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Tax Form 1040x
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Tax Form 1040x
Tax form 1040x 2. Tax form 1040x Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Tax form 1040x The pay may be in cash, property, or services. Tax form 1040x It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Tax form 1040x For information about deducting employment taxes, see chapter 5. Tax form 1040x You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Tax form 1040x Empowerment zone employment credit (Form 8844). Tax form 1040x Indian employment credit (Form 8845). Tax form 1040x Work opportunity credit (Form 5884). Tax form 1040x Credit for employer differential wage payments (Form 8932). Tax form 1040x Reduce your deduction for employee wages by the amount of employment credits you claim. Tax form 1040x For more information about these credits, see the form on which the credit is claimed. Tax form 1040x Topics - This chapter discusses: Tests for deducting pay Kinds of pay 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 See chapter 12 for information about getting publications and forms. Tax form 1040x Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Tax form 1040x These and other requirements that apply to all business expenses are explained in chapter 1. Tax form 1040x In addition, the pay must meet both of the following tests. Tax form 1040x Test 1. Tax form 1040x It must be reasonable. Tax form 1040x Test 2. Tax form 1040x It must be for services performed. Tax form 1040x The form or method of figuring the pay does not affect its deductibility. Tax form 1040x For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Tax form 1040x Test 1—Reasonableness You must be able to prove that the pay is reasonable. Tax form 1040x Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Tax form 1040x If the pay is excessive, the excess pay is disallowed as a deduction. Tax form 1040x Factors to consider. Tax form 1040x Determine the reasonableness of pay by the facts and circumstances. Tax form 1040x Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Tax form 1040x To determine if pay is reasonable, also consider the following items and any other pertinent facts. Tax form 1040x The duties performed by the employee. Tax form 1040x The volume of business handled. Tax form 1040x The character and amount of responsibility. Tax form 1040x The complexities of your business. Tax form 1040x The amount of time required. Tax form 1040x The cost of living in the locality. Tax form 1040x The ability and achievements of the individual employee performing the service. Tax form 1040x The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Tax form 1040x Your policy regarding pay for all your employees. Tax form 1040x The history of pay for each employee. Tax form 1040x Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Tax form 1040x Employee-shareholder salaries. Tax form 1040x If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Tax form 1040x The excessive part of the salary would not be allowed as a salary deduction by the corporation. Tax form 1040x For more information on corporate distributions to shareholders, see Publication 542, Corporations. Tax form 1040x Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Tax form 1040x For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Tax form 1040x Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Tax form 1040x If you give property to an employee as an employee achievement award, your deduction may be limited. Tax form 1040x Achievement awards. Tax form 1040x An achievement award is an item of tangible personal property that meets all the following requirements. Tax form 1040x It is given to an employee for length of service or safety achievement. Tax form 1040x It is awarded as part of a meaningful presentation. Tax form 1040x It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Tax form 1040x Length-of-service award. Tax form 1040x An award will qualify as a length-of-service award only if either of the following applies. Tax form 1040x The employee receives the award after his or her first 5 years of employment. Tax form 1040x The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Tax form 1040x Safety achievement award. Tax form 1040x An award for safety achievement will qualify as an achievement award unless one of the following applies. Tax form 1040x It is given to a manager, administrator, clerical employee, or other professional employee. Tax form 1040x During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Tax form 1040x Deduction limit. Tax form 1040x Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Tax form 1040x $400 for awards that are not qualified plan awards. Tax form 1040x $1,600 for all awards, whether or not qualified plan awards. Tax form 1040x A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Tax form 1040x A highly compensated employee is an employee who meets either of the following tests. Tax form 1040x The employee was a 5% owner at any time during the year or the preceding year. Tax form 1040x The employee received more than $115,000 in pay for the preceding year. Tax form 1040x You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Tax form 1040x An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Tax form 1040x To figure this average cost, ignore awards of nominal value. Tax form 1040x Deduct achievement awards as a nonwage business expense on your return or business schedule. Tax form 1040x You may not owe employment taxes on the value of some achievement awards you provide to an employee. Tax form 1040x See Publication 15-B. Tax form 1040x Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Tax form 1040x However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Tax form 1040x If the bonus is paid in property, see Property , later. Tax form 1040x Gifts of nominal value. Tax form 1040x If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Tax form 1040x Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Tax form 1040x For more information on this deduction limit, see Meals and lodging , later. Tax form 1040x Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Tax form 1040x Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Tax form 1040x For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Tax form 1040x Fringe Benefits A fringe benefit is a form of pay for the performance of services. Tax form 1040x You can generally deduct the cost of fringe benefits. Tax form 1040x You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Tax form 1040x You also may not owe employment taxes on the value of the fringe benefits. Tax form 1040x See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Tax form 1040x Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Tax form 1040x Certain fringe benefits are discussed next. Tax form 1040x See Publication 15-B for more details on these and other fringe benefits. Tax form 1040x Meals and lodging. Tax form 1040x You can usually deduct the cost of furnishing meals and lodging to your employees. Tax form 1040x Deduct the cost in whatever category the expense falls. Tax form 1040x For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Tax form 1040x If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Tax form 1040x Deduction limit on meals. Tax form 1040x You can generally deduct only 50% of the cost of furnishing meals to your employees. Tax form 1040x However, you can deduct the full cost of the following meals. Tax form 1040x Meals whose value you include in an employee's wages. Tax form 1040x Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Tax form 1040x This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Tax form 1040x Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Tax form 1040x Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Tax form 1040x Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Tax form 1040x This does not include meals you furnish on vessels primarily providing luxury water transportation. Tax form 1040x Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Tax form 1040x This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Tax form 1040x Employee benefit programs. Tax form 1040x Employee benefit programs include the following. Tax form 1040x Accident and health plans. Tax form 1040x Adoption assistance. Tax form 1040x Cafeteria plans. Tax form 1040x Dependent care assistance. Tax form 1040x Education assistance. Tax form 1040x Life insurance coverage. Tax form 1040x Welfare benefit funds. Tax form 1040x You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Tax form 1040x For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Tax form 1040x ). Tax form 1040x Life insurance coverage. Tax form 1040x You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Tax form 1040x See Regulations section 1. Tax form 1040x 264-1 for more information. Tax form 1040x Welfare benefit funds. Tax form 1040x A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Tax form 1040x Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Tax form 1040x Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Tax form 1040x If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Tax form 1040x Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Tax form 1040x The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Tax form 1040x The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Tax form 1040x These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Tax form 1040x For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Tax form 1040x Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Tax form 1040x However, if the employee performs no services, treat the amount you advanced as a loan. Tax form 1040x If the employee does not repay the loan, treat it as income to the employee. Tax form 1040x Below-market interest rate loans. Tax form 1040x On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Tax form 1040x See Below-Market Loans in chapter 4. Tax form 1040x Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Tax form 1040x The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Tax form 1040x You can claim the deduction only for the tax year in which your employee includes the property's value in income. Tax form 1040x Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Tax form 1040x You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Tax form 1040x Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Tax form 1040x These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Tax form 1040x Restricted property. Tax form 1040x If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Tax form 1040x However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Tax form 1040x “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Tax form 1040x This means that the recipient is not likely to have to give up his or her rights in the property in the future. Tax form 1040x Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Tax form 1040x However, your deduction may be limited. Tax form 1040x If you make the payment under an accountable plan, deduct it in the category of the expense paid. Tax form 1040x For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Tax form 1040x If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Tax form 1040x See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Tax form 1040x Sick and Vacation Pay Sick pay. Tax form 1040x You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Tax form 1040x However, your deduction is limited to amounts not compensated by insurance or other means. Tax form 1040x Vacation pay. Tax form 1040x Vacation pay is an employee benefit. Tax form 1040x It includes amounts paid for unused vacation leave. Tax form 1040x You can deduct vacation pay only in the tax year in which the employee actually receives it. Tax form 1040x This rule applies regardless of whether you use the cash or accrual method of accounting. Tax form 1040x Prev Up Next Home More Online Publications
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If you become the victim of identity theft outside of the tax system or believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or credit report, etc., you are encouraged to contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.
You will need to fill out the IRS Identity Theft Affidavit, Form 14039. Please be sure to write legibly and follow the instructions on the back of the form.
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Page Last Reviewed or Updated: 06-Dec-2013
The Tax Form 1040x
Tax form 1040x Publication 850 (EN/SP) - Introductory Material Table of Contents Introduction Introduction This glossary is developed by the Tax Forms and Publications Division of the Internal Revenue Service, in consultation with the Translation Commission of the North American Academy of the Spanish Language (Comisión de Traducciones de la Academia Norteamericana de la Lengua Española) and with the Graduate Program in Translation of the University of Puerto Rico (Programa Graduado en Traducción de la Universidad de Puerto Rico). Tax form 1040x Its purpose is to establish high standards for the quality of language usage, to promote uniformity in language usage, and to minimize the risk of misinterpretation of Spanish-language materials issued by the Service. Tax form 1040x To meet the needs of the largest segment of taxpayers whose primary language is Spanish, the Service has issued certain Spanish-language materials. Tax form 1040x Problems arise, however, because there is some variation in tax terminology used in Spanish-speaking countries. Tax form 1040x Also, invention and compromise are involved in selecting words and phrases to describe certain tax concepts that have no precise equivalent in the Spanish language or legal tradition. Tax form 1040x To help resolve these problems, a group of United States, Spanish, and Spanish-American academicians, professors, lawyers, accountants, translators, and tax law specialists developed this glossary. Tax form 1040x Their long and varied experience with the tax systems in their own, and other countries, gives assurance of reliability. Tax form 1040x The criteria used for words in this glossary are: consistency of usage with other governmental agencies, Spanish writing style for the tax forms and publications, and words relating to Accounting, Economics, Finance, Law, Technology and its related fields. Tax form 1040x Any issuance containing language consistent with this glossary should be reasonably satisfactory for purposes of general guidance regarding the rights and obligations of taxpayers. Tax form 1040x It is not intended, however, that any term in this glossary should be understood to change the meaning of any provisions of law, regulations, or any other authoritative precedent. Tax form 1040x A periodic review is made to determine whether any additions, deletions, or revisions are needed. Tax form 1040x Some of the terms listed are identified by the abbreviation “P. Tax form 1040x R. Tax form 1040x ” These terms are for use in tax forms and publications intended for circulation exclusively in Puerto Rico. Tax form 1040x Users are invited to send their comments to: Internal Revenue Service Virtual Translation Office SE:W:CAR:MP:T:LS:VTO 1111 Constitution Ave. Tax form 1040x , N. Tax form 1040x W. Tax form 1040x , IR-6102 Washington, DC 20224 or electronically to: vto@irs. Tax form 1040x gov Prev Up Next Home More Online Publications