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Online Tax Software

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Online tax software 1. Online tax software   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Online tax software It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Online tax software This chapter discusses the general rules for depreciating property and answers the following questions. Online tax software What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Online tax software What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Online tax software You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Online tax software To be depreciable, the property must meet all the following requirements. Online tax software It must be property you own. Online tax software It must be used in your business or income-producing activity. Online tax software It must have a determinable useful life. Online tax software It must be expected to last more than one year. Online tax software The following discussions provide information about these requirements. Online tax software Property You Own To claim depreciation, you usually must be the owner of the property. Online tax software You are considered as owning property even if it is subject to a debt. Online tax software Example 1. Online tax software You made a down payment to purchase rental property and assumed the previous owner's mortgage. Online tax software You own the property and you can depreciate it. Online tax software Example 2. Online tax software You bought a new van that you will use only for your courier business. Online tax software You will be making payments on the van over the next 5 years. Online tax software You own the van and you can depreciate it. Online tax software Leased property. Online tax software   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Online tax software This means you bear the burden of exhaustion of the capital investment in the property. Online tax software Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Online tax software You can, however, depreciate any capital improvements you make to the property. Online tax software See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Online tax software   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Online tax software However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Online tax software Incidents of ownership. Online tax software   Incidents of ownership in property include the following. Online tax software The legal title to the property. Online tax software The legal obligation to pay for the property. Online tax software The responsibility to pay maintenance and operating expenses. Online tax software The duty to pay any taxes on the property. Online tax software The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Online tax software Life tenant. Online tax software   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Online tax software However, see Certain term interests in property under Excepted Property, later. Online tax software Cooperative apartments. Online tax software   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Online tax software   Figure your depreciation deduction as follows. Online tax software Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Online tax software If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Online tax software Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Online tax software Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Online tax software Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Online tax software Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Online tax software Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Online tax software Multiply the result of (2) by the percentage you figured in (3). Online tax software This is your depreciation on the stock. Online tax software   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Online tax software You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Online tax software Example. Online tax software You figure your share of the cooperative housing corporation's depreciation to be $30,000. Online tax software Your adjusted basis in the stock of the corporation is $50,000. Online tax software You use one half of your apartment solely for business purposes. Online tax software Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Online tax software Change to business use. Online tax software   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Online tax software The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Online tax software The fair market value of the property on the date you change your apartment to business use. Online tax software This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Online tax software The corporation's adjusted basis in the property on that date. Online tax software Do not subtract depreciation when figuring the corporation's adjusted basis. Online tax software   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Online tax software The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Online tax software   For a discussion of fair market value and adjusted basis, see Publication 551. Online tax software Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Online tax software If you use property to produce income (investment use), the income must be taxable. Online tax software You cannot depreciate property that you use solely for personal activities. Online tax software Partial business or investment use. Online tax software   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Online tax software For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Online tax software    You must keep records showing the business, investment, and personal use of your property. Online tax software For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Online tax software    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Online tax software For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Online tax software Office in the home. Online tax software   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Online tax software For information about depreciating your home office, see Publication 587. Online tax software Inventory. Online tax software   You cannot depreciate inventory because it is not held for use in your business. Online tax software Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Online tax software   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Online tax software See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Online tax software   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Online tax software If it is unclear, examine carefully all the facts in the operation of the particular business. Online tax software The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Online tax software Example. Online tax software Maple Corporation is in the business of leasing cars. Online tax software At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Online tax software Maple does not have a showroom, used car lot, or individuals to sell the cars. Online tax software Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Online tax software Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Online tax software If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Online tax software In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Online tax software Containers. Online tax software   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Online tax software However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Online tax software They qualify as property used in your business. Online tax software Title to the containers does not pass to the buyer. Online tax software   To determine if these requirements are met, consider the following questions. Online tax software Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Online tax software This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Online tax software Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Online tax software Example. Online tax software You maintain a library for use in your profession. Online tax software You can depreciate it. Online tax software However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Online tax software Instead, you deduct their cost as a business expense. Online tax software What Property Cannot Be Depreciated? Certain property cannot be depreciated. Online tax software This includes land and certain excepted property. Online tax software Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Online tax software The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Online tax software Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Online tax software These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Online tax software Example. Online tax software You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Online tax software Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Online tax software If you replace the building, you would have to destroy the bushes and trees right next to it. Online tax software These bushes and trees are closely associated with the building, so they have a determinable useful life. Online tax software Therefore, you can depreciate them. Online tax software Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Online