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Nm taxation and revenue department Publication 926 - Main Content Table of Contents Do You Have a Household Employee? Can Your Employee Legally Work in the United States? Do You Need To Pay Employment Taxes?Social Security and Medicare Taxes Federal Unemployment (FUTA) Tax Do You Need To Withhold Federal Income Tax? What Do You Need To Know About the Earned Income Credit? How Do You Make Tax Payments? What Forms Must You File?Employee who leaves during the year. Nm taxation and revenue department Filing options when no return is required. Nm taxation and revenue department What Records Must You Keep? Can You Claim a Credit for Child and Dependent Care Expenses? How Can You Correct Schedule H?Adjust the overpayment. Nm taxation and revenue department Claim for refund process. Nm taxation and revenue department How To Get Tax HelpLow Income Taxpayer Clinics Do You Have a Household Employee? You have a household employee if you hired someone to do household work and that worker is your employee. Nm taxation and revenue department The worker is your employee if you can control not only what work is done, but how it is done. Nm taxation and revenue department If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. Nm taxation and revenue department It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job. Nm taxation and revenue department Example. Nm taxation and revenue department You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Nm taxation and revenue department Betty follows your specific instructions about household and child care duties. Nm taxation and revenue department You provide the household equipment and supplies that Betty needs to do her work. Nm taxation and revenue department Betty is your household employee. Nm taxation and revenue department Household work. Nm taxation and revenue department   Household work is work done in or around your home. Nm taxation and revenue department Some examples of workers who do household work are: Babysitters, Caretakers, House cleaning workers, Domestic workers, Drivers, Health aides, Housekeepers, Maids, Nannies, Private nurses, and Yard workers. Nm taxation and revenue department Workers who are not your employees. Nm taxation and revenue department   If only the worker can control how the work is done, the worker is not your employee but is self-employed. Nm taxation and revenue department A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business. Nm taxation and revenue department   A worker who performs child care services for you in his or her home generally is not your employee. Nm taxation and revenue department   If an agency provides the worker and controls what work is done and how it is done, the worker is not your employee. Nm taxation and revenue department Example. Nm taxation and revenue department You made an agreement with John Peters to care for your lawn. Nm taxation and revenue department John runs a lawn care business and offers his services to the general public. Nm taxation and revenue department He provides his own tools and supplies, and he hires and pays any helpers he needs. Nm taxation and revenue department Neither John nor his helpers are your household employees. Nm taxation and revenue department More information. Nm taxation and revenue department   More information about who is an employee is in Publication 15-A, Employer's Supplemental Tax Guide. Nm taxation and revenue department Can Your Employee Legally Work in the United States? It is unlawful for you knowingly to hire or continue to employ an alien who cannot legally work in the United States. Nm taxation and revenue department When you hire a household employee to work for you on a regular basis, you and the employee must complete the U. Nm taxation and revenue department S. Nm taxation and revenue department Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Nm taxation and revenue department No later than the first day of work, the employee must complete the employee section of the form by providing certain required information and attesting to his or her current work eligibility status in the United States. Nm taxation and revenue department You must complete the employer section by examining documents presented by the employee as evidence of his or her identity and employment eligibility. Nm taxation and revenue department Acceptable documents to establish identity and employment eligibility are listed on Form I-9. Nm taxation and revenue department You should keep the completed Form I-9 in your own records. Nm taxation and revenue department Do not submit it to the IRS, the USCIS, or any other government or other entity. Nm taxation and revenue department The form must be kept available for review upon notice by an authorized U. Nm taxation and revenue department S. Nm taxation and revenue department Government official. Nm taxation and revenue department Two copies of Form I-9 are contained in the Handbook for Employers (Form M-274) published by the USCIS. Nm taxation and revenue department Call the USCIS at 1-800-870-3676 to order the Handbook for Employers; or you may download the handbook at www. Nm taxation and revenue department uscis. Nm taxation and revenue department gov. Nm taxation and revenue department If you have questions about the employment eligibility