Irs efile See Rev. Irs efile Proc. Irs efile 2014-6, 2014-1 I. Irs efile R. Irs efile B. Irs efile 198, available at www. Irs efile irs. Irs efile gov/irb/2014-1_IRB/ar10. Irs efile html, as annually updated, that may help you decide whether to apply for approval. Irs efile Internal Revenue Bulletins are available on the IRS website at IRS. Irs efile gov They are also available at most IRS offices and at certain libraries. Irs efile User fee. Irs efile   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. Irs efile At least one of them must be a non-highly compensated employee participating in the plan. Irs efile The fee does not apply to requests made by the later of the following dates. Irs efile The end of the 5th plan year the plan is in effect. Irs efile The end of any remedial amendment period for the plan that begins within the first 5 plan years. Irs efile The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Irs efile   For more information about whether the user fee applies, see Rev. Irs efile Proc. Irs efile 2014-8, 2014-1 I. Irs efile R. Irs efile B. Irs efile 242, available at www. Irs efile irs. Irs efile gov/irb/2014-1_IRB/ar12. Irs efile html, as may be annually updated; Notice 2003-49, 2003-32 I. Irs efile R. Irs efile B. Irs efile 294, available at www. Irs efile irs. Irs efile gov/irb/2003-32_IRB/ar13. Irs efile html; and Notice 2011-86, 2011-45 I. Irs efile R. Irs efile B. Irs efile 698, available at www. Irs efile irs. Irs efile gov/irb/2011-45_IRB/ar11. Irs efile html. Irs efile Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Irs efile You can establish a trust or custodial account to invest the funds. Irs efile You, the trust, or the custodial account can buy an annuity contract from an insurance company. Irs efile Life insurance can be included only if it is incidental to the retirement benefits. Irs efile You set up a trust by a legal instrument (written document). Irs efile You may need professional help to do this. Irs efile You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. Irs efile You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. Irs efile If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Irs efile Other plan requirements. Irs efile   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Irs efile Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. Irs efile Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. Irs efile For information on this funding requirement, see section 412 and its regulations. Irs efile Quarterly installments of required contributions. Irs efile   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. Irs efile If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Irs efile Due dates. Irs efile   The due dates for the installments are 15 days after the end of each quarter. Irs efile For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Irs efile Installment percentage. Irs efile   Each quarterly installment must be 25% of the required annual payment. Irs efile Extended period for making contributions. Irs efile   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. Irs efile Contributions A qualified plan is generally funded by your contributions. Irs efile However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Irs efile See Employee Contributions and Elective Deferrals later. Irs efile Contributions deadline. Irs efile   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Irs efile Self-employed individual. Irs efile   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Irs efile Your net earnings must be from your personal services, not from your investments. Irs efile If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. Irs efile Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Irs efile There are also limits on the amount you can deduct. Irs efile See Deduction Limits , later. Irs efile Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Irs efile The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Irs efile Defined benefit plan. Irs efile   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Irs efile 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Irs efile $205,000 ($210,000 for 2014). Irs efile Defined contribution plan. Irs efile   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. Irs efile 100% of the participant's compensation. Irs efile $51,000 ($52,000 for 2014). Irs efile   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Irs efile Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Irs efile Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Irs efile Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. Irs efile See Regulations sections 1. Irs efile 401(k)-2 and 1. Irs efile 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Irs efile When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Irs efile But you can apply them to the previous year if all the following requirements are met. Irs efile You make them by the due date of your tax return for the previous year (plus extensions). Irs efile The plan was established by the end of the previous year. Irs efile The plan treats the contributions as though it had received them on the last day of the previous year. Irs efile You do either of the following. Irs efile You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Irs efile You deduct the contributions on your tax return for the previous year. Irs efile A partnership shows contributions for partners on Form 1065. Irs efile Employer's promissory note. Irs efile   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Irs efile Also, issuing this note is a prohibited transaction subject to tax. Irs efile See Prohibited Transactions , later. Irs efile Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Irs efile The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Irs efile Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Irs efile Defined contribution plans. Irs efile   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. Irs efile If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Irs efile See Deduction Limit for Self-Employed Individuals , later. Irs efile   When figuring the deduction limit, the following rules apply. Irs efile Elective deferrals (discussed later) are not subject to the limit. Irs efile Compensation includes elective deferrals. Irs efile The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Irs efile Defined benefit plans. Irs efile   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Irs efile Consequently, an actuary must figure your deduction limit. Irs efile    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. Irs efile Table 4–1. Irs efile Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. Irs efile Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Irs efile Compensation is your net earnings from self-employment, defined in chapter 1. Irs efile This definition takes into account both the following items. Irs efile The deduction for the deductible part of your self-employment tax. Irs efile The deduction for contributions on your behalf to the plan. Irs efile The deduction for your own contributions and your net earnings depend on each other. Irs efile For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Irs efile To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Irs efile Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Irs efile Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Irs efile For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. Irs efile Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Irs