tax software Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Online tax software Property placed in service and disposed of in the same year. Online tax software Determining when property is placed in service is explained later. Online tax software Equipment used to build capital improvements. Online tax software You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Online tax software See Uniform Capitalization Rules in Publication 551. Online tax software Section 197 intangibles. Online tax software You must amortize these costs. Online tax software Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Online tax software Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Online tax software See Intangible Property , later. Online tax software Certain term interests. Online tax software Certain term interests in property. Online tax software   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Online tax software A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Online tax software Related persons. Online tax software   For a description of related persons, see Related Persons, later. Online tax software For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Online tax software Basis adjustments. Online tax software   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Online tax software   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Online tax software However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Online tax software The term interest is held by an organization exempt from tax. Online tax software The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Online tax software Exceptions. Online tax software   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Online tax software They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Online tax software When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Online tax software You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Online tax software Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Online tax software Even if you are not using the property, it is in service when it is ready and available for its specific use. Online tax software Example 1. Online tax software Donald Steep bought a machine for his business. Online tax software The machine was delivered last year. Online tax software However, it was not installed and operational until this year. Online tax software It is considered placed in service this year. Online tax software If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Online tax software Example 2. Online tax software On April 6, Sue Thorn bought a house to use as residential rental property. Online tax software She made several repairs and had it ready for rent on July 5. Online tax software At that time, she began to advertise it for rent in the local newspaper. Online tax software The house is considered placed in service in July when it was ready and available for rent. Online tax software She can begin to depreciate it in July. Online tax software Example 3. Online tax software James Elm is a building contractor who specializes in constructing office buildings. Online tax software He bought a truck last year that had to be modified to lift materials to second-story levels. Online tax software The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Online tax software The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Online tax software Conversion to business use. Online tax software   If you place property in service in a personal activity, you cannot claim depreciation. Online tax software However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Online tax software You place the property in service in the business or income-producing activity on the date of the change. Online tax software Example. Online tax software You bought a home and used it as your personal home several years before you converted it to rental property. Online tax software Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Online tax software You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Online tax software Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Online tax software For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Online tax software Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Online tax software You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Online tax software See What Is the Basis of Your Depreciable Property , later. Online tax software Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Online tax software You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Online tax software You sell or exchange the property. Online tax software You convert the property to personal use. Online tax software You abandon the property. Online tax software You transfer the property to a supplies or scrap account. Online tax software The property is destroyed. Online tax software If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Online tax software What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Online tax software MACRS is discussed in chapter 4. Online tax software You cannot use MACRS to depreciate the following property. Online tax software Property you placed in service before 1987. Online tax software Certain property owned or used in 1986. Online tax software Intangible property. Online tax software Films, video tapes, and recordings. Online tax software Certain corporate or partnership property acquired in a nontaxable transfer. Online tax software Property you elected to exclude from MACRS. Online tax software The following discussions describe the property listed above and explain what depreciation method should be used. Online tax software Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Online tax software Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Online tax software For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Online tax software Use of real property changed. Online tax software   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Online tax software Improvements made after 1986. Online tax software   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Online tax software Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Online tax software For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Online tax software Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Online tax software If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Online tax software For the following discussions, do not treat property as owned before you placed it in service. Online tax software If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Online tax software Personal property. Online tax software   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Online tax software You or someone related to you owned or used the property in 1986. Online tax software You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Online tax software You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Online tax software You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Online tax software Real property. Online tax software   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Online tax software You or someone related to you owned the property in 1986. Online tax software You lease the property to a person who owned the property in 1986 (or someone related to that person). Online tax software You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Online tax software MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Online tax software It does not apply to the carried-over part of the basis. Online tax software Exceptions. Online tax software   The rules above do not apply to the following. Online tax software Residential rental property or nonresidential real property. Online tax software Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Online tax software For information on how to figure depreciation under ACRS, see Publication 534. Online tax software Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Online tax software Related persons. Online tax software   For this purpose, the following are related persons. Online tax software An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Online tax software A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Online tax software Two corporations that are members of the same controlled group. Online tax software A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Online tax software The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Online tax software The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Online tax software A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Online tax software Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Online tax software A corporation and a partnership if the same persons own both of the following. Online tax software More than 10% of the value of the outstanding stock of the corporation. Online tax software More than 10% of the capital or profits interest in the partnership. Online tax software The executor and beneficiary of any estate. Online tax software A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Online tax software Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Online tax software The related person and a person who is engaged in trades or businesses under common control. Online tax software See section 52(a) and 52(b) of the Internal Revenue