verification process or other immigration-related employment matters, contact the USCIS Office of Business Liaison at 1-800-357-2099. Nm taxation and revenue department You also can visit the USCIS website at www. Nm taxation and revenue department uscis. Nm taxation and revenue department gov to get Form I-9. Nm taxation and revenue department For more information, see Employee's Social Security Number (SSN) in Publication 15 (Circular E), Employer's Tax Guide. Nm taxation and revenue department Do You Need To Pay Employment Taxes? If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both. Nm taxation and revenue department To find out, read Table 1. Nm taxation and revenue department You do not need to withhold federal income tax from your household employee's wages. Nm taxation and revenue department But if your employee asks you to withhold it, you can. Nm taxation and revenue department See Do You Need To Withhold Federal Income Tax, later. Nm taxation and revenue department If you need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax, read Table 2 for an overview of what you may need to do. Nm taxation and revenue department If you do not need to pay social security, Medicare, or federal unemployment tax and do not choose to withhold federal income tax, read State employment taxes, next. Nm taxation and revenue department The rest of this publication does not apply to you. Nm taxation and revenue department State employment taxes. Nm taxation and revenue department   You should contact your state unemployment tax agency to find out whether you need to pay state unemployment tax for your household employee. Nm taxation and revenue department For a list of state unemployment tax agencies, visit the U. Nm taxation and revenue department S. Nm taxation and revenue department Department of Labor's website at www. Nm taxation and revenue department workforcesecurity. Nm taxation and revenue department doleta. Nm taxation and revenue department gov/unemploy/agencies. Nm taxation and revenue department asp. Nm taxation and revenue department You should also determine if you need to pay or collect other state employment taxes or carry workers' compensation insurance. Nm taxation and revenue department    Table 1. Nm taxation and revenue department Do You Need To Pay Employment Taxes? IF you . Nm taxation and revenue department . Nm taxation and revenue department . Nm taxation and revenue department THEN you need to . Nm taxation and revenue department . Nm taxation and revenue department . Nm taxation and revenue department A– Pay cash wages of $1,900 or more in 2014 to any one household employee. Nm taxation and revenue department Withhold and pay social security and Medicare taxes. Nm taxation and revenue department The taxes are 15. Nm taxation and revenue department 3%1 of cash wages. Nm taxation and revenue department Your employee's share is 7. Nm taxation and revenue department 65%1. Nm taxation and revenue department   (You can choose to pay it yourself and not withhold it. Nm taxation and revenue department ) Your share is 7. Nm taxation and revenue department 65%. Nm taxation and revenue department   Do not count wages you pay to— Your spouse, Your child under the age of 21, Your parent (see Wages not counted, later, for an exception), or Any employee under the age of 18 at any time in 2014 (see Wages not counted, later, for an exception). Nm taxation and revenue department B– Pay total cash wages of $1,000 or more in any calendar quarter of 2013 or 2014 to household employees. Nm taxation and revenue department Pay federal unemployment tax. Nm taxation and revenue department The tax is 6% of cash wages. Nm taxation and revenue department Wages over $7,000 a year per employee are not taxed. Nm taxation and revenue department You also may owe state unemployment tax. Nm taxation and revenue department   Do not count wages you pay to— Your spouse, Your child under the age of 21, or Your parent. Nm taxation and revenue department 1In addition to withholding Medicare tax at 1. Nm taxation and revenue department 45%, you must withhold a 0. Nm taxation and revenue department 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Nm taxation and revenue department 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. Nm taxation and revenue department Additional Medicare Tax is only imposed on the employee. Nm taxation and revenue department There is no employer share of Additional Medicare Tax. Nm taxation and revenue department 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. Nm taxation and revenue department Note. Nm taxation and revenue department If neither A nor B above applies, you do not need to pay any federal employment taxes. Nm taxation and revenue department But you may still need to pay state employment taxes. Nm taxation and revenue department Table 2. Nm taxation and revenue department Household Employer's Checklist You may need to do the following things when you have a household employee. Nm taxation and revenue department   When you hire a household employee: □ Find out if the person can legally work in the United States. Nm taxation and revenue department  □ Find out if you need to pay state taxes. Nm taxation and revenue department When you pay your household employee: □ Withhold social security and Medicare taxes. Nm taxation and revenue department  □ Withhold federal income tax. Nm taxation and revenue department  □ Decide how you will make tax payments. Nm taxation and revenue department  □ Keep records. Nm taxation and revenue department By February 2, 2015: □ Get an employer identification number (EIN). Nm taxation and revenue department  □ Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement. Nm taxation and revenue department By March 2, 2015 (March 31, 2015, if you file Form W-2 electronically): □ Send Copy A of Form W-2 to the Social Security Administration (SSA). Nm taxation and revenue department By April 15, 2015: □ File Schedule H (Form 1040), Household Employment Taxes, with your 2014 federal income tax return (Form 1040, 1040NR, 1040-SS, or Form 1041). Nm taxation and revenue department  If you do not have to file a return, file Schedule H by itself. Nm taxation and revenue department Social Security and Medicare Taxes The social security tax pays for old-age, survivors, and disability benefits for workers and their families. Nm taxation and revenue department The Medicare tax pays for hospital insurance. Nm taxation and revenue department Both you and your household employee may owe social security and Medicare taxes. Nm taxation and revenue department Your share is 7. Nm taxation and revenue department 65% (6. Nm taxation and revenue department 2% for social security tax and 1. Nm taxation and revenue department 45% for Medicare tax) of the employee's social security and Medicare wages. Nm taxation and revenue department Your employee's share is also 7. Nm taxation and revenue department 65% (6. Nm taxation and revenue department 2% for social security tax and 1. Nm taxation and revenue department 45% for Medicare tax). Nm taxation and revenue department In addition to withholding Medicare tax at 1. Nm taxation and revenue department 45%, you must withhold a 0. Nm taxation and revenue department 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Nm taxation and revenue department 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. Nm taxation and revenue department Additional Medicare Tax is only imposed on the employee. Nm taxation and revenue department There is no employer share of Additional Medicare Tax. Nm taxation and revenue department 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. Nm taxation and revenue department For more information on Additional Medicare Tax, visit IRS. Nm taxation and revenue department gov and enter “Additional Medicare Tax” in the search box. Nm taxation and revenue department Generally, you can use Table 3 to figure the amount of social security and Medicare taxes to withhold from each wage payment. Nm taxation and revenue department You are responsible for payment of your employee's share of the taxes as well as your own. Nm taxation and revenue department You can either withhold your employee's share from the employee's wages or pay it from your own funds. Nm taxation and revenue department If you decide to pay the employee's share from your own funds, see Not withholding the employee's share, later. Nm taxation and revenue department Pay the taxes as discussed under How Do You Make Tax Payments, later. Nm taxation and revenue department Also, see What Forms Must You File, later. Nm taxation and revenue department Social security and Medicare wages. Nm taxation and revenue department   You figure social security and Medicare taxes on the social security and Medicare wages you pay your employee. Nm taxation and revenue department   If you pay your household employee cash wages of $1,900 or more in 2014, all cash wages you pay to that employee in 2014 (regardless of when the wages were earned) up to $117,000 are social security wages and all cash wages are Medicare wages. Nm taxation and revenue department However, any noncash wages you pay do not count as social security and Medicare wages. Nm taxation and revenue department   If you pay the employee less than $1,900 in cash wages in 2014, none of the wages you pay the employee are social security or Medicare wages and neither you nor your employee will owe social security or Medicare tax on those wages. Nm taxation and revenue department Cash wages. Nm taxation and revenue department   Cash wages include wages you pay by check, money order, etc. Nm taxation and revenue department Cash wages do not include the value of food, lodging, clothing, and other noncash items you give your household employee. Nm taxation and revenue department However, cash you give your employee in place of these items is included in cash wages. Nm taxation and revenue department State disability payments treated as wages. Nm taxation and revenue department   Certain state disability plan payments that your household employee may receive are treated as social security and Medicare wages. Nm taxation and revenue department For more information about these payments, see the Instructions for Schedule H (Form 1040) and the notice issued by the state. Nm taxation and revenue department Wages not counted. Nm taxation and revenue department   Do not count wages you pay to any of the following individuals as social security or Medicare wages, even if these wages are $1,900 or more during the year. Nm taxation and revenue department Your spouse. Nm taxation and revenue department Your child who is under the age of 21. Nm taxation and revenue