efile (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Irs efile ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Irs efile Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Irs efile For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Irs efile However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Irs efile See Deduction Limit for Self-Employed Individuals, earlier. Irs efile The amount you carry over and deduct may be subject to the excise tax discussed next. Irs efile Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Irs efile Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. Irs efile In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Irs efile Special rule for self-employed individuals. Irs efile   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Irs efile Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. Irs efile See Minimum Funding Requirement , earlier. Irs efile Reporting the tax. Irs efile   You must report the tax on your nondeductible contributions on Form 5330. Irs efile Form 5330 includes a computation of the tax. Irs efile See the separate instructions for completing the form. Irs efile Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. Irs efile A plan with this type of arrangement is popularly known as a “401(k) plan. Irs efile ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Irs efile ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Irs efile In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Irs efile A profit-sharing plan. Irs efile A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Irs efile Partnership. Irs efile   A partnership can have a 401(k) plan. Irs efile Restriction on conditions of participation. Irs efile   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Irs efile Matching contributions. Irs efile   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Irs efile For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. Irs efile Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Irs efile Nonelective contributions. Irs efile   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Irs efile These are called nonelective contributions. Irs efile Employee compensation limit. Irs efile   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Irs efile This limit is $260,000 in 2014. Irs efile SIMPLE 401(k) plan. Irs efile   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. Irs efile A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Irs efile For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Irs efile Distributions. Irs efile   Certain rules apply to distributions from 401(k) plans. Irs efile See Distributions From 401(k) Plans , later. Irs efile Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Irs efile This limit applies without regard to community property laws. Irs efile Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Irs efile For 2013 and 2014, the basic limit on elective deferrals is $17,500. Irs efile This limit applies to all salary reduction contributions and elective deferrals. Irs efile If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Irs efile Catch-up contributions. Irs efile   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Irs efile The catch-up contribution limit for 2013 and 2014 is $5,500. Irs efile Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). Irs efile However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Irs efile The catch-up contribution limit. Irs efile The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Irs efile Treatment of contributions. Irs efile   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Irs efile Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Irs efile Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Irs efile Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Irs efile Forfeiture. Irs efile   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Irs efile Reporting on Form W-2. Irs efile   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Irs efile You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Irs efile You must also include them in box 12. Irs efile Mark the “Retirement plan” checkbox in box 13. Irs efile For more information, see the Form W-2 instructions. Irs efile Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Irs efile Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. Irs efile These contributions are elective deferrals. Irs efile An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Irs efile For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Irs efile Eligible automatic contribution arrangement. Irs efile   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. Irs efile This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Irs efile There is no required deferral percentage. Irs efile Withdrawals. Irs efile   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Irs efile The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Irs efile The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Irs efile   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. Irs efile The additional 10% tax on early distributions will not apply to the distribution. Irs efile Notice requirement. Irs efile   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. Irs efile The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. Irs efile The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. Irs efile The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Irs efile Qualified automatic contribution arrangement. Irs efile    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Irs efile It contains an automatic enrollment feature, and mandatory employer contributions are required. Irs efile If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Irs efile Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Irs efile Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. Irs efile In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Irs efile If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Irs efile It must be applied uniformly. Irs efile It must not exceed 10%. Irs efile It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Irs efile It must increase to at least 4% in the following plan year. Irs efile It must increase to at least 5% in the following plan year. Irs efile It must increase to at least 6% in subsequent plan years. Irs efile Matching or nonelective contributions. Irs efile   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Irs efile Matching contributions. Irs efile You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Irs efile An amount equal to 100% of elective deferrals, up to 1% of compensation. Irs efile An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Irs efile Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Irs efile The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Irs efile Nonelective contributions. Irs efile You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. Irs efile Vesting requirements. Irs efile   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. Irs efile These contributions are subject to special withdrawal restrictions, discussed later. Irs efile Notice requirements. Irs efile   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. Irs efile The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Irs efile The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. Irs efile Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Irs efile The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. Irs efile Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. Irs