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State Returns

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State Returns

State returns 5. State returns   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. State returns Making the election. State returns Form 3115. State returns Income TaxesAccrual of contested income taxes. State returns Employment Taxes Other TaxesAdditional Medicare Tax. State returns What's New Additional Medicare Tax. State returns  Beginning in 2013, you must withhold a 0. State returns 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. State returns Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. State returns See Employment Taxes , and Self-employment tax , later. State returns Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. State returns You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. State returns Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. State returns When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. State returns This applies whether you use the cash method or an accrual method of accounting. State returns Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. State returns You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . State returns Limit on accrual of taxes. State returns   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. State returns However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. State returns Example. State returns Your state imposes a tax on personal property used in a trade or business conducted in the state. State returns This tax is assessed and becomes a lien as of July 1 (accrual date). State returns In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. State returns Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. State returns You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. State returns Uniform capitalization rules. State returns   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. State returns They also apply to certain taxpayers who acquire property for resale. State returns Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. State returns For more information, see chapter 1. State returns Carrying charges. State returns   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. State returns You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. State returns For more information, see chapter 7. State returns Refunds of taxes. State returns   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. State returns For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. State returns    You must include in income any interest you receive on tax refunds. State returns Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. State returns The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. State returns Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. State returns See Taxes for local benefits , later. State returns If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. State returns However, you can elect to ratably accrue the taxes during the year. State returns See Electing to ratably accrue , later. State returns Taxes for local benefits. State returns   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. State returns These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. State returns You should increase the basis of your property by the amount of the assessment. State returns   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. State returns If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. State returns Example. State returns To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. State returns The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. State returns The city is paying the principal and interest with the annual payments made by the property owners. State returns The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. State returns The part of the payments used to pay the interest charges on the bonds is deductible as taxes. State returns Charges for services. State returns   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. State returns Purchase or sale of real estate. State returns   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. State returns   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. State returns Treat the seller as paying the taxes up to but not including the date of sale. State returns Treat the buyer as paying the taxes beginning with the date of sale. State returns You can usually find this information on the settlement statement you received at closing. State returns   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. State returns Example. State returns Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. State returns He has not elected to ratably accrue property taxes. State returns November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. State returns He sold the property on June 30, 2013. State returns Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. State returns He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. State returns Electing to ratably accrue. State returns   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. State returns Example. State returns Juan Sanchez is a calendar year taxpayer who uses an accrual method. State returns His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. State returns July 1 is the assessment and lien date. State returns If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. State returns Separate elections. State returns   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. State returns Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. State returns See Form 3115 , later. State returns Making the election. State returns   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. State returns The statement should show all the following items. State returns The trades or businesses to which the election applies and the accounting method or methods used. State returns The period to which the taxes relate. State returns The computation of the real estate tax deduction for that first year. State returns   Generally, you must file your return by the due date (including extensions). State returns However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). State returns Attach the statement to the amended return and write “Filed pursuant to section 301. State returns 9100-2” on the statement. State returns File the amended return at the same address where you filed the original return. State returns Form 3115. State returns    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. State returns For more information, including applicable time frames for filing, see the Instructions for Form 3115. State returns Note. State returns If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. State returns R. State returns B. State returns 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. State returns R. State returns B. State returns 689, and Revenue Procedure 2012-20, 2012-14 I. State returns R. State returns B. State returns 700, or any successor. State returns Revenue Procedure 2011-14 is available at  www. State returns irs. State returns gov/irb/2011-04IRB/ar08. State returns html. State returns Income Taxes This section discusses federal, state, local, and foreign income taxes. State returns Federal income taxes. State returns   You cannot deduct federal income taxes. State returns State and local income taxes. State returns   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. State returns An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). State returns   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. State returns Accrual of contested income taxes. State returns   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. State returns   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. State returns You cannot deduct them in the year in which the liability is finally determined. State returns    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. State returns Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. State returns   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. State returns You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. State returns For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. State returns Foreign income taxes. State returns   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. State returns S. State returns possession. State returns However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. State returns S. State returns tax under the foreign earned income exclusion or the foreign housing exclusion. State returns For information on these exclusions, see Publication 54, Tax Guide for U. State returns S. State returns Citizens and Resident Aliens Abroad. State returns For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. State returns Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. State returns Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. State returns You may also need to pay certain employment taxes from your own funds. State returns These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. State returns Note. State returns Additional Medicare Tax is only imposed on the employee. State returns There is no employer share of Additional Medicare Tax. State returns Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. State returns You can deduct the employment taxes you must pay from your own funds as taxes. State returns Example. State returns You pay your employee $18,000 a year. State returns However, after you withhold various taxes, your employee receives $14,500. State returns You also pay an additional $1,500 in employment taxes. State returns You should deduct the full $18,000 as wages. State returns You can deduct the $1,500 you pay from your own funds as taxes. State returns For more information on employment taxes, see Publication 15 (Circular E). State returns Unemployment fund taxes. State returns   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. State returns Deduct these payments as taxes. State returns Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. State returns Excise taxes. State returns   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. State returns However, see Fuel taxes , later. State returns   For more information on excise taxes, see Publication 510. State returns Franchise taxes. State returns   You can deduct corporate franchise taxes as a business expense. State returns Fuel taxes. State returns   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. State returns Do not deduct these taxes as a separate item. State returns   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. State returns For more information, see Publication 510. State returns Occupational taxes. State returns   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. State returns Personal property tax. State returns   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. State returns Sales tax. State returns   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. State returns If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. State returns If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. State returns If the property is depreciable, add the sales tax to the basis for depreciation. State returns For more information on basis, see Publication 551. State returns    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. State returns Also, do not include these taxes in gross receipts or sales. State returns Self-employment tax. State returns   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. State returns This deduction only affects your income tax. State returns It does not affect your net earnings from self-employment or your self-employment tax. State returns   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). State returns   For more information on self-employment tax, see Publication 334. State returns Additional Medicare Tax. State returns   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. State returns See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. State returns Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Severe Storms in Illinois

IL/KS/MO-2013-50, Nov. 27, 2013

ST. LOUIS — Victims of severe storms, straight-line winds and tornadoes that began on Nov. 17, 2013 in parts of Illinois may qualify for tax relief from the Internal Revenue Service.

Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Illinois will receive tax relief, and other locations may be added in coming days based on additional damage assessments by FEMA.

The President has declared the counties of Champaign, Douglas, Fayette, Grundy, Jasper, La Salle, Massac, Pope, Tazewell, Vermilion, Wabash, Washington, Wayne, Will and Woodford a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Nov. 17, and on or before Feb. 28, 2014, have been postponed to Feb. 28, 2014.

The IRS is also waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Nov. 17, and on or before Dec. 2, as long as the deposits are made by Dec. 2, 2013.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Feb. 28, 2014, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Nov. 17 and on or before Feb. 28, 2014.

The IRS also gives affected taxpayers until Feb. 28, 2014, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Nov. 17 and on or before Feb. 28, 2014.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Nov. 17 and on or before Dec. 2 provided the taxpayer makes these deposits by Dec. 2.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Illinois/ Severe Storms, Straight-line Winds, and Tornadoes” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-TAX-FORM (800-829-3676). The IRS toll-free number for general tax questions is 800-829-1040.

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses

Recent IRS Disaster Relief Announcements

Page Last Reviewed or Updated: 27-Nov-2013

The State Returns

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