department Your parent. Nm taxation and revenue department Exception: Count these wages if both the following conditions apply. Nm taxation and revenue department Your parent cares for your child who is either of the following. Nm taxation and revenue department Under the age of 18, or Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter services were performed. Nm taxation and revenue department Your marital status is one of the following. Nm taxation and revenue department You are divorced and have not remarried, You are a widow or widower, or You are living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed. Nm taxation and revenue department An employee who is under the age of 18 at any time during the year. Nm taxation and revenue department Exception: Count these wages if providing household services is the employee's principal occupation. Nm taxation and revenue department If the employee is a student, providing household services is not considered to be his or her principal occupation. Nm taxation and revenue department Also, if your employee's cash wages reach $117,000 (maximum wages subject to social security tax) in 2014, do not count any wages you pay that employee during the rest of the year as social security wages to figure social security tax. Nm taxation and revenue department Continue to count the employee's cash wages as Medicare wages to figure Medicare tax. Nm taxation and revenue department If you provide your employee transit passes to commute to your home, do not count the value of the transit passes (up to $130 per month for 2014) as wages. Nm taxation and revenue department A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train. Nm taxation and revenue department If you provide your employee parking at or near your home or at or near a location from which your employee commutes to your home, do not count the value of parking (up to $250 per month for 2014) as wages. Nm taxation and revenue department If you reimburse your employee for transit passes or parking, you may be able to exclude the reimbursement amounts. Nm taxation and revenue department See Publication 15-B, Employer's Tax Guide to Fringe Benefits, for special requirements for this exclusion. Nm taxation and revenue department Withholding the employee's share. Nm taxation and revenue department   You should withhold the employee's share of social security and Medicare taxes if you expect to pay your household employee cash wages of $1,900 or more in 2014. Nm taxation and revenue department However, if you prefer to pay the employee's share yourself, see Not withholding the employee's share, later. Nm taxation and revenue department   You can withhold the employee's share of the taxes even if you are not sure your employee's cash wages will be $1,900 or more in 2014. Nm taxation and revenue department If you withhold the taxes but then actually pay the employee less than $1,900 in cash wages for the year, you should repay the employee. Nm taxation and revenue department   Withhold 7. Nm taxation and revenue department 65% (6. Nm taxation and revenue department 2% for social security tax and 1. Nm taxation and revenue department 45% for Medicare tax) from each payment of social security and Medicare wages. Nm taxation and revenue department Generally, you can use Table 3 to figure the proper amount to withhold. Nm taxation and revenue department You will pay the amount withheld to the IRS with your share of the taxes. Nm taxation and revenue department Do not withhold any social security tax after your employee's social security wages for the year reach $117,000. Nm taxation and revenue department Table 3. Nm taxation and revenue department Employee Social Security (6. Nm taxation and revenue department 2%) and Medicare (1. Nm taxation and revenue department 45%1) Tax Withholding Table (See Publication 15 (Circular E) for income tax withholding tables. Nm taxation and revenue department ) Use this table to figure the amount of social security and Medicare taxes to withhold from each wage payment. Nm taxation and revenue department For example, on a wage payment of $180, the employee social security tax is $11. Nm taxation and revenue department 16 ($6. Nm taxation and revenue department 20 tax on $100 plus $4. Nm taxation and revenue department 96 on $80 wages). Nm taxation and revenue department The employee Medicare tax is $2. Nm taxation and revenue department 61 ($1. Nm taxation and revenue department 45 tax on $100 plus $1. Nm taxation and revenue department 16 on $80 wages). Nm taxation and revenue department If wage payment is: The social security tax to be withheld is: The Medicare tax to be withheld is: If wage payment is: The social security tax to be withheld is: The Medicare tax to be withheld is: $ 1. Nm taxation and revenue department 00 . Nm taxation and revenue department $ . Nm taxation and revenue department 06 $ . Nm taxation and revenue department 01 $ 51. Nm taxation and revenue department 00 . Nm taxation and revenue department $ 3. Nm taxation and revenue department 16 $ . Nm taxation and revenue department 74 2. Nm taxation and revenue department 00 . Nm taxation and revenue department . Nm taxation and revenue department 12 . Nm taxation and revenue department 03 52. Nm taxation and revenue department 00 . Nm taxation and revenue department 3. Nm taxation and revenue department 22 . Nm taxation and revenue department 75 3. Nm taxation and revenue department 00 . Nm taxation and revenue department . 