efile He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. Irs efile The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Irs efile Excess withdrawn by April 15. Irs efile   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. Irs efile However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Irs efile The distribution is not subject to the additional 10% tax on early distributions. Irs efile   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. Irs efile   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. Irs efile Excess not withdrawn by April 15. Irs efile   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. Irs efile In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Irs efile Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. Irs efile Reporting corrective distributions on Form 1099-R. Irs efile   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Irs efile For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Irs efile Tax on excess contributions of highly compensated employees. Irs efile   The law provides tests to detect discrimination in a plan. Irs efile If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. Irs efile Report the tax on Form 5330. Irs efile The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Irs efile Also, the ACP test does not apply to these plans if certain additional requirements are met. Irs efile   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Irs efile Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. Irs efile   See Regulations sections 1. Irs efile 401(k)-2 and 1. Irs efile 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Irs efile    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. Irs efile Safe harbor 401(k) plan. Irs efile If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. Irs efile For your plan to be a safe harbor plan, you must meet the following conditions. Irs efile Matching or nonelective contributions. Irs efile You must make matching or nonelective contributions according to one of the following formulas. Irs efile Matching contributions. Irs efile You must make matching contributions according to the following rules. Irs efile You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Irs efile You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Irs efile The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Irs efile Nonelective contributions. Irs efile You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. Irs efile These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Irs efile Notice requirement. Irs efile You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. Irs efile The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. Irs efile Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Irs efile Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Irs efile However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. Irs efile Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. Irs efile Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. Irs efile Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. Irs efile An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Irs efile The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. Irs efile Rollover. Irs efile   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Irs efile For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Irs efile R. Irs efile B. Irs efile 872, available at www. Irs efile irs. Irs efile gov/irb/2010-51_IRB/ar11. Irs efile html, and Notice 2013-74. Irs efile A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Irs efile Rollover amounts do not apply toward the annual deferral limit. Irs efile Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. Irs efile See the Form W-2 and 1099-R instructions for detailed information. Irs efile Distributions Amounts paid to plan participants from a qualified plan are called distributions. Irs efile Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Irs efile Also, certain loans may be treated as distributions. Irs efile See Loans Treated as Distributions in Publication 575. Irs efile Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). Irs efile These distribution rules apply individually to each qualified plan. Irs efile You cannot satisfy the requirement for one plan by taking a distribution from another. Irs efile The plan must provide that these rules override any inconsistent distribution options previously offered. Irs efile Minimum distribution. Irs efile   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. Irs efile This minimum is figured by dividing the account balance by the applicable life expectancy. Irs efile The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Irs efile For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Irs efile Required beginning date. Irs efile   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. Irs efile   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. Irs efile Calendar year in which he or she reaches age 70½. Irs efile Calendar year in which he or she retires from employment with the employer maintaining the plan. Irs efile However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. Irs efile   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. Irs efile For more information, see Tax on Excess Accumulation in Publication 575. Irs efile Distributions after the starting year. Irs efile   The distribution required to be made by April 1 is treated as a distribution for the starting year. Irs efile (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Irs efile ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Irs efile If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). Irs efile Distributions after participant's death. Irs efile   See Publication 575 for the special rules covering distributions made after the death of a participant. Irs efile Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Irs efile The employee retires, dies, becomes disabled, or otherwise severs employment. Irs efile The plan ends and no other defined contribution plan is established or continued. Irs efile In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. Irs efile For the rules on hardship distributions, including the limits on them, see Regulations section 1. Irs efile 401(k)-1(d). Irs efile The employee becomes eligible for a qualified reservist distribution (defined next). Irs efile Certain distributions listed above may be subject to the tax on early distributions discussed later. Irs efile Qualified reservist distributions. Irs efile   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. Irs efile All or part of a qualified reservist distribution can be recontributed to an IRA. Irs efile The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Irs efile Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Irs efile Since most recipients have no cost basis, a distribution is generally fully taxable. Irs efile An exception is a distribution that is properly rolled over as discussed under Rollover, next. Irs efile The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Irs efile See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. Irs efile Note. Irs efile A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. Irs efile Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Irs efile See Qualified distributions under Qualified Roth Contribution Program, earlier. Irs efile Rollover. Irs efile   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. Irs efile However, it may