Code. Online tax software When to determine relationship. Online tax software   You must determine whether you are related to another person at the time you acquire the property. Online tax software   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Online tax software For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Online tax software Constructive ownership of stock or partnership interest. Online tax software   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Online tax software Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Online tax software However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Online tax software An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Online tax software An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Online tax software For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Online tax software However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Online tax software Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Online tax software However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Online tax software You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Online tax software Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Online tax software To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Online tax software Subtract the salvage value, if any, from the adjusted basis. Online tax software The balance is the total depreciation you can take over the useful life of the property. Online tax software Divide the balance by the number of years in the useful life. Online tax software This gives you your yearly depreciation deduction. Online tax software Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Online tax software If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Online tax software Example. Online tax software In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Online tax software He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Online tax software He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Online tax software He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Online tax software Next year, Frank can deduct $300 for the full year. Online tax software Patents and copyrights. Online tax software   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Online tax software The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Online tax software However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Online tax software Computer software. Online tax software   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Online tax software   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Online tax software It is readily available for purchase by the general public. Online tax software It is subject to a nonexclusive license. Online tax software It has not been substantially modified. Online tax software   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Online tax software If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Online tax software    Tax-exempt use property subject to a lease. Online tax software   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. Online tax software Certain created intangibles. Online tax software   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Online tax software For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Online tax software   The following are not eligible. Online tax software Any intangible asset acquired from another person. Online tax software Created financial interests. Online tax software Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Online tax software Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Online tax software Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Online tax software   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Online tax software For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Online tax software Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Online tax software Motion picture films or video tapes. Online tax software Sound recordings. Online tax software Copyrights. Online tax software Books. Online tax software Patents. Online tax software Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Online tax software The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Online tax software For more information, see section 167(g) of the Internal Revenue Code. Online tax software Films, video tapes, and recordings. Online tax software   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Online tax software For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Online tax software You can depreciate this property using either the straight line method or the income forecast method. Online tax software Participations and residuals. Online tax software   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Online tax software The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Online tax software For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Online tax software   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Online tax software Videocassettes. Online tax software   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Online tax software If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Online tax software Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Online tax software You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Online tax software However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Online tax software The nontaxable transfers covered by this rule include the following. Online tax software A distribution in complete liquidation of a subsidiary. Online tax software A transfer to a corporation controlled by the transferor. Online tax software An exchange of property solely for corporate stock or securities in a reorganization. Online tax software A contribution of property to a partnership in exchange for a partnership interest. Online tax software A partnership distribution of property to a partner. Online tax software Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Online tax software You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Online tax software You must make this election by the return due date (including extensions) for the tax year you place your property in service. Online tax software However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). Online tax software Attach the election to the amended return and write “Filed pursuant to section 301. Online tax software 9100-2” on the election statement. Online tax software File the amended return at the same address you filed the original return. Online tax software Use of standard mileage rate. Online tax software   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Online tax software See Publication 463 for a discussion of the standard mileage rate. Online tax software What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Online tax software To determine basis, you need to know the cost or other basis of your property. Online tax software Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Online tax software The cost includes the amount you pay in cash, debt obligations, other property, or services. Online tax software Exception. Online tax software   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Online tax software If you make that choice, you cannot include those sales taxes as part of your cost basis. Online tax software Assumed debt. Online tax software   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Online tax software Example. Online tax software You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Online tax software Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Online tax software Settlement costs. Online tax software   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Online tax software These generally are shown on your settlement statement and include the following. Online tax software Legal and recording fees. Online tax software Abstract fees. Online tax software Survey charges. Online tax software Owner's title insurance. Online tax software Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Online tax software   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Online tax software Property you construct or build. Online tax software   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Online tax software For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Online tax software Other Basis Other basis usually refers to basis that is determined by the way you received the property. Online tax software For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Online tax software If you acquired property in this or some other way, see Publication 551 to determine your basis. Online tax software Property changed from personal use. Online tax software   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Online tax software The fair market value (FMV) of the property on the date of the change in use. Online tax software Your original cost or other basis adjusted as follows. Online tax software Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Online tax software Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Online tax software Example. Online tax software Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Online tax software Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Online tax software Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Online tax software Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Online tax software On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Online tax software The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Online tax software Property acquired in a nontaxable transaction. Online tax software   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Online tax software Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Online tax software See Like-kind exchanges and involuntary conversions. Online tax software under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Online tax software   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Online tax software See How Do You Use General Asset Accounts in chapter 4. Online tax software Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Online tax software These events could include the following. Online tax software Installing utility lines. Online tax software Paying legal fees for perfecting the title. Online tax software Settling zoning issues. Online tax software Receiving rebates. Online tax software Incurring a casualty or theft loss. Online tax software For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Online tax software If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Online tax software For more information, see What Is the Basis for Depreciation in chapter 4. Online tax software . Online tax software Basis adjustment for depreciation allowed or allowable. Online tax software   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Online tax software Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Online tax software Depreciation allowable is depreciation you are entitled to deduct. Online tax software   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Online tax software   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Online tax software How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Online tax software Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Online tax software You generally deduct the cost of repairing business property in the same way as any other business expense. Online tax software However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Online tax software Example. Online tax software You repair a small section on one corner of the roof of a rental house. Online tax software You deduct the cost of the repair as a rental expense. Online tax software However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Online tax software You depreciate the cost of the new roof. Online tax software Improvements to rented property. Online tax software   You can depreciate permanent improvements you make to business property you rent from someone else. Online tax software Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Online tax software Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Online tax software A section 179 deduction for the current year or a section 179 carryover from a prior year. Online tax software See chapter 2 for information on the section 179 deduction. Online tax software Depreciation for property placed in service during the current year. Online tax software Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Online tax software See chapter 5 for information on listed property. Online tax software A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Online tax software Amortization of costs if the current year is the first year of the amortization period. Online tax software Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Online tax software S. Online tax software Income Tax Return for an S Corporation) regardless of when it was placed in service. Online tax software You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Online tax software Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Online tax software Employee. Online tax software   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Online tax software Instead, use either Form 2106 or Form 2106-EZ. Online tax software Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Online tax software How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Online tax software See Filing an Amended Return , next. Online tax software If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Online tax software See Changing Your Accounting Method , later. Online tax software Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Online tax software You claimed the incorrect amount because of a mathematical error made in any year. Online tax software You claimed the incorrect amount because of a posting error made in any year. Online tax software You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Online tax software You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Online tax software Adoption of accounting method defined. Online tax software   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Online tax software   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Online tax software irs. Online tax software gov/pub/irs-irbs/irb11-04. Online tax software pdf. Online tax software (Note. Online tax software Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Online tax software For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Online tax software irs. Online tax software gov/pub/irs-irbs/irb12-14. Online tax software pdf. Online tax software )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Online tax software irs. Online tax software gov/pub/irs-irbs/irb07-29. Online tax software pdf. Online tax software When to file. Online tax software   If an amended return is allowed, you must file it by the later of the following. Online tax software 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Online tax software A return filed before an unextended due date is considered filed on that due date. Online tax software 2 years from the time you paid your tax for that year. Online tax software Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Online tax software You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Online tax software The following are examples of a change in method of accounting for depreciation. Online tax software A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Online tax software A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Online tax software A change in the depreciation method, period of recovery, or convention of a depreciable asset. Online tax software A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Online tax software A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Online tax software Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Online tax software An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Online tax software A change in use of an asset in the hands of the same taxpayer. Online tax software Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Online tax software If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Online tax software Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Online tax software You must submit a request for a letter ruling to make a late election or revoke an election. Online tax software Any change in the placed in service date of a depreciable asset. Online tax software See section 1. Online tax software 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Online tax software IRS approval. Online tax software   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Online tax software If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Online tax software B. Online tax software 680. Online tax software Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Online tax software Additional guidance. Online tax software    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Online tax software irs. Online tax software gov/pub/irs-irbs/irb11-04. Online tax software pdf. Online tax software (Note. Online tax software Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Online tax software For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Online tax software irs. Online tax software gov/pub/irs-irbs/irb12-14. Online tax software pdf. Online tax software )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Online tax software irs. Online tax software gov/pub/irs-irbs/irb07-29. Online tax software pdf. Online tax software Table 1-1. Online tax software Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Online tax software For more information, see Form 4562 and its instructions. Online tax software Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Online tax software   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Online tax software The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Online tax software If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Online tax software A negative section 481(a) adjustment results in a decrease in taxable income. Online tax software It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Online tax software ” A positive section 481(a) adjustment results in an increase in taxable income. Online tax software It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Online tax software ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Online tax software Make the election by completing the appropriate line on Form 3115. Online tax software   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Online tax software Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Maine