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Nm taxation and revenue department 29 40. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 48 . Nm taxation and revenue department 58 90. Nm taxation and revenue department 00 . Nm taxation and revenue department 5. Nm taxation and revenue department 58 1. Nm taxation and revenue department 31 41. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 54 . Nm taxation and revenue department 59 91. Nm taxation and revenue department 00 . Nm taxation and revenue department 5. Nm taxation and revenue department 64 1. Nm taxation and revenue department 32 42. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 60 . Nm taxation and revenue department 61 92. Nm taxation and revenue department 00 . Nm taxation and revenue department 5. Nm taxation and revenue department 70 1. Nm taxation and revenue department 33 43. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 67 . Nm taxation and revenue department 62 93. Nm taxation and revenue department 00 . Nm taxation and revenue department 5. Nm taxation and revenue department 77 1. Nm taxation and revenue department 35 44. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 73 . Nm taxation and revenue department 64 94. Nm taxation and revenue department 00 . Nm taxation and revenue department 5. Nm taxation and revenue department 83 1. Nm taxation and revenue department 36 45. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 79 . Nm taxation and revenue department 65 95. Nm taxation and revenue department 00 . Nm taxation and revenue department 5. Nm taxation and revenue department 89 1. Nm taxation and revenue department 38 46. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 85 . Nm taxation and revenue department 67 96. Nm taxation and revenue department 00 . Nm taxation and revenue department 5. Nm taxation and revenue department 95 1. Nm taxation and revenue department 39 47. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 91 . Nm taxation and revenue department 68 97. Nm taxation and revenue department 00 . Nm taxation and revenue department 6. Nm taxation and revenue department 01 1. Nm taxation and revenue department 41 48. Nm taxation and revenue department 00 . Nm taxation and revenue department 2. Nm taxation and revenue department 98 . Nm taxation and revenue department 70 98. Nm taxation and revenue department 00 . Nm taxation and revenue department 6. Nm taxation and revenue department 08 1. Nm taxation and revenue department 42 49. Nm taxation and revenue department 00 . Nm taxation and revenue department 3. Nm taxation and revenue department 04 . Nm taxation and revenue department 71 99. Nm taxation and revenue department 00 . Nm taxation and revenue department 6. Nm taxation and revenue department 14 1. Nm taxation and revenue department 44 50. Nm taxation and revenue department 00 . Nm taxation and revenue department 3. Nm taxation and revenue department 10 . Nm taxation and revenue department 73 100. Nm taxation and revenue department 00 . Nm taxation and revenue department 6. Nm taxation and revenue department 20 1. Nm taxation and revenue department 45 1In addition to withholding Medicare tax at 1. Nm taxation and revenue department 45%, you must withhold a 0. Nm taxation and revenue department 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Nm taxation and revenue department 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. Nm taxation and revenue department Additional Medicare Tax is only imposed on the employee. Nm taxation and revenue department There is no employer share of Additional Medicare Tax. Nm taxation and revenue department 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. Nm taxation and revenue department   If you make an error by withholding too little, you should withhold additional taxes from a later payment. Nm taxation and revenue department If you withhold too much, you should repay the employee. Nm taxation and revenue department    In addition to withholding Medicare tax at 1. Nm taxation and revenue department 45%, you must withhold a 0. Nm taxation and revenue department 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Nm taxation and revenue department 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. Nm taxation and revenue department Additional Medicare Tax is only imposed on the employee. Nm taxation and revenue department There is no employer share of Additional Medicare Tax. Nm taxation and revenue department 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. Nm taxation and revenue department For more information on Additional Medicare Tax, visit IRS. Nm taxation and revenue department gov and enter “Additional Medicare Tax” in the search box. Nm taxation and revenue department Example. Nm taxation and revenue department On February 13, 2014, Mary Brown hired Jane R. Nm taxation and revenue department Oak (who is an unrelated individual over age 18) to care for her child and agreed to pay cash wages of $50 every Friday. Nm taxation and revenue department Jane worked for the remainder of the year (a total of 46 weeks). Nm taxation and revenue department Mary did not give Jane a Form W-4 to request federal or state tax withholding. Nm taxation and