be subject to withholding as discussed under Withholding requirement, later. Irs efile A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. Irs efile Eligible rollover distribution. Irs efile   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. Irs efile A required minimum distribution. Irs efile See Required Distributions , earlier. Irs efile Any of a series of substantially equal payments made at least once a year over any of the following periods. Irs efile The employee's life or life expectancy. Irs efile The joint lives or life expectancies of the employee and beneficiary. Irs efile A period of 10 years or longer. Irs efile A hardship distribution. Irs efile The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Irs efile See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Irs efile Loans treated as distributions. Irs efile Dividends on employer securities. Irs efile The cost of any life insurance coverage provided under a qualified retirement plan. Irs efile Similar items designated by the IRS in published guidance. Irs efile See, for example, the Instructions for Forms 1099-R and 5498. Irs efile Rollover of nontaxable amounts. Irs efile   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. Irs efile If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. Irs efile If the rollover is to an IRA, the transfer can be made by any rollover method. Irs efile Note. Irs efile A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Irs efile If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). Irs efile More information. Irs efile   For more information about rollovers, see Rollovers in Pubs. Irs efile 575 and 590. Irs efile Withholding requirement. Irs efile   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. Irs efile Exceptions. Irs efile   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Irs efile   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Irs efile Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Irs efile However, the participant can choose not to have tax withheld from these distributions. Irs efile If the participant does not make this choice, the following withholding rules apply. Irs efile For periodic distributions, withholding is based on their treatment as wages. Irs efile For nonperiodic distributions, 10% of the taxable part is withheld. Irs efile Estimated tax payments. Irs efile   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Irs efile For more information, see Withholding Tax and Estimated Tax in Publication 575. Irs efile Section 402(f) Notice. Irs efile   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. Irs efile That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Irs efile That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Irs efile That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. Irs efile Certain other rules that may be applicable. Irs efile   Notice 2009-68, 2009-39 I. Irs efile R. Irs efile B. Irs efile 423, available at www. Irs efile irs. Irs efile gov/irb/2009-39_IRB/ar14. Irs efile html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Irs efile If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Irs efile Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Irs efile Timing of notice. Irs efile   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Irs efile Method of notice. Irs efile   The written notice must be provided individually to each distributee of an eligible rollover distribution. Irs efile Posting of the notice is not sufficient. Irs efile However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Irs efile See Regulations section 1. Irs efile 401(a)-21. Irs efile Tax on failure to give notice. Irs efile   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. Irs efile The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Irs efile Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. Irs efile This tax applies to the amount received that the employee must include in income. Irs efile Exceptions. Irs efile   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Irs efile Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Irs efile Made due to the employee having a qualifying disability. Irs efile Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. Irs efile (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. Irs efile ) Made to an employee after separation from service if the separation occurred during o
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TV Options

There are many choices for consumers looking to buy new televisions today:

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EnergyStar TVs

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Home electronics that have earned the EnergyStar deliver exceptional features, while using less energy. Saving energy helps you save money on utility bills and helps to protect the environment by reducing greenhouse gas emissions to counter climate change.

The Irs Efile

Irs efile 25. Irs efile   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Irs efile Progressive deterioration. Irs efile Damage from corrosive drywall. Irs efile Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. Irs efile  Section C of Form 4684 is new for 2013. Irs efile You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Irs efile Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Irs efile You do not need to complete Appendix A. Irs efile For details, see Losses from Ponzi-type investment schemes , in this chapter. Irs efile Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Irs efile The chapter also explains the following  topics. Irs efile How to figure the amount of your loss. Irs efile How to treat insurance and other reimbursements you receive. Irs efile The deduction limits. Irs efile When and how to report a casualty or theft. Irs efile Forms to file. Irs efile    When you have a casualty or theft, you have to file Form 4684. Irs efile You will also have to file one or more of the following forms. Irs efile Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Irs efile   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Irs efile Workbook for casualties and thefts. Irs efile    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Irs efile It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Irs efile Business or investment-related losses. Irs efile   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Irs efile Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Irs efile A sudden event is one that is swift, not gradual or progressive. Irs efile An unexpected event is one that is ordinarily unanticipated and unintended. Irs efile An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Irs efile Deductible losses. Irs efile   Deductible casualty losses can result from a number of different causes, including the following. Irs efile Car accidents (but see Nondeductible losses , next, for exceptions). Irs efile Earthquakes. Irs efile Fires (but see Nondeductible losses , next, for exceptions). Irs efile Floods. Irs efile Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547. Irs efile Mine cave-ins. Irs efile Shipwrecks. Irs efile Sonic booms. Irs efile Storms, including hurricanes and tornadoes. Irs efile Terrorist attacks. Irs efile Vandalism. Irs efile Volcanic eruptions. Irs efile Nondeductible losses. Irs efile   A casualty loss is not deductible if the damage or destruction is caused by the following. Irs efile Accidentally breaking articles such as glassware or china under normal conditions. Irs efile A family pet (explained below). Irs efile A fire if you willfully set it or pay someone else to set it. Irs efile A car accident if your willful negligence or willful act caused it. Irs efile The same is true if the willful act or willful negligence of someone acting for you caused the accident. Irs efile Progressive deterioration (explained later). Irs efile Family pet. Irs efile   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met. Irs efile Example. Irs efile Your antique oriental rug was damaged by your new puppy before it was housebroken. Irs efile Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Irs efile Progressive deterioration. Irs efile    Loss of property due to progressive deterioration is not deductible as a casualty loss. Irs efile This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Irs efile The following are examples of damage due to progressive deterioration. Irs efile The steady weakening of a building due to normal wind and weather conditions. Irs efile The deterioration and damage to a water heater that bursts. Irs efile However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Irs efile Most losses of property caused by droughts. Irs efile To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Irs efile Termite or moth damage. Irs efile The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Irs efile However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Irs efile Damage from corrosive drywall. Irs efile   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. Irs efile For details, see Publication 547. Irs efile Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Irs efile The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. Irs efile You do not need to show a conviction for theft. Irs efile Theft includes the taking of money or property by the following means. Irs efile Blackmail. Irs efile Burglary. Irs efile Embezzlement. Irs efile Extortion. Irs efile Kidnapping for ransom. Irs efile Larceny. Irs efile Robbery. Irs efile The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Irs efile Decline in market value of stock. Irs efile   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Irs efile However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Irs efile You report a capital loss on Schedule D (Form 1040). Irs efile For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Irs efile Mislaid or lost property. Irs efile   The simple disappearance of money or property is not a theft. Irs efile However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Irs efile Sudden, unexpected, and unusual events are defined earlier. Irs efile Example. Irs efile A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Irs efile The diamond falls from the ring and is never found. Irs efile The loss of the diamond is a casualty. Irs efile Losses from Ponzi-type investment schemes. Irs efile   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Irs efile R. Irs efile B. Irs efile 735 (available at www. Irs efile irs. Irs efile gov/irb/2009-14_IRB/ar07. Irs efile html). Irs efile Revenue Procedure 2009-20, 2009-14 I. Irs efile R. Irs efile B. Irs efile 749 (available at www. Irs efile irs. Irs efile gov/irb/2009-14_IRB/ar11. Irs efile html). Irs efile Revenue Procedure 2011-58, 2011-50 I. Irs efile R. Irs efile B. Irs efile 849 (available at www. Irs efile irs. Irs efile gov/irb/2011-50_IRB/ar11. Irs efile html). Irs efile If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. Irs efile Skip lines 19 to 27. Irs efile Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Irs efile You do not need to complete Appendix A. Irs efile For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Irs efile   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Irs efile Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Irs efile If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Irs efile As a casualty loss. Irs efile As an ordinary loss. Irs efile As a nonbusiness bad debt. Irs efile Casualty loss or ordinary loss. Irs efile   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. Irs efile The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. Irs efile If you treat the loss as a casualty or ordinary loss, you cannot treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. Irs efile However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Irs efile Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Irs efile   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Irs efile The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Irs efile Your loss is subject to the 2%-of-adjusted-gross-income limit. Irs efile You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Irs efile Nonbusiness bad debt. Irs efile   If you do not choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year. Irs efile How to report. Irs efile   The kind of deduction you choose for your loss on deposits determines how you report your loss. Irs efile If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Irs efile Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Irs efile Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Irs efile More information. Irs efile   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. Irs efile Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Irs efile You also must be able to support the amount you take as a deduction. Irs efile Casualty loss proof. Irs efile   For a casualty loss, your records should show all the following. Irs efile The type of casualty (car accident, fire, storm, etc. Irs efile ) and when it occurred. Irs efile That the loss was a direct result of the casualty. Irs efile That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. Irs efile Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Irs efile Theft loss proof. Irs efile   For a theft loss, your records should show all the following. Irs efile When you discovered that your property was missing. Irs efile That your property was stolen. Irs efile That you were the owner of the property. Irs efile Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Irs efile It is important that you have records that will prove your deduction. Irs efile If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Irs efile Figuring a Loss Figure the amount of your loss using the following steps. Irs efile Determine your adjusted basis in the property before the casualty or theft. Irs efile Determine the decrease in fair market value of the property as a result of the casualty or theft. Irs efile From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Irs efile For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss. Irs efile Gain from reimbursement. Irs efile   If your reimbursement is more than your adjusted basis in the property, you have a gain. Irs efile This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Irs efile If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Irs efile See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Irs efile Leased property. Irs efile   If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. Irs efile Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. Irs efile The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. Irs efile FMV of stolen property. Irs efile   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Irs efile Example. Irs efile Several years ago, you purchased silver dollars at face value for $150. Irs efile This is your adjusted basis in the property. Irs efile Your silver dollars were stolen this year. Irs efile The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Irs efile Your theft loss is $150. Irs efile Recovered stolen property. Irs efile   Recovered stolen property is your property that was stolen and later returned to you. Irs efile If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Irs efile Use this amount to refigure your total loss for the year in which the loss was deducted. Irs efile   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Irs efile But report the difference only up to the amount of the loss that reduced your tax. Irs efile For more information on the amount to report, see Recoveries in chapter 12. Irs efile Figuring Decrease in FMV— Items To Consider To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Irs efile However, other measures can also be used to establish certain decreases. Irs efile Appraisal. Irs efile   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Irs efile The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Irs efile This information is needed to limit any deduction to the actual loss resulting from damage to the property. Irs efile   Several factors are important in evaluating the accuracy of an appraisal, including the following. Irs efile The appraiser's familiarity with your property before and after the casualty or theft. Irs efile The appraiser's knowledge of sales of comparable property in the area. Irs efile The appraiser's knowledge of conditions in the area of the casualty. Irs efile The appraiser's method of appraisal. Irs efile    You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. Irs efile For more information on disasters, see Disaster Area Losses, in Pub. Irs efile 547. Irs efile Cost of cleaning up or making repairs. Irs efile   The cost of repairing damaged property is not part of a casualty loss. Irs efile Neither is the cost of cleaning up after a casualty. Irs efile But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Irs efile The repairs are actually made. Irs efile The repairs are necessary to bring the property back to its condition before the casualty. Irs efile The amount spent for repairs is not excessive. Irs efile The repairs take care of the damage only. Irs efile The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Irs efile Landscaping. Irs efile   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Irs efile You may be able to measure your loss by what you spend on the following. Irs efile Removing destroyed or damaged trees and shrubs minus any salvage you receive. Irs efile Pruning and other measures taken to preserve damaged trees and shrubs. Irs efile Replanting necessary to restore the property to its approximate value before the casualty. Irs efile Car value. Irs efile    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Irs efile You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. Irs efile The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. Irs efile If your car is not listed in the books, determine its value from other sources. Irs efile A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Irs efile Figuring Decrease in FMV— Items Not To Consider You generally should not consider the following items when attempting to establish the decrease in FMV of your property. Irs efile Cost of protection. Irs efile   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Irs efile The amount you spend on insurance or to board up your house against a storm is not part of your loss. Irs efile   If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. Irs efile An example would be the cost of a dike to prevent flooding. Irs efile Exception. Irs efile   You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments. Irs efile See Disaster Area Losses in Publication 547. Irs efile Incidental expenses. Irs efile   Any incidental expenses you have due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. Irs efile Replacement cost. Irs efile   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Irs efile Sentimental value. Irs efile   Do not consider sentimental value when determining your loss. Irs efile If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV, as limited by your adjusted basis in the property. Irs efile Decline in market value of property in or near casualty area. Irs efile   A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. Irs efile You have a loss only for actual casualty damage to your property. Irs efile However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Irs efile Costs of photographs and appraisals. Irs efile    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Irs efile Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Irs efile    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Irs efile See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Irs efile   The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. Irs efile You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Irs efile For information about miscellaneous deductions, see chapter 28. Irs efile Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Irs efile For more information, see chapter 13. Irs efile Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Irs efile You do not have a casualty or theft loss to the extent you are reimbursed. Irs efile If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Irs efile You must reduce your loss even if you do not receive payment until a later tax year. Irs efile See Reimbursement Received After Deducting Loss , later. Irs efile Failure to file a claim for reimbursement. Irs efile   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Irs efile Otherwise, you cannot deduct this loss as a casualty or theft loss. Irs efile However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Irs efile Example. Irs efile You have a car insurance policy with a $1,000 deductible. Irs efile Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). Irs efile This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Irs efile Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Irs efile Other types of reimbursements are discussed next. Irs efile Also see the Instructions for Form 4684. Irs efile Employer's emergency disaster fund. Irs efile   If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. Irs efile Take into consideration only the amount you used to replace your destroyed or damaged property. Irs efile Example. Irs efile Your home was extensively damaged by a tornado. Irs efile Your loss after reimbursement from your insurance company was $10,000. Irs efile Your employer set up a disaster relief fund for its employees. Irs efile Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Irs efile You received $4,000 from the fund and spent the entire amount on repairs to your home. Irs efile In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Irs efile Your casualty loss before applying the deduction limits discussed later is $6,000. Irs efile Cash gifts. Irs efile   If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. Irs efile This applies even if you use the money to pay for repairs to property damaged in the disaster. Irs efile Example. Irs efile Your home was damaged by a hurricane. Irs efile Relatives and neighbors made cash gifts to you that were excludable from your income. Irs efile You used part of the cash gifts to pay for repairs to your home. Irs efile There were no limits or restrictions on how you could use the cash gifts. Irs efile Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Irs efile Insurance payments for living expenses. Irs efile   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Irs efile You lose the use of your main home because of a casualty. Irs efile Government authorities do not allow you access to your main home because of a casualty or threat of one. Irs efile Inclusion in income. Irs efile   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Irs efile Report this amount on Form 1040, line 21. Irs efile However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Irs efile See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Irs efile   A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. Irs efile Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Irs efile Generally, these expenses include the amounts you pay for the following. Irs efile Rent for suitable housing. Irs efile Transportation. Irs efile Food. Irs efile Utilities. Irs efile Miscellaneous services. Irs efile Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one. Irs efile Example. Irs efile As a result of a fire, you vacated your apartment for a month and moved to a motel. Irs efile You normally pay $525 a month for rent. Irs efile None was charged for the month the apartment was vacated. Irs efile Your motel rent for this month was $1,200. Irs efile You normally pay $200 a month for food. Irs efile Your food expenses for the month you lived in the motel were $400. Irs efile You received $1,100 from your insurance company to cover your living expenses. Irs efile You determine the payment you must include in income as follows. Irs efile 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. Irs efile   You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. Irs efile Example. Irs efile Your main home was destroyed by a tornado in August 2011. Irs efile You regained use of your home in November 2012. Irs efile The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Irs efile You include this amount in income on your 2012 Form 1040. Irs efile If, in 2013, you receive further payments to cover the living expenses you had in 2011 and 2012, you must include those payments in income on your 2013 Form 1040. Irs efile Disaster relief. Irs efile   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss unless they are replacements for lost or destroyed property. Irs efile Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Irs efile For more information, see Disaster Area Losses in Publication 547. Irs efile Disaster unemployment assistance payments are unemployment benefits that are taxable. Irs efile Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Irs efile Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. Irs efile See Disaster Area Losses in Publication 547. Irs efile Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. Irs efile This section explains the adjustment you may have to make. Irs efile Actual reimbursement less than expected. Irs efile   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Irs efile Example. Irs efile Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Irs efile The accident was due to the negligence of the other driver. Irs efile At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Irs efile You did not have a deductible loss in 2012. Irs efile In January 2013, the court awarded you a judgment of $2,000. Irs efile However, in July it became apparent that you will be unable to collect any amount from the other driver. Irs efile You can deduct the loss in 2013 subject to the limits discussed later. Irs efile Actual reimbursement more than expected. Irs efile   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Irs efile However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Irs efile You do not refigure your tax for the year you claimed the deduction. Irs efile For more information, see Recoveries in chapter 12. Irs efile If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Irs efile If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Irs efile Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Irs efile See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Irs efile Actual reimbursement same as expected. Irs efile   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Irs efile Example. Irs efile In December 2013, you had a collision while driving your personal car. Irs efile Repairs to the car cost $950. Irs efile You had $100 deductible collision insurance. Irs efile Your insurance company agreed to reimburse you for the rest of the damage. Irs efile Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Irs efile Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Irs efile When you receive the $850 from the insurance company in 2014, do not report it as income. Irs efile Single Casualty on Multiple Properties Personal property. Irs efile   Personal property is any property that is not real property. Irs efile If your personal property is stolen or is damaged or destroyed by a casualty, you must figure your loss separately for each item of property. Irs efile Then combine these separate losses to figure the total loss from that casualty or theft. Irs efile Example. Irs efile A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Irs efile You did not have fire insurance to cover your loss. Irs efile (This was the only casualty or theft you had during the year. Irs efile ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Irs efile The rug cost $3,000 and had an FMV of $2,500 just before the fire. Irs efile You bought the table at an auction for $100 before discovering it was an antique. Irs efile It had been appraised at $900 before the fire. Irs efile You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. Irs efile   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Irs efile Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Irs efile Example. Irs efile You bought your home a few years ago. Irs efile You paid $160,000 ($20,000 for the land and $140,000 for the house). Irs efile You also spent $2,000 for landscaping. Irs efile This year a fire destroyed your home. Irs efile The fire also damaged the shrubbery and trees in your yard. Irs efile The fire was your only casualty or theft loss this year. Irs efile Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Irs efile (The loss to your household furnishings is not shown in this example. Irs efile It would be figured separately on each item, as explained earlier under Personal property . Irs efile ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Irs efile You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Irs efile If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. Irs efile You must reduce each casualty or theft loss by $100 ($100 rule). Irs efile You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Irs efile You make these reductions on Form 4684. Irs efile These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Irs efile For more detailed explanations and examples, see Publication 547. Irs efile Table 25-1. Irs efile How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Irs efile Apply this rule after you have figured the amount of your loss. Irs efile You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Irs efile Apply this rule after you reduce each loss by $100 (the $100 rule). Irs efile Single Event Apply this rule only once, even if many pieces of property are affected. Irs efile Apply this rule only once, even if many pieces of property are affected. Irs efile More Than One Event Apply to the loss from each event. Irs efile Apply to the total of all your losses from all events. Irs efile More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Irs efile Apply separately