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

 City Street Address  Days/Hours of Service  Telephone* 
Augusta  68 Sewall St.
Augusta, ME  04330 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(207) 622-1508 
Bangor  202 Harlow St.
Bangor, ME  04401 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 11:30 a.m. - 12:30 p.m.)

 

Services Provided

(207) 942-8573 
Lewiston  217 Main St.
Lewiston, ME 04240 

Monday-Friday - 8:30 a.m.- 4:30 p.m. 
(Closed for lunch 1:30 p.m. - 2:30 p.m.)

 

Services Provided

(207) 782-6795 
Presque Isle  36 North St.
Presque Isle, ME  04769 

Monday - Friday - 8:30 a.m. - 4:30 p.m. 
(Closed for lunch 1:00 p.m. - 2:00 p.m.)

 

** This office will be closed 5/14-5/16 and 5/19-5/21**

 

Services Provided

(207) 764-0947 
South Portland  220 Maine Mall Rd.
So. Portland, ME  04106 

Monday-Friday - 8:30 a.m. - 4:30 p.m.
(Closed for lunch 1:00 p.m. - 2:00 p.m.)
 

Services Provided

(207) 879-4683 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (207)622-8528 in Augusta or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
220 Maine Mall Rd., 2nd Floor
So. Portland, ME 04106

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Online Tax Software

Online tax software Publication 515 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionOrdering forms and publications. Online tax software Tax questions. Online tax software Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 515, such as legislation enacted after it was published, go to www. Online tax software irs. Online tax software gov/pub515. Online tax software What's New Deposit interest paid to certain nonresident alien individuals. Online tax software  New rules apply to reporting of deposit interest paid to certain nonresident alien individuals on or after January 1, 2013. Online tax software Deposit interest of $10 or more paid to certain nonresident alien individuals must be reported on Form 1042–S. Online tax software See Deposit interest paid to certain nonresident alien individuals in 2013. Online tax software Portfolio interest. Online tax software . Online tax software  The rules determining whether interest is considered portfolio interest changed for obligations issued after March 18, 2012. Online tax software Generally, interest paid on nonregistered (bearer) bonds will not be treated as portfolio interest. Online tax software See Portfolio interest. Online tax software U. Online tax software S. Online tax software real property interest. Online tax software  Generally, the treatment of a regulated investment company (RIC) as a qualified investment entity (QIE) was scheduled to expire at the end of 2011. Online tax software The provision has been extended through 2013. Online tax software The special rules that apply to distributions from a QIE attributable to the gain from the sale or exchange of a U. Online tax software S. Online tax software real property interest will continue to apply to any distribution from a RIC. Online tax software See Qualified investment entities under U. Online tax software S. Online tax software Real Property Interest. Online tax software Interest-related dividends and short-term capital gain dividends received from mutual funds. Online tax software  The exemption from withholding on certain interest-related dividends and short-term capital gain dividends paid by a mutual fund or other regulated investment company was scheduled to expire at the end of 2011. Online tax software These provisions have been extended through 2013. Online tax software Partnership withholding rate on effectively connected income. Online tax software  For 2013, the rate for withholding on noncorporate partners has increased to 39. Online tax software 6%. Online tax software The rate for corporate partners remains 35%. Online tax software Reminders Exemption from requirement to withhold for certain payments to qualified securities lenders. Online tax software  If you made U. Online tax software S. Online tax software -source substitute dividend payments to qualified securities lenders, and these payments are part of a chain of substitute dividend payments, you may be exempt from withholding tax on the payments. Online tax software See Amounts paid to qualified securities lenders . Online tax software Electronic deposits. Online tax software  You must make all deposits of taxes electronically. Online tax software Substitute forms. Online tax software  Any substitute forms you use must comply with the requirements in Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns. Online tax software If they do not, the forms may be rejected as incorrect and the IRS may impose penalties. Online tax software See Penalties. Online tax software Filing electronically. Online tax software  If you file Form 1042-S electronically, you will use the Filing Information Returns Electronically (FIRE) system. Online tax software You get to the system through the Internet at fire. Online tax software irs. Online tax software gov. Online tax software For files submitted on the FIRE system, it is the responsibility of the filer to verify the results of the transmission within 5 business days. Online tax software The IRS will not mail error reports for files that are bad. Online tax software Qualified intermediaries. Online tax software  A branch of a financial institution may not act as a qualified intermediary in a country that does not have approved know-your-customer rules. Online tax software See Qualified intermediary under Foreign Intermediaries. Online tax software Requests for extensions on Form 8809 must be filed electronically. Online tax software  Requests on Form 8809 for an extension of time to file Form 1042–S must be made electronically if the request is for more than one payer. Online tax software See Extension to file Form 1042-S with the IRS. Online tax software Photographs of missing children. Online tax software  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Online tax software Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Online tax software You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Online tax software Introduction This publication is for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, and international organizations. Online tax software Specifically, it describes the persons responsible for withholding (withholding agents), the types of income subject to withholding, and the information return and tax return filing obligations of withholding agents. Online tax software In addition to discussing the rules that apply generally to payments of U. Online tax software S. Online tax software source income to foreign persons, it also contains sections on the withholding that applies to the disposition of U. Online tax software S. Online tax software real property interests and the withholding by partnerships on income effectively connected with the active conduct of a U. Online tax software S. Online tax software trade or business. Online tax software Beginning in 2014, additional withholding rules become effective under Chapter 4 of the Internal Revenue Code as added by the Foreign Account Tax Compliance Act (FATCA). Online tax software U. Online tax software S. Online tax software withholding agents will be required to withhold on certain types of payments made to foreign financial institutions that do not enter into an agreement with the IRS. Online tax software For information on these provisions, go to www. Online tax software irs. Online tax software gov/fatca. Online tax software Comments and suggestions. Online tax software   We welcome your comments about this publication and your suggestions for future editions. Online tax software   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Online tax software NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Online tax software Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Online tax software   You can email us at taxforms@irs. Online tax software gov. Online tax software Please put “Publications Comment” on the subject line. Online tax software You can also send us comments from www. Online tax software irs. Online tax software gov/formspubs/. Online tax software Select “Comment on Tax Forms and Publications” under “Information About. Online tax software ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Online tax software Ordering forms and publications. Online tax software   Visit www. Online tax software irs. Online tax software gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Online tax software Internal Revenue Service 1201 N. Online tax software Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Online tax software   If you have a tax question, check the information available on IRS. Online tax software gov or call 1-800-829-1040. Online tax software We cannot answer tax questions sent to either of the above addresses. Online tax software Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 51 (Circular A), Agricultural Employer's Tax Guide 519 U. Online tax software S. Online tax software Tax Guide for Aliens 901 U. Online tax software S. Online tax software Tax Treaties Form (and Instructions) SS-4 Application for Employer Identification Number W-2 Wage and Tax Statement W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-7 Application for IRS Individual Taxpayer Identification Number W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding W-8ECI Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States W-8EXP Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding W-8IMY Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Online tax software S. Online tax software Branches for United States Tax Withholding 941 Employer's QUARTERLY Federal Tax Return 1042 Annual Withholding Tax Return for U. Online tax software S. Online tax software Source Income of Foreign Persons 1042-S Foreign Person's U. Online tax software S. Online tax software Source Income Subject to Withholding 1042-T Annual Summary and Transmittal of Forms 1042-S See How To Get Tax Help at the end of this publication, for information about getting publications and forms. Online tax software Prev  Up  Next   Home   More Online Publications