revenue department The following is the information Mary will need to complete Schedule H, Form W-2, and Form W-3. Nm taxation and revenue department See the completed examples of Form W-2 and Form W-3 for 2014 at the end of this publication. Nm taxation and revenue department Total cash wages paid to Jane $2,300. Nm taxation and revenue department 00 ($50 x 46 weeks)       Jane's share of:     Social security tax $142. Nm taxation and revenue department 60 ($2,300 x 6. Nm taxation and revenue department 2% (. Nm taxation and revenue department 062))         Medicare tax $33. Nm taxation and revenue department 35       ($2,300 x 1. Nm taxation and revenue department 45% (. Nm taxation and revenue department 0145)) Mary's share of:     Social security tax $142. Nm taxation and revenue department 60  ($2,300 x 6. Nm taxation and revenue department 2% (. Nm taxation and revenue department 062))           Medicare tax $33. Nm taxation and revenue department 35  ($2,300 x 1. Nm taxation and revenue department 45% (. Nm taxation and revenue department 0145)) Amount reported on Form W-2 and Form W-3:   Box 1:Wages, tips $2,300. Nm taxation and revenue department 00   Box 4: Social security tax withheld 142. Nm taxation and revenue department 60   Box 6: Medicare tax withheld 33. Nm taxation and revenue department 35 For information on withholding and reporting federal income taxes, see Publication 15 (Circular E). Nm taxation and revenue department Not withholding the employee's share. Nm taxation and revenue department   If you prefer to pay your employee's social security and Medicare taxes from your own funds, do not withhold them from your employee's wages. Nm taxation and revenue department The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. Nm taxation and revenue department However, they are not counted as social security and Medicare wages or as federal unemployment (FUTA) wages. Nm taxation and revenue department Example. Nm taxation and revenue department In 2014 you hire a household employee (who is an unrelated individual over age 18) to care for your child and agree to pay cash wages of $100 every Friday. Nm taxation and revenue department You expect to pay your employee $1,900 or more for the year. Nm taxation and revenue department You decide to pay your employee's share of social security and Medicare taxes from your own funds. Nm taxation and revenue department You pay your employee $100 every Friday without withholding any social security or Medicare taxes. Nm taxation and revenue department For social security and Medicare tax purposes, your employee's wages each payday are $100. Nm taxation and revenue department For each wage payment, you will pay $15. Nm taxation and revenue department 30 when you pay the taxes. Nm taxation and revenue department This is $7. Nm taxation and revenue department 65 ($6. Nm taxation and revenue department 20 for social security tax + $1. Nm taxation and revenue department 45 for Medicare tax) to cover your employee's share plus $7. Nm taxation and revenue department 65 ($6. Nm taxation and revenue department 20 for social security tax + $1. Nm taxation and revenue department 45 for Medicare tax) for your share. Nm taxation and revenue department For income tax purposes, your employee's wages each payday are $107. Nm taxation and revenue department 65 ($100 + the $7. Nm taxation and revenue department 65 you will pay to cover your employee's share of social security and Medicare taxes). Nm taxation and revenue department Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Nm taxation and revenue department Like most employers, you may owe both the federal unemployment tax (the FUTA tax) and a state unemployment tax. Nm taxation and revenue department Or, you may owe only the FUTA tax or only the state unemployment tax. Nm taxation and revenue department To find out whether you will owe state unemployment tax, contact your state's unemployment tax agency. Nm taxation and revenue department For a list of state unemployment tax agencies, visit the U. Nm taxation and revenue department S. Nm taxation and revenue department Department of Labor's website at www. Nm taxation and revenue department workforcesecurity. Nm taxation and revenue department doleta. Nm taxation and revenue department gov/unemploy/agencies. Nm taxation and revenue department asp. Nm taxation and revenue department You should also find out if you need to pay or collect other state employment taxes or carry workers' compensation insurance. Nm taxation and revenue department The FUTA tax is 6. Nm taxation and revenue department 0% of your employee's FUTA wages. Nm taxation and revenue department However, you may be able to take a credit of up to 5. Nm taxation and revenue department 4% against the FUTA tax, resulting in a net tax rate of 0. Nm taxation and revenue department 6%. Nm taxation and revenue department Your credit for 2014 is limited unless you pay all the required contributions for 2014 to your state unemployment fund by April 15, 2015. Nm taxation and revenue department The credit you can take for any contributions for 2014 that you pay after April 15, 2015, is limited to 90% of the credit that would have been allowable if the contributions were paid by April 15, 2015. Nm taxation and revenue department (If you did not pay all the required contributions for 2013 by April 15, 2014, see Credit for 2013, later. Nm taxation and revenue department ) Note. Nm taxation and revenue department   If a due date falls on a Saturday, Sunday, or legal holiday, payments are considered timely if made by the next business day. Nm taxation and revenue department The term “legal holiday” means any legal holiday in the District of Columbia. Nm taxation and revenue department Pay the tax as discussed under How Do You Make Tax Payments, later. Nm taxation and revenue department Also, see What Forms Must You File, later. Nm taxation and revenue department Note. Nm taxation and revenue department   The 5. Nm taxation and revenue department 4% credit is reduced for wages paid in a credit reduction state. Nm taxation and revenue department See the Instructions for Schedule H (Form 1040). Nm taxation and revenue department Do not withhold the FUTA tax from your employee's wages. Nm taxation and revenue department You must pay it from your own funds. Nm taxation and revenue department FUTA wages. Nm taxation and revenue department   Figure the FUTA tax on the FUTA wages you pay. Nm taxation and revenue department If you pay cash wages to all of your household employees totaling $1,000 or more in any calendar quarter of 2013 or 2014, the first $7,000 of cash wages you pay to each household employee in 2014 is FUTA wages. Nm taxation and revenue department (A calendar quarter is January through March, April through June, July through September, or October through December. Nm taxation and revenue department ) If your employee's cash wages reach $7,000 during the year, do not figure the FUTA tax on any wages you pay that employee during the rest of the year. Nm taxation and revenue department For an explanation of cash wages, see the discussion on Social security and Medicare wages under Social Security and Medicare Taxes, earlier. Nm taxation and revenue department Wages not counted. Nm taxation and revenue department   Do not count wages you pay to any of the following individuals as FUTA wages. Nm taxation and revenue department Your spouse. Nm taxation and revenue department Your child who is under the age of 21. Nm taxation and revenue department Your parent. Nm taxation and revenue department Credit for 2013. Nm taxation and revenue department   The credit you can take for any state unemployment fund contributions for 2013 that you pay after April 15, 2014, is limited to 90% of the credit that would have been allowable if the contributions were paid on or before April 15, 2014. Nm taxation and revenue department Use Worksheet A to figure the credit for late contributions if you paid any state contributions after the due date for filing  Form 1040. Nm taxation and revenue department Worksheet A. Nm taxation and revenue department Worksheet for Credit for Late Contributions 1. Nm taxation and revenue department Enter the amount from Schedule H, line 22   2. Nm taxation and revenue department Enter the amount from Schedule H, line 19   3. Nm taxation and revenue department Subtract line 2 from line 1. Nm taxation and revenue department If zero or less, enter -0-   4. Nm taxation and revenue department Enter total contributions paid to the state(s) after the Form 1040 due date   5. Nm taxation and revenue department Enter the smaller of line 3 or line 4   6. Nm taxation and revenue department Multiply line 5 by . Nm taxation and revenue department 90 (90%)   7. Nm taxation and revenue department Add lines 2 and 6   8. Nm taxation and revenue department Enter the smaller of the amount on line 1 or line 7 here and on Schedule H, line 23   Do You Need To Withhold Federal Income Tax? You are not required to withhold federal income tax from wages you pay a household employee. Nm taxation and revenue department You should withhold federal income tax only if your household employee asks you to withhold it and you agree. Nm taxation and revenue department The employee must give you a completed Form W-4, Employee's Withholding Allowance Certificate. Nm taxation and revenue department If you and your employee have agreed to withholding, either of you may end the agreement by letting the other know in writing. Nm taxation and revenue department If you agree to withhold federal income tax, you are responsible for paying it to the IRS. Nm taxation and revenue department Pay the tax as discussed under How Do You Make Tax Payments, later. Nm taxation and revenue department Also, see What Forms Must You File, later. Nm taxation and revenue department Use the income tax withholding tables in Publication 15 (Circular E) to find out how much to withhold. Nm taxation and revenue department Figure federal income tax withholding on wages before you deduct any amounts for other withheld taxes. Nm taxation and revenue department Withhold federal income tax from each payment of wages based on the filing status and exemptions shown on your employee's Form W-4. Nm taxation and revenue department Publication 15 (Circular E) contains detailed instructions. Nm taxation and revenue department Wages. Nm taxation and revenue department   Figure federal income tax withholding on both cash and noncash wages you pay. Nm taxation and revenue department Measure wages you pay in any form other than cash by the fair market value of the noncash item. Nm taxation and revenue department   Do not count as wