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Taxes 2012

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Taxes 2012

Taxes 2012 Publication 51 - Introductory Material Table of Contents Future Developments What's New Reminders Calendar Introduction Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 51 (Circular A), such as legislation enacted after it was published, go to www. Taxes 2012 irs. Taxes 2012 gov/pub51. Taxes 2012 What's New Social security and Medicare tax for 2014. Taxes 2012  The social security tax rate is 6. Taxes 2012 2% each for the employee and employer, unchanged from 2013. Taxes 2012 The social security wage base limit is $117,000. Taxes 2012 The Medicare tax rate is 1. Taxes 2012 45% each for the employee and employer, unchanged from 2013. Taxes 2012 There is no wage base limit for Medicare tax. Taxes 2012 Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. Taxes 2012 Withholding allowance. Taxes 2012  The 2014 amount for one withholding allowance on an annual basis is $3,950. Taxes 2012 Change of responsible party. Taxes 2012  Beginning January 1, 2014, any entity with an employer identification number (EIN) must file Form 8822-B, Change of Address or Responsible Party—Business, to report the latest change to its responsible party. Taxes 2012 Form 8822-B must be filed within 60 days of the change. Taxes 2012 If the change in the identity of your responsible party occurred before 2014, and you have not previously notified the IRS of the change, file Form 8822-B before March 1, 2014, reporting only the most recent change. Taxes 2012 For a definition of "responsible party", see the Form 8822-B instructions. Taxes 2012 Same-sex marriage. Taxes 2012  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Taxes 2012 For more information, see Revenue Ruling 2013-17, 2013-38 I. Taxes 2012 R. Taxes 2012 B. Taxes 2012 201, available at www. Taxes 2012 irs. Taxes 2012 gov/irb/2013-38_IRB/ar07. Taxes 2012 html. Taxes 2012 Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. Taxes 2012 Notice 2013-61, 2013-44 I. Taxes 2012 R. Taxes 2012 B. Taxes 2012 432, is available at www. Taxes 2012 irs. Taxes 2012 gov/irb/2013-44_IRB/ar10. Taxes 2012 html. Taxes 2012 Reminders Additional Medicare Tax withholding. Taxes 2012  In addition to withholding Medicare tax at 1. Taxes 2012 45%, you must withhold a 0. Taxes 2012 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Taxes 2012 You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Taxes 2012 Additional Medicare Tax is only imposed on the employee. Taxes 2012 There is no employer share of Additional Medicare Tax. Taxes 2012 All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Taxes 2012 For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. Taxes 2012 For more information on Additional Medicare Tax, visit IRS. Taxes 2012 gov and enter “Additional Medicare Tax” in the search box. Taxes 2012 Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. Taxes 2012  The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. Taxes 2012 Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. Taxes 2012 For more information, visit IRS. Taxes 2012 gov and enter “work opportunity tax credit” in the search box. Taxes 2012 Outsourcing payroll duties. Taxes 2012  Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. Taxes 2012 The employer remains responsible if the third party fails to perform any required action. Taxes 2012 If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. Taxes 2012 gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. Taxes 2012 COBRA premium assistance credit. Taxes 2012  The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months. Taxes 2012 For more information, see COBRA premium assistance credit under Introduction. Taxes 2012 Compensation paid to H-2A foreign agricultural workers. Taxes 2012  Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2, Wage and Tax Statement. Taxes 2012 Compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes, and therefore should not be reported as wages subject to social security tax (line 2), Medicare tax (line 4), or Additional Medicare Tax withholding (line 6) on Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, and should not be reported as social security wages (box 3) or Medicare wages (box 5) on Form W-2. Taxes 2012 On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Taxes 2012 An employer is not required to withhold federal income tax from compensation it pays an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. Taxes 2012 In that case, the worker must give the employer a completed Form W-4, Employee's Withholding Allowance Certificate. Taxes 2012 Federal income tax withheld should be reported on Form 943, line 8, and in box 2 of Form W-2. Taxes 2012 These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. Taxes 2012 For the rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. Taxes 2012 Additional employment tax information. Taxes 2012  Visit the IRS website at www. Taxes 2012 irs. Taxes 2012 gov/businesses and click on Employment Taxes under Businesses Topics. Taxes 2012 For employment tax information by telephone, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) Monday–Friday from 7:00 a. Taxes 2012 m. Taxes 2012 –7:00 p. Taxes 2012 m. Taxes 2012 local time (Alaska and Hawaii follow Pacific time). Taxes 2012 Additionally, you can call IRS TeleTax at 1-800-829-4477 for recorded information by topic. Taxes 2012 Disregarded entities and qualified subchapter S subsidiaries (QSubs). Taxes 2012  Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. Taxes 2012 Eligible single-member entities that have not elected to be taxed as corporations must report and pay employment taxes on wages paid to their employees using the entities' own names and EINs. Taxes 2012 See Regulations sections 1. Taxes 2012 1361-4(a)(7) and 301. Taxes 2012 7701-2(c)(2)(iv). Taxes 2012 Differential wage payments. Taxes 2012  Qualified differential wage payments made by employers to individuals serving in the Armed Forces after 2008 are subject to income tax withholding but not social security, Medicare, or FUTA taxes. Taxes 2012 For more information, see Publication 15 (Circular E). Taxes 2012 Federal tax deposits must be made by electronic funds transfer. Taxes 2012  You must use electronic funds transfer to make all federal tax deposits. Taxes 2012 Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Taxes 2012 If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Taxes 2012 Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Taxes 2012 EFTPS is a free service provided by the Department of Treasury. Taxes 2012 Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Taxes 2012 For more information on making federal tax deposits, see How To Deposit in section 7. Taxes 2012 To get more information about EFTPS or to enroll in EFTPS, visit www. Taxes 2012 eftps. Taxes 2012 gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Taxes 2012 Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. Taxes 2012 Electronic filing and payment. Taxes 2012  Now, more than ever before, businesses can enjoy the benefits of filing tax returns and paying their taxes electronically. Taxes 2012 Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make it easier. Taxes 2012 Spend less time and worry on taxes and more time running your business. Taxes 2012 Use e-file and the Electronic Federal Tax Payment System (EFTPS) to your benefit. Taxes 2012 For e-file, visit the IRS website at www. Taxes 2012 irs. Taxes 2012 gov/efile for additional information. Taxes 2012 For EFTPS, visit www. Taxes 2012 eftps. Taxes 2012 gov or call EFTPS Customer Service at 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD) for additional information. Taxes 2012 For electronic filing of Form W-2, visit www. Taxes 2012 socialsecurity. Taxes 2012 gov/employer. Taxes 2012 If you are filing your tax return or paying your federal taxes electronically, a valid EIN is required. Taxes 2012 If a valid EIN is not provided, the return or payment will not be processed. Taxes 2012 This may result in penalties and delays in processing your return or payment. Taxes 2012 Electronic funds withdrawal (EFW). Taxes 2012  If you file Form 943 electronically, you can e-file and e-pay (electronic funds withdrawal) the balance due in a single step using tax preparation software or through a tax professional. Taxes 2012 However, do not use EFW to make federal tax deposits. Taxes 2012 For more information on paying your taxes using EFW, visit the IRS website at www. Taxes 2012 irs. Taxes 2012 gov/e-pay. Taxes 2012 A fee may be charged to file electronically. Taxes 2012 Credit or debit card payments. Taxes 2012   Employers can pay the balance due shown on Form 943 by credit or debit card. Taxes 2012 Do not use a credit or debit card to make federal tax deposits. Taxes 2012 For more information on paying your taxes with a credit or debit card, visit the IRS website at www. Taxes 2012 irs. Taxes 2012 gov/e-pay. Taxes 2012 When you hire a new employee. Taxes 2012  Ask each new employee to complete the 2014 Form W-4 or its Spanish version, Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado. Taxes 2012 Also, ask the employee to show you his or her social security card so that you can record the employee's name and social security number accurately. Taxes 2012 If the employee has lost the card or recently changed names, have the employee apply for a duplicate or corrected card. Taxes 2012 If the employee does not have a card, have the employee apply for one on Form SS-5, Application for a Social Security Card. Taxes 2012 See section 1 for more information. Taxes 2012 Eligibility for employment. Taxes 2012  You must verify that each new employee is legally eligible to work in the United States. Taxes 2012 This includes completing the U. Taxes 2012 S. Taxes 2012 Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Taxes 2012 You can get the form from USCIS offices or by calling 1-800-870-3676. Taxes 2012 Contact the USCIS at 1-800-375-5283, or visit the USCIS website at www. Taxes 2012 uscis. Taxes 2012 gov for more information. Taxes 2012 New hire reporting. Taxes 2012   You are required to report any new employee to a designated state new-hire registry. Taxes 2012 A new employee is an employee who has not previously been employed by you or was previously employed by you but has been separated from such prior employment for at least 60 consecutive days. Taxes 2012 Many states accept a copy of Form W-4 with employer information added. Taxes 2012 Visit the Office of Child Support Enforcement's website at www. Taxes 2012 acf. Taxes 2012 hhs. Taxes 2012 gov/programs/cse/newhire for more information. Taxes 2012 Dishonored payments. Taxes 2012  Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. Taxes 2012 The penalty is $25 or 2% of the payment, whichever is more. Taxes 2012 However, the penalty on dishonored payments of $24. Taxes 2012 99 or less is an amount equal to the payment. Taxes 2012 For example, a dishonored payment of $18 is charged a penalty of $18. Taxes 2012 Forms in Spanish. Taxes 2012  You can provide Formulario W-4(SP) in place of Form W-4 to your Spanish-speaking employees. Taxes 2012 For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Taxes 2012 For nonemployees, Formulario W-9(SP), Solicitud y Certificación del Número de Identificación del Contribuyente, may be used in place of Form W-9, Request for Taxpayer Identification Number and Certification. Taxes 2012 References in this publication to Form W-4 or Form W-9 also apply to their equivalent Spanish translations—Formulario W-4(SP) or Formulario W-9(SP). Taxes 2012 Information returns. Taxes 2012  You may be required to file information returns to report certain types of payments made during the year. Taxes 2012 For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (for example, independent contractors) for services performed for your trade or business. Taxes 2012 For details about filing Forms 1099 and for information about required electronic filing, see the General Instructions for Certain Information Returns for general information and the separate, specific instructions for each information return that you file (for example, Instructions for Form 1099-MISC). Taxes 2012 Generally, do not use Forms 1099 to report wages or other compensation that you paid to employees; report these amounts on Form W-2. Taxes 2012 See the General Instructions for Forms W-2 and W-3 for details about filing Forms W-2 and for information about required electronic filing. Taxes 2012 If you file 250 or more Forms W-2, you must file them electronically. Taxes 2012 SSA will not accept Forms W-2 and W-3 filed on any magnetic media. Taxes 2012 Information reporting customer service site. Taxes 2012  The IRS operates the Enterprise Computing Center—Martinsburg, a centralized customer service site, to answer questions about reporting on Forms W-2, W-3, 1099, and other information returns. Taxes 2012 If you have questions related to reporting on information returns, you may call 1-866-455-7438 (toll free), 304-263-8700 (toll call), or 304-267-3367 (TDD/TTY for persons who are deaf, heard of hearing, or have a speech disability). Taxes 2012 The call site can also be reached by email at mccirp@irs. Taxes 2012 gov. Taxes 2012 Do not include tax identification numbers (TINs) or attachments in email correspondence because electronic mail is not secure. Taxes 2012 Web-based application for an employer identification number (EIN). Taxes 2012  You can apply for an employer identification number (EIN) online by visiting IRS. Taxes 2012 gov and clicking on the Apply for an EIN Online link under Tools. Taxes 2012 When a crew leader furnishes workers to you. Taxes 2012  Record the crew leader's name, address, and EIN. Taxes 2012 See sections 2 and 10. Taxes 2012 Change of address. Taxes 2012  Use Form 8822-B to notify the IRS of an address change. Taxes 2012 Do not mail form 8822-B with your employment tax return. Taxes 2012 Ordering forms and publications. Taxes 2012  You can order your 2013 and 2014 employment tax and information return forms, instructions, and publications online at www. Taxes 2012 irs. Taxes 2012 gov/businesses. Taxes 2012 Click on the Online Ordering for Information Returns and Employer Returns. Taxes 2012 You can also visit www. Taxes 2012 irs. Taxes 2012 gov/formspubs to download other forms and publications. Taxes 2012 Instead of ordering paper Forms W-2 and W-3, consider filing them electronically using the Social Security Administration's (SSA) free e-file service. Taxes 2012 Visit the SSA's Employer W-2 Filing Instructions & Information website at  www. Taxes 2012 socialsecurity. Taxes 2012 gov/employer, to register for Business Services Online. Taxes 2012 You will be able to create and file “fill-in” versions of Forms W-2 with SSA and can print out completed copies of Forms W-2 for filing with state and local governments, distribution to your employees, and for your records. Taxes 2012 Form W-3 will be created for you based on your Forms W-2. Taxes 2012 Tax Questions. Taxes 2012   If you have a tax question, check the information available on IRS. Taxes 2012 gov or call 1-800-829-4933 (businesses), 1-800-829-1040 (individuals), or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) Monday–Friday from 7:00 a. Taxes 2012 m. Taxes 2012 –7:00 p. Taxes 2012 m. Taxes 2012 local time (Alaska and Hawaii follow Pacific time). Taxes 2012 We cannot answer tax questions sent to the address provided later for comments and suggestions. Taxes 2012 Recordkeeping. Taxes 2012  Keep all records of employment taxes for at least 4 years. Taxes 2012 These should be available for IRS review. Taxes 2012 Your records should include the following information. Taxes 2012 Your employer identification number (EIN). Taxes 2012 Amounts and dates of all wage, annuity, and pension payments. Taxes 2012 Names, addresses, social security numbers, and occupations of employees and recipients. Taxes 2012 Any employee copies of Forms W-2 and W-2c returned to you as undeliverable. Taxes 2012 Dates of employment for each employee. Taxes 2012 Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them. Taxes 2012 Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4(SP), W-4P, and W-4S). Taxes 2012 Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS. Taxes 2012 Copies of returns filed and confirmation numbers. Taxes 2012 Records of fringe benefits and expense reimbursements provided to your employees, including substantiation. Taxes 2012 If a crew leader furnished you with farmworkers, you must keep a record of the name, permanent mailing address, and EIN of the crew leader. Taxes 2012 If the crew leader has no permanent mailing address, record his or her present address. Taxes 2012 Private delivery services. Taxes 2012  You can use certain private delivery services designated by the IRS to send tax returns and payments. Taxes 2012 The list includes only the following. Taxes 2012 DHL Express (DHL): DHL Same Day Service. Taxes 2012 Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Taxes 2012 United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Taxes 2012 M. Taxes 2012 , UPS Worldwide Express Plus, and UPS Worldwide Express. Taxes 2012 For the IRS mailing address to use if you are using a private delivery service, go to IRS. Taxes 2012 gov and enter "private delivery service" in the search box. Taxes 2012 Your private delivery service can tell you how to get written proof of the mailing date. Taxes 2012 Private delivery services cannot deliver items to P. Taxes 2012 O. Taxes 2012 boxes. Taxes 2012 You must use the U. Taxes 2012 S. Taxes 2012 Postal Service to mail any item to an IRS P. Taxes 2012 O. Taxes 2012 box address. Taxes 2012 Photographs of missing children. Taxes 2012  The IRS is a proud partner with the National Center for Missing and Exploited Children. Taxes 2012 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Taxes 2012 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. Taxes 2012 Calendar The following are important dates and responsibilities. Taxes 2012 See section 7 for information about depositing taxes reported on Forms 941, 943, 944, and 945. Taxes 2012 Also see Publication 509, Tax Calendars. Taxes 2012   If any date shown below for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. Taxes 2012 A statewide legal holiday delays a filing due date only if the IRS office where you are required to file is located in that state. Taxes 2012 However, a statewide legal holiday does not delay the due date of federal tax deposits. Taxes 2012 See Deposits on Business Days Only in section 7. Taxes 2012 For any filing due date, you will meet the “file” or “furnish” requirement if the envelope containing the return or form is properly addressed, contains sufficient postage, and is postmarked by the U. Taxes 2012 S. Taxes 2012 Postal Service on or before the due date, or sent by an IRS-designated delivery service on or before the due date. Taxes 2012 See Private delivery services under Reminders. Taxes 2012 By January 31 . Taxes 2012   File Form 943. Taxes 2012 See section 8 for more information on Form 943. Taxes 2012 If you deposited all Form 943 taxes when due, you have 10 additional calendar days to file. Taxes 2012 Furnish each employee with a completed Form W-2. Taxes 2012 Furnish each recipient to whom you paid $600 or more in nonemployee compensation with a completed Form 1099 (for example, Form 1099-MISC). Taxes 2012 File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Taxes 2012 See section 10 for more information on FUTA. Taxes 2012 If you deposited all the FUTA tax when due, you have 10 additional calendar days to file. Taxes 2012 File Form 945, Annual Return of Withheld Federal Income Tax, to report any nonpayroll federal income tax withheld in 2013. Taxes 2012 If you deposited all Form 945 taxes when due, you have 10 additional calendar days to file. Taxes 2012 By February 15. Taxes 2012  Ask for a new Form W-4 or Formulario W-4(SP) from each employee who claimed exemption from federal income tax withholding last year. Taxes 2012 On February 16. Taxes 2012  Any Form W-4 claiming exemption from withholding for the previous year has now expired. Taxes 2012 Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. Taxes 2012 If the employee does not give you a new Form W-4, withhold tax based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. Taxes 2012 See section 5 for more information. Taxes 2012 If the employee furnishes a new Form W-4 claiming exemption from withholding after February 15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. Taxes 2012 By February 28. Taxes 2012   File paper Forms 1099 and 1096. Taxes 2012 File Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U. Taxes 2012 S. Taxes 2012 Information Returns, with the IRS. Taxes 2012 For electronically filed returns, see By March 31 below. Taxes 2012 File paper Forms W-2 and W-3. Taxes 2012 File Copy A of all paper Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, with the SSA. Taxes 2012 For electronically filed returns, see By March 31 next. Taxes 2012 By March 31. Taxes 2012   File electronic Forms W-2 and 1099. Taxes 2012 File electronic Forms W-2 with the SSA and Forms 1099 with the IRS. Taxes 2012 For more information on reporting Form W-2 information to the SSA electronically, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Taxes 2012 socialsecurity. Taxes 2012 gov/employer. Taxes 2012 For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G. Taxes 2012 By April 30, July 31, October 31, and January 31. Taxes 2012   Deposit FUTA taxes. Taxes 2012 Deposit FUTA tax if the undeposited amount is over $500. Taxes 2012 Before December 1. Taxes 2012  Remind employees to submit a new Form W-4 if their marital status or withholding allowances have changed or will change for the next year. Taxes 2012 Introduction This publication is for employers of agricultural workers (farmworkers). Taxes 2012 It contains information that you may need to comply with the laws for agricultural labor (farmwork) relating to social security and Medicare taxes, FUTA tax, and withheld federal income tax (employment taxes). Taxes 2012 Agricultural employers report social security and Medicare taxes and withheld federal income tax on Form 943 and report FUTA tax on Form 940. Taxes 2012 If you have nonfarm employees, see Publication 15 (Circular E). Taxes 2012 If you have employees in the U. Taxes 2012 S. Taxes 2012 Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, see Publication 80 (Circular SS). Taxes 2012 Publication 15-A, Employer's Supplemental Tax Guide, contains more employment-related information, including information about sick pay and pension income. Taxes 2012 Publication 15-B, Employer's Tax Guide to Fringe Benefits, contains information about the employment tax treatment and valuation of various types of noncash compensation. Taxes 2012 Comments and suggestions. Taxes 2012   We welcome your comments about this publication and your suggestions for future editions. Taxes 2012   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division  1111 Constitution Ave. Taxes 2012 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Taxes 2012 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Taxes 2012   You can also send us comments from www. Taxes 2012 irs. Taxes 2012 gov/formspubs. Taxes 2012 Click on More Information and then click on Comment on Tax Forms and Publications. Taxes 2012   Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. Taxes 2012 COBRA premium assistance credit. Taxes 2012   The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. Taxes 2012 COBRA generally covers multiemployer health plans and health plans maintained by private-sector employers (other than churches) with 20 or more full and part-time employees. Taxes 2012 Parallel requirements apply to these plans under the Employee Retirement Income Security Act of 1974 (ERISA). Taxes 2012 Under the Public Health Service Act, COBRA requirements apply also to health plans covering state or local government employees. Taxes 2012 Similar requirements apply under the Federal Employees Health Benefits Program and under some state laws. Taxes 2012 For the premium assistance (or subsidy) discussed below, these requirements are all referred to as COBRA requirements. Taxes 2012   Under the American Recovery and Reinvestment Act of 2009 (ARRA), employers are allowed a credit against “payroll taxes” (referred to in this publication as “employment taxes”) for providing COBRA premium assistance to assistance eligible individuals. Taxes 2012 For periods of COBRA continuation coverage beginning after February 16, 2009, a group health plan must treat an assistance eligible individual as having paid the required COBRA continuation coverage premium if the individual elects COBRA coverage and pays 35% of the amount of the premium. Taxes 2012   An assistance eligible individual is a qualified beneficiary of an employer's group health plan who is eligible for COBRA continuation coverage during the period beginning September 1, 2008, and ending May 31, 2010, due to the involuntarily termination from employment of a covered employee during the period and elects continuation COBRA coverage. Taxes 2012 The assistance for the coverage can last up to 15 months. Taxes 2012   Employees terminated during the period beginning September 1, 2008, and ending May 31, 2010, who received a severance package that delayed the start of the COBRA continuation coverage, may still be eligible for premium assistance for COBRA continuation coverage. Taxes 2012 For more information, see Notice 2009-27, 2009-16 I. Taxes 2012 R. Taxes 2012 B. Taxes 2012 838, available at www. Taxes 2012 irs. Taxes 2012 gov/irb/2009-16_irb/ar09. Taxes 2012 html. Taxes 2012   Administrators of the group health plans (or other entities) that provide or administer COBRA continuation coverage must provide notice to assistance eligible individuals of the COBRA premium assistance. Taxes 2012   The 65% of the premium not paid by the assistance eligible individual is reimbursed to the employer maintaining the group health plan. Taxes 2012 The reimbursement is made through a credit against the employer's employment tax liabilities. Taxes 2012 For information on how to claim the credit, see the Instructions for Form 943. Taxes 2012 The credit is treated as a deposit made on the first day of the return period. Taxes 2012 In the case of a multiemployer plan, the credit is claimed by the plan, rather than the employer. Taxes 2012 In the case of an insured plan subject to state law continuation coverage requirements, the credit is claimed by the insurance company, rather than the employer. Taxes 2012   Anyone claiming the credit for COBRA premium assistance payments must maintain the following information to support their claim, including the following. Taxes 2012 Information on the receipt of the assistance eligible individuals' 35% share of the premium including dates and amounts. Taxes 2012 In the case of an insurance plan, a copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA. Taxes 2012 In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals. Taxes 2012 Attestation of involuntary termination, including the date of the involuntary termination for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. Taxes 2012 Proof of each assistance eligible individual's eligibility for COBRA coverage and the election of COBRA coverage. Taxes 2012 A record of the social security numbers (SSNs) of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals. Taxes 2012   For more information, visit IRS. Taxes 2012 gov and enter “COBRA” in the search box. Taxes 2012 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 225 Farmer's Tax Guide 535 Business Expenses 583 Starting a Business and Keeping Records 1635 Employer Identification Number: Understanding Your EIN Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Alabama

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  Address  Days/Hours of Service  Telephone* 
Birmingham  801 Tom Martin Dr.
Birmingham, AL 35211 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(205) 912-5333 
Dothan  202 W. Adams St.
Dothan, AL 36303 

Monday-Friday - 8:30 a.m.-4:30 p.m. 
(Closed for lunch 12:00 noon - 1:00 p.m.)
 

Services Provided

(334) 702-3470 
Florence  204 S. Walnut St.
Florence, AL 35630 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.) 


Services Provided

(256) 764-6731 
Huntsville  5123 Research Dr. N.W.
Huntsville, AL 35805

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(256) 539-0642 
Mobile  1110 Montlimar Dr.
Mobile, AL 36609 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(251) 341-5946 
Montgomery  1285 Carmichael Way.