to each person. Irs efile Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Irs efile Apply as if you were one person. Irs efile Filing Separately Apply separately to each spouse. Irs efile Apply separately to each spouse. Irs efile More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Irs efile Apply separately to each owner of jointly owned property. Irs efile Property used partly for business and partly for personal purposes. Irs efile   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use part and for the business or income-producing part. Irs efile You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. Irs efile $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Irs efile This reduction applies to each total casualty or theft loss. Irs efile It does not matter how many pieces of property are involved in an event. Irs efile Only a single $100 reduction applies. Irs efile Example. Irs efile A hailstorm damages your home and your car. Irs efile Determine the amount of loss, as discussed earlier, for each of these items. Irs efile Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Irs efile Single event. Irs efile   Generally, events closely related in origin cause a single casualty. Irs efile It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm. Irs efile 10% Rule You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Irs efile Apply this rule after you reduce each loss by $100. Irs efile For more information, see the Form 4684 instructions. Irs efile If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Irs efile Example 1. Irs efile In June, you discovered that your house had been burglarized. Irs efile Your loss after insurance reimbursement was $2,000. Irs efile Your adjusted gross income for the year you discovered the theft is $29,500. Irs efile You first apply the $100 rule and then the 10% rule. Irs efile Figure your theft loss deduction as follows. Irs efile 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). Irs efile Example 2. Irs efile In March, you had a car accident that totally destroyed your car. Irs efile You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Irs efile Your loss on the car was $1,800. Irs efile In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Irs efile Your loss on the basement items after reimbursement was $2,100. Irs efile Your adjusted gross income for the year that the accident and fire occurred is $25,000. Irs efile You figure your casualty loss deduction as follows. Irs efile       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. Irs efile   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Irs efile Do this after you have reduced each loss by any reimbursements and by $100, but before you have reduced the losses by 10% of your adjusted gross income. Irs efile Casualty or theft gains do not include gains you choose to postpone. Irs efile See Publication 547 for information on the postponement of gain. Irs efile Losses more than gains. Irs efile   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. Irs efile The rest, if any, is your deductible loss from personal-use property. Irs efile Gains more than losses. Irs efile   If your recognized gains are more than your losses, subtract your losses from your gains. Irs efile The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Irs efile The 10% rule does not apply to your gains. Irs efile When To Report Gains and Losses Gains. Irs efile   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. Irs efile You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. Irs efile If you have a loss, see Table 25-2 . Irs efile Table 25-2. Irs efile When To Deduct a Loss IF you have a loss. Irs efile . Irs efile . Irs efile THEN deduct it in the year. Irs efile . Irs efile . Irs efile from a casualty, the loss occurred. Irs efile in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Irs efile from a theft, the theft was discovered. Irs efile on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Irs efile • bad debt, deposits are totally worthless. Irs efile Losses. Irs efile   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Irs efile This is true even if you do not repair or replace the damaged property until a later year. Irs efile   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Irs efile   If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Irs efile Loss on deposits. Irs efile   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Irs efile Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Irs efile However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. Irs efile The year the disaster occurred. Irs efile The year immediately preceding the year the disaster occurred. Irs efile Gains. Irs efile    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Irs efile For those special rules, see Publication 547. Irs efile Postponed tax deadlines. Irs efile   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Irs efile The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Irs efile   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Irs efile Go to www. Irs efile irs. Irs efile gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Irs efile Who is eligible. Irs efile   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Irs efile Any individual whose main home is located in a covered disaster area (defined next). Irs efile Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Irs efile Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Irs efile Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Irs efile The main home or principal place of business does not have to be located in the covered disaster area. Irs efile Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Irs efile The spouse on a joint return with a taxpayer who is eligible for postponements. Irs efile Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. Irs efile Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Irs efile Any other person determined by the IRS to be affected by a federally declared disaster. Irs efile Covered disaster area. Irs efile   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Irs efile Abatement of interest and penalties. Irs efile   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Irs efile More information. Irs efile   For more information, see Disaster Area Losses in Publication 547. Irs efile How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Irs efile If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Irs efile Combine the gains and losses on one Form 4684. Irs efile Follow the form instructions as to which lines to fill out. Irs efile In addition, you must use the appropriate schedule to report a gain or loss. Irs efile The schedule you use depends on whether you have a gain or loss. Irs efile If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Irs efile   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive, and by any deductible loss. Irs efile Amounts you spend to restore your property after a casualty increase your adjusted basis. Irs efile See Adjusted Basis in chapter 13 for more information. Irs efile Net operating loss (NOL). Irs efile    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. Irs efile You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. Irs efile Or, you can use it to lower your tax in a later year. Irs efile You do not have to be in business to have an NOL from a casualty or theft loss. Irs efile For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Irs efile Prev  Up  Next   Home   More Online Publications