Montgomery, AL 36106 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(334) 264-2453 

* 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 (205) 912-5631 in Birmingham, 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
801 Tom Martin, Room 150, Stop 30
Birmingham, AL 35211

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 Taxes 2012

Taxes 2012 4. Taxes 2012   Transportation Table of Contents Parking fees. Taxes 2012 Advertising display on car. Taxes 2012 Car pools. Taxes 2012 Hauling tools or instruments. Taxes 2012 Union members' trips from a union hall. Taxes 2012 Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. Taxes 2012 These expenses include the cost of transportation by air, rail, bus, taxi, etc. Taxes 2012 , and the cost of driving and maintaining your car. Taxes 2012 Transportation expenses include the ordinary and necessary costs of all of the following. Taxes 2012 Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Taxes 2012 Tax home is defined in chapter 1. Taxes 2012 Visiting clients or customers. Taxes 2012 Going to a business meeting away from your regular workplace. Taxes 2012 Getting from your home to a temporary workplace when you have one or more regular places of work. Taxes 2012 These temporary workplaces can be either within the area of your tax home or outside that area. Taxes 2012 Transportation expenses do not include expenses you have while traveling away from home overnight. Taxes 2012 Those expenses are travel expenses discussed in chapter 1 . Taxes 2012 However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. Taxes 2012 See Car Expenses , later. Taxes 2012 Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Taxes 2012 However, there may be exceptions to this general rule. Taxes 2012 You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Taxes 2012 Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. Taxes 2012 Illustration of transportation expenses. Taxes 2012    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. Taxes 2012 You may want to refer to it when deciding whether you can deduct your transportation expenses. Taxes 2012 Temporary work location. Taxes 2012   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Taxes 2012   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Taxes 2012   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Taxes 2012   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Taxes 2012 It will not be treated as temporary after the date you determine it will last more than 1 year. Taxes 2012   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Taxes 2012 You may have deductible travel expenses as discussed in chapter 1 . Taxes 2012 No regular place of work. Taxes 2012   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Taxes 2012   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Taxes 2012   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Taxes 2012 These are nondeductible commuting expenses. Taxes 2012 Two places of work. Taxes 2012   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Taxes 2012 However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Taxes 2012   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Taxes 2012 You cannot deduct them. Taxes 2012 Armed Forces reservists. Taxes 2012   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Taxes 2012 You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . Taxes 2012   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Taxes 2012 In this case, your transportation generally is a nondeductible commuting expense. Taxes 2012 However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Taxes 2012   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Taxes 2012   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Taxes 2012 These expenses are discussed in chapter 1 . Taxes 2012   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. Taxes 2012 For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. Taxes 2012 Commuting expenses. Taxes 2012   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Taxes 2012 These costs are personal commuting expenses. Taxes 2012 You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Taxes 2012 You cannot deduct commuting expenses even if you work during the commuting trip. Taxes 2012 Example. Taxes 2012 You sometimes use your cell phone to make business calls while commuting to and from work. Taxes 2012 Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Taxes 2012 These activities do not change the trip from personal to business. Taxes 2012 You cannot deduct your commuting expenses. Taxes 2012 Parking fees. Taxes 2012    Fees you pay to park your car at your place of business are nondeductible commuting expenses. Taxes 2012 You can, however, deduct business-related parking fees when visiting a customer or client. Taxes 2012 Advertising display on car. Taxes 2012   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Taxes 2012 If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Taxes 2012 Car pools. Taxes 2012   You cannot deduct the cost of using your car in a nonprofit car pool. Taxes 2012 Do not include payments you receive from the passengers in your income. Taxes 2012 These payments are considered reimbursements of your expenses. Taxes 2012 However, if you operate a car pool for a profit, you must include payments from passengers in your income. Taxes 2012 You can then deduct your car expenses (using the rules in this publication). Taxes 2012 Hauling tools or instruments. Taxes 2012   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Taxes 2012 However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Taxes 2012 Union members' trips from a union hall. Taxes 2012   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Taxes 2012 Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Taxes 2012 Office in the home. Taxes 2012   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Taxes 2012 (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Taxes 2012 ) Examples of deductible transportation. Taxes 2012   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Taxes 2012 Example 1. Taxes 2012 You regularly work in an office in the city where you live. Taxes 2012 Your employer sends you to a 1-week training session at a different office in the same city. Taxes 2012 You travel directly from your home to the training location and return each day. Taxes 2012 You can deduct the cost of your daily round-trip transportation between your home and the training location. Taxes 2012 Example 2. Taxes 2012 Your principal place of business is in your home. Taxes 2012 You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Taxes 2012 Example 3. Taxes 2012 You have no regular office, and you do not have an office in your home. Taxes 2012 In this case, the location of your first business contact inside the metropolitan area is considered your office. Taxes 2012 Transportation expenses between your home and this first contact are nondeductible commuting expenses. Taxes 2012 Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Taxes 2012 While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. Taxes 2012 Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. Taxes 2012 You generally can use one of the two following methods to figure your deductible expenses. Taxes 2012 Standard mileage rate. Taxes 2012 Actual car expenses. Taxes 2012 If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Taxes 2012 See Leasing a Car , later. Taxes 2012 In this publication, “car” includes a van, pickup, or panel truck. Taxes 2012 For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. Taxes 2012 Rural mail carriers. Taxes 2012   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. Taxes 2012 Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. Taxes 2012   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Taxes 2012 You must complete Form 2106 and attach it to your Form 1040, U. Taxes 2012 S. Taxes 2012 Individual Income Tax Return. Taxes 2012   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Taxes 2012 It is given as an equipment maintenance allowance (EMA) to employees of the U. Taxes 2012 S. Taxes 2012 Postal Service. Taxes 2012 It is at the rate contained in the 1991 collective bargaining agreement. Taxes 2012 Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Taxes 2012 See your employer for information on your reimbursement. Taxes 2012    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Taxes 2012 Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Taxes 2012 For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Taxes 2012 If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. Taxes 2012 You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. Taxes 2012 See Choosing the standard mileage rate and Standard mileage rate not allowed, later. Taxes 2012 You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Taxes 2012 See chapter 6 for more information on reimbursements . Taxes 2012 Choosing the standard mileage rate. Taxes 2012   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Taxes 2012 Then, in later years, you can choose to use either the standard mileage rate or actual expenses. Taxes 2012   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Taxes 2012 For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. Taxes 2012   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Taxes 2012 You cannot revoke the choice. Taxes 2012 However, in later years, you can switch from the standard mileage rate to the actual expenses method. Taxes 2012 If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Taxes 2012 Example. Taxes 2012 Larry is an employee who occasionally uses his own car for business purposes. Taxes 2012 He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. Taxes 2012 Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. Taxes 2012   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. Taxes 2012 Standard mileage rate not allowed. Taxes 2012   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Taxes 2012 (See Rural mail carriers , earlier. Taxes 2012 ) Note. Taxes 2012 You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. Taxes 2012 Five or more cars. Taxes 2012   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. Taxes 2012 However, you may be able to deduct your actual expenses for operating each of the cars in your business. Taxes 2012 See Actual Car Expenses , later, for information on how to figure your deduction. Taxes 2012   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. Taxes 2012   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. Taxes 2012 Example 1. Taxes 2012 Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. Taxes 2012 She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. Taxes 2012 Example 2. Taxes 2012 Tony and his employees use his four pickup trucks in his landscaping business. Taxes 2012 During the year, he traded in two of his old trucks for two newer ones. Taxes 2012 Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. Taxes 2012 Example 3. Taxes 2012 Chris owns a repair shop and an insurance business. Taxes 2012 He and his employees use his two pickup trucks and van for the repair shop. Taxes 2012 Chris alternates using his two cars for the insurance business. Taxes 2012 No one else uses the cars for business purposes. Taxes 2012 Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. Taxes 2012 Example 4. Taxes 2012 Maureen owns a car and four vans that are used in her housecleaning business. Taxes 2012 Her employees use the vans, and she uses the car to travel to various customers. Taxes 2012 Maureen cannot use the standard mileage rate for the car or the vans. Taxes 2012 This is because all five vehicles are used in Maureen's business at the same time. Taxes 2012 She must use actual expenses for all vehicles. Taxes 2012 Interest. Taxes 2012   If you are an employee, you cannot deduct any interest paid on a car loan. Taxes 2012 This applies even if you use the car 100% for business as an employee. Taxes 2012   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. Taxes 2012 For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). Taxes 2012 You cannot deduct the part of the interest expense that represents your personal use of the car. Taxes 2012    If you use a home equity loan to purchase your car, you may be able to deduct the interest. Taxes 2012 See Publication 936, Home Mortgage Interest Deduction, for more information. Taxes 2012 Personal property taxes. Taxes 2012   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. Taxes 2012 You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. Taxes 2012   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Taxes 2012 If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). Taxes 2012 Parking fees and tolls. Taxes 2012   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Taxes 2012 (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Taxes 2012 ) Sale, trade-in, or other disposition. Taxes 2012   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. Taxes 2012 See Disposition of a Car , later. Taxes 2012 Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. Taxes 2012 If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. Taxes 2012 Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Taxes 2012 Continue to keep records, as explained later in chapter 5 . Taxes 2012 Business and personal use. Taxes 2012   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. Taxes 2012 You can divide your expense based on the miles driven for each purpose. Taxes 2012 Example. Taxes 2012 You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. Taxes 2012 You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. Taxes 2012 Employer-provided vehicle. Taxes 2012   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. Taxes 2012 You cannot use the standard mileage rate. Taxes 2012 See Vehicle Provided by Your Employer in chapter 6. Taxes 2012 Interest on car loans. Taxes 2012   If you are an employee, you cannot deduct any interest paid on a car loan. Taxes 2012 This interest is treated as personal interest and is not deductible. Taxes 2012 If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. Taxes 2012 Taxes paid on your car. Taxes 2012   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Taxes 2012 Enter the amount paid on line 7 of Schedule A (Form 1040). Taxes 2012 Sales taxes. Taxes 2012   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. Taxes 2012 Fines and collateral. Taxes 2012   You cannot deduct fines you pay or collateral you forfeit for traffic violations. Taxes 2012 Casualty and theft losses. Taxes 2012   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. Taxes 2012 See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. Taxes 2012 Depreciation and section 179 deductions. Taxes 2012   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Taxes 2012 Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. Taxes 2012 However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Taxes 2012 Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. Taxes 2012 The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. Taxes 2012   Generally, there are limits on these deductions. Taxes 2012 Special rules apply if you use your car 50% or less in your work or business. Taxes 2012   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. Taxes 2012   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. Taxes 2012 Car defined. Taxes 2012   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Taxes 2012 Its unloaded gross vehicle weight must not be more than 6,000 pounds. Taxes 2012 A car includes any part, component, or other item physically attached to it or usually included in the purchase price. Taxes 2012   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. Taxes 2012 Qualified nonpersonal use vehicles. Taxes 2012   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Taxes 2012 They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Taxes 2012 Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. Taxes 2012 More information. Taxes 2012   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. Taxes 2012 Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. Taxes 2012 If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. Taxes 2012 There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. Taxes 2012 See Depreciation Limits, later. Taxes 2012 You can claim the section 179 deduction only in the year you place the car in service. Taxes 2012 For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. Taxes 2012 Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. Taxes 2012 A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. Taxes 2012 Example. Taxes 2012 In 2012, you bought a new car and used it for personal purposes. Taxes 2012 In 2013, you began to use it for business. Taxes 2012 Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. Taxes 2012 However, you can claim a depreciation deduction for the business use of the car starting in 2013. Taxes 2012 See Depreciation Deduction , later. Taxes 2012 More than 50% business use requirement. Taxes 2012   You must use the property more than 50% for business to claim any section 179 deduction. Taxes 2012 If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Taxes 2012 The result is the cost of the property that can qualify for the section 179 deduction. Taxes 2012 Example. Taxes 2012 Peter purchased a car in April 2013 for $24,500 and used it 60% for business. Taxes 2012 Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). Taxes 2012 But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. Taxes 2012 Limits. Taxes 2012   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. Taxes 2012 Limit on the amount of the section 179 deduction. Taxes 2012   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. Taxes 2012   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. Taxes 2012 If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Taxes 2012   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. Taxes 2012   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Taxes 2012   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. Taxes 2012 You must allocate the dollar limit (after any reduction) between you. Taxes 2012   For more information on the above section 179 deduction limits, see Publication 946. Taxes 2012 Limit for sport utility and certain other vehicles. Taxes 2012   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. Taxes 2012 This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. Taxes 2012 However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Taxes 2012    Limit on total section 179, special depreciation allowance, and depreciation deduction. Taxes 2012   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. Taxes 2012 The limit is reduced if your business use of the car is less than 100%. Taxes 2012 See Depreciation Limits , later, for more information. Taxes 2012 Example. Taxes 2012 In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. Taxes 2012 However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). Taxes 2012 Cost of car. Taxes 2012   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. Taxes 2012 For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. Taxes 2012 Your cost includes only the cash you paid. Taxes 2012 Basis of car for depreciation. Taxes 2012   The amount of the section 179 deduction reduces your basis in your car. Taxes 2012 If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. Taxes 2012 The resulting amount is the basis in your car you use to figure your depreciation deduction. Taxes 2012 When to choose. Taxes 2012   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. Taxes 2012 How to choose. Taxes 2012    Employees use Form 2106 to make this choice and report the section 179 deduction. Taxes 2012 All others use Form 4562. Taxes 2012   File the appropriate form with either of the following. Taxes 2012 Your original tax return filed for the year the property was placed in service (whether or not you file it timely). Taxes 2012 An amended return filed within the time prescribed by law. Taxes 2012 An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Taxes 2012 The amended return must also include any resulting adjustments to taxable income. Taxes 2012    You must keep records that show the specific identification of each piece of qualifying section 179 property. Taxes 2012 These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Taxes 2012 Revoking an election. Taxes 2012   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. Taxes 2012 Recapture of section 179 deduction. Taxes 2012   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. Taxes 2012 If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Taxes 2012 Any section 179 deduction claimed on the car is included in calculating the excess depreciation. Taxes 2012 For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. Taxes 2012 Dispositions. Taxes 2012   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. Taxes 2012 You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). Taxes 2012 For information on the disposition of a car, see Disposition of a Car , later. Taxes 2012 Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. Taxes 2012 The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). Taxes 2012 The special depreciation allowance applies only for the first year the car is placed in service. Taxes 2012 To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). Taxes 2012 Combined depreciation. Taxes 2012   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Taxes 2012 For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Taxes 2012 See Depreciation Limits , later in this chapter. Taxes 2012 Qualified car. Taxes 2012   To be a qualified car (including trucks and vans), the car must meet all of the following tests. Taxes 2012 You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. Taxes 2012 Election not to claim the special depreciation allowance. Taxes 2012   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. Taxes 2012 If you make this election, it applies to all 5-year property placed in service during the year. Taxes 2012   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. Taxes 2012    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Taxes 2012 Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. Taxes 2012 This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. Taxes 2012 You generally need to know the following things about the car you intend to depreciate. Taxes 2012 Your basis in the car. Taxes 2012 The date you place the car in service. Taxes 2012 The method of depreciation and recovery period you will use. Taxes 2012 Basis. Taxes 2012   Your basis in a car for figuring depreciation is generally its cost. Taxes 2012 This includes any amount you borrow or pay in cash, other property, or services. Taxes 2012   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). Taxes 2012 However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). Taxes 2012 For one of these situations see Exception under Methods of depreciation, later. Taxes 2012   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Taxes 2012 Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . Taxes 2012 Placed in service. Taxes 2012   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Taxes 2012 Depreciation begins when the car is placed in service for use in your work or business or for the production of income. Taxes 2012   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. Taxes 2012 Car placed in service and disposed of in the same year. Taxes 2012   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. Taxes 2012 Methods of depreciation. Taxes 2012   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). Taxes 2012 MACRS is discussed later in this chapter. Taxes 2012 Exception. Taxes 2012   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. Taxes 2012 You must use straight line depreciation over the estimated remaining useful life of the car. Taxes 2012   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. Taxes 2012 The rate per mile varies depending on the year(s) you used the standard mileage rate. Taxes 2012 For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. Taxes 2012   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . Taxes 2012 You must use your adjusted basis in your car to figure your depreciation deduction. Taxes 2012 For additional information on the straight line method of depreciation, see Publication 946. Taxes 2012 More-than-50%-use test. Taxes 2012   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. Taxes 2012 You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. Taxes 2012   If your business use is 50% or less, you must use the straight line method to depreciate your car. Taxes 2012 This is explained later under Car Used 50% or Less for Business . Taxes 2012 Qualified business use. Taxes 2012   A qualified business use is any use in your trade or business. Taxes 2012 It does not include use for the production of income (investment use). Taxes 2012 However, you do combine your business and investment use to compute your depreciation deduction for the tax year. Taxes 2012 Use of your car by another person. Taxes 2012   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. Taxes 2012 It is directly connected with your business. Taxes 2012 It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). Taxes 2012 It results in a payment of fair market rent. Taxes 2012 This includes any payment to you for the use of your car. Taxes 2012 Business use changes. Taxes 2012   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. Taxes 2012 See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. Taxes 2012    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. Taxes 2012 Use for more than one purpose. Taxes 2012   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. Taxes 2012 You do this on the basis of mileage. Taxes 2012 Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. Taxes 2012 Change from personal to business use. Taxes 2012   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. Taxes 2012 In this case, you figure the percentage of business use for the year as follows. Taxes 2012 Determine the percentage of business use for the period following the change. Taxes 2012 Do this by dividing business miles by total miles driven during that period. Taxes 2012 Multiply the percentage in (1) by a fraction. Taxes 2012 The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. Taxes 2012 Example. Taxes 2012 You use a car only for personal purposes during the first 6 months of the year. Taxes 2012 During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. Taxes 2012 This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Taxes 2012 Your business use for the year is 40% (80% × 6/12). Taxes 2012 Limits. Taxes 2012   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. Taxes 2012 The maximum amount you can claim depends on the year in which you placed your car in service. Taxes 2012 You have to reduce the maximum amount if you did not use the car exclusively for business. Taxes 2012 See Depreciation Limits , later. Taxes 2012 Unadjusted basis. Taxes 2012   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Taxes 2012 Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. Taxes 2012   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. Taxes 2012 Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Taxes 2012 Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Taxes 2012 Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. Taxes 2012 1, 2006), and alternative motor vehicle credit. Taxes 2012   See Form 8910 for information on the alternative motor vehicle credit. Taxes 2012 If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. Taxes 2012 See Car Used 50% or Less for Business, later, for more information. Taxes 2012 If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. Taxes 2012 Improvements. Taxes 2012   A major improvement to a car is treated as a new item of 5-year recovery property. Taxes 2012 It is treated as placed in service in the year the improvement is made. Taxes 2012 It does not matter how old the car is when the improvement is added. Taxes 2012 Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. Taxes 2012 However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Taxes 2012 Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. Taxes 2012 See Depreciation Limits , later. Taxes 2012 Car trade-in. Taxes 2012   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. Taxes 2012 You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Taxes 2012 If you make this election, you treat the old car as disposed of at the time of the trade-in. Taxes 2012 The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. Taxes 2012 You then figure your depreciation deduction for the new car beginning with the date you placed it in service. Taxes 2012 You make this election by completing Form 2106, Part II, Section D. Taxes 2012 This method is explained later, beginning at Effect of trade-in on basis . Taxes 2012 If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. Taxes 2012 You must apply two depreciation limits (see Depreciation Limits , later). Taxes 2012 The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. Taxes 2012 The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. Taxes 2012 You must use Form 4562 to compute your depreciation deduction. Taxes 2012 You cannot use Form 2106, Part II, Section D. Taxes 2012 This method is explained in Publication 946. Taxes 2012   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Taxes 2012 Otherwise, you must use the method described in (2). Taxes 2012 Effect of trade-in on basis. Taxes 2012   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Taxes 2012 For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. Taxes 2012 168(i)-6(d)(3). Taxes 2012 Traded car used only for business. Taxes 2012   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. Taxes 2012 Example. Taxes 2012 Paul trades in a car that has an adjusted basis of $5,000 for a new car. Taxes 2012 In addition, he pays cash of $20,000 for the new car. Taxes 2012 His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). Taxes 2012 Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. Taxes 2012 Traded car used partly in business. Taxes 2012   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. Taxes 2012 This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. Taxes 2012 (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. Taxes 2012 See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. Taxes 2012 )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Taxes 2012 Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. Taxes 2012 For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. Taxes 2012 Modified Accelerated Cost Recovery System (MACRS). Taxes 2012   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Taxes 2012   The maximum amount you can deduct is limited, depending on the year you placed your car in service. Taxes 2012 See Depreciation Limits , later. Taxes 2012 Recovery period. Taxes 2012   Under MACRS, cars are classified as 5-year property. Taxes 2012 You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. Taxes 2012 This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. Taxes 2012 Depreciation deduction for certain Indian reservation property. Taxes 2012   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. Taxes 2012 The recovery that applies for a business-use car is 3 years instead of 5 years. Taxes 2012 However, the depreciation limits, discussed later, will still apply. Taxes 2012   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. Taxes 2012 Depreciation methods. Taxes 2012   You can use one of the following methods to depreciate your car. Taxes 2012 The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Taxes 2012 The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Taxes 2012 The straight line method (SL) over a 5-year recovery period. Taxes 2012    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. Taxes 2012 This is because the chart has the switch to the straight line method built into its rates. Taxes 2012   Before choosing a method, you may wish to consider the following facts. Taxes 2012 Using the straight line method provides equal yearly deductions throughout the recovery period. Taxes 2012 Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. Taxes 2012 MACRS depreciation chart. Taxes 2012   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Taxes 2012 Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. Taxes 2012 A similar chart appears in the Instructions for Form 2106. Taxes 2012    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. Taxes 2012   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. Taxes 2012 You file your return on a fiscal year basis. Taxes 2012 You file your return for a short tax year (less than 12 months). Taxes 2012 During the year, all of the following conditions apply. Taxes 2012 You placed some property in service from January through September. Taxes 2012 You placed some property in service from October through December. Taxes 2012 Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. Taxes 2012   You placed qualified property in service on an Indian reservation. Taxes 2012 Depreciation in future years. Taxes 2012   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. Taxes 2012 However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. Taxes 2012 In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. Taxes 2012 See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Taxes 2012    In future years, do not use the chart in this edition of the publication. Taxes 2012 Instead, use the chart in the publication or the form instructions for those future years. Taxes 2012 Disposition of car during recovery period. Taxes 2012   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. Taxes 2012 See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. Taxes 2012 How to use the 2013 chart. Taxes 2012   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Taxes 2012 Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. Taxes 2012 If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. Taxes 2012    Your deduction cannot be more than the maximum depreciation limit for cars. Taxes 2012 See Depreciation Limits, later. Taxes 2012 Example. Taxes 2012 Phil bought a used truck in February 2012 to use exclusively in his landscape business. Taxes 2012 He paid $9,200 for the truck with no trade-in. Taxes 2012 Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. Taxes 2012 Phil used the MACRS depreciation chart in 2012 to find his percentage. Taxes 2012 The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. Taxes 2012 He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. Taxes 2012 In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. Taxes 2012 His records show that the business use of his truck was 90% in 2013. Taxes 2012 Phil used Table 4-1 to find his percentage. Taxes 2012 Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. Taxes 2012 He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. Taxes 2012 Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. Taxes 2012 The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. Taxes 2012 The maximum amount you can deduct each year depends on the year you place the car in service. Taxes 2012 These limits are shown in the following tables. Taxes 2012   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Taxes 2012 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Taxes 2012 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Taxes 2012 4$7,660 if you acquired the car before 5/6/2003. Taxes 2012 $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. Taxes 2012 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. Taxes 2012 Trucks and vans. Taxes 2012   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. Taxes 2012 A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. Taxes 2012 For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. Taxes 2012 Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. Taxes 2012 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. Taxes 2012 Car used less than full year. Taxes 2012   The depreciation limits are not reduced if you use a car for less than a full year. Taxes 2012 This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. Taxes 2012 However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. Taxes 2012 See Reduction for personal use , next. Taxes 2012 Reduction for personal use. Taxes 2012   The depreciation limits are reduced based on your percentage of personal use. Taxes 2012 If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. Taxes 2012 Section 179 deduction. Taxes 2012   The section 179 deduction is treated as a depreciation deduction. Taxes 2012 If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. Taxes 2012 Example. Taxes 2012 On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. Taxes 2012 He used it 80% for his business, and he chooses to take a section 179 deduction for the car. Taxes 2012 The car is not qualified property for purposes of the special depreciation allowance. Taxes 2012 Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. Taxes 2012 This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). Taxes 2012 Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). Taxes 2012 He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Taxes 2012 Jack has reached his maximum depreciation deduction for 2013. Taxes 2012 For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. Taxes 2012 Deductions in years after the recovery period. Taxes 2012   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. Taxes 2012 If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. Taxes 2012 Unrecovered basis. Taxes 2012   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. Taxes 2012 The recovery period. Taxes 2012   For 5-year property, your recovery period is 6 calendar years. Taxes 2012 A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. Taxes 2012   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. Taxes 2012 You determine your unrecovered basis in the 7th year after you placed the car in service. Taxes 2012 How to treat unrecovered basis. Taxes 2012   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. Taxes 2012 The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. Taxes 2012 For example, no deduction is allowed for a year you use your car 100% for personal purposes. Taxes 2012 Example. Taxes 2012 In April 2007, Bob bought and placed in service a car he used exclusively in his business. Taxes 2012 The car cost $31,500. Taxes 2012 Bob did not claim a section 179 deduction or the special depreciation allowance for the car. Taxes 2012 He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). Taxes 2012 For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. Taxes 2012 Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. Taxes 2012      MACRS     Deprec. Taxes 2012 Year % Amount Limit Allowed 2007 20. Taxes 2012 00 $6,300 $3,060 $ 3,060 2008 32. Taxes 2012 00 10,080 4,900 4,900 2009 19. Taxes 2012 20 6,048 2,850 2,850 2010 11. Taxes 2012 52 3,629 1,775 1,775 2011 11. Taxes 2012 52 3,629 1,775 1,775 2012 5. Taxes 2012 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. Taxes 2012   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). Taxes 2012 If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. Taxes 2012   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. Taxes 2012 However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. Taxes 2012 For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. Taxes 2012 Table 4-1. Taxes 2012 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Taxes 2012 ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. Taxes 2012   First, using the left column, find the date you first placed the car in service in 2013. Taxes 2012 Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. Taxes 2012 For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. Taxes 2012 Refer back to the MACRS Depreciation Chart for the year you placed the car in service. Taxes 2012 (See Car Used 50% or Less for Business . Taxes 2012 )  Multiply the unadjusted basis of your car by your business use percentage. Taxes 2012 Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. Taxes 2012 (Also see Depreciation Limits . Taxes 2012 )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. Taxes 2012 1—Sept. Taxes 2012 30 percentage instead of the Oct. Taxes 2012 1—Dec. Taxes 2012 31 percentage for your car. Taxes 2012               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. Taxes 2012 If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. Taxes 2012 1—Sept. Taxes 2012 30 for figuring depreciation for your car. Taxes 2012 See Which Convention Applies? in chapter 4 of Publication 946 for more details. Taxes 2012               Example. Taxes 2012 You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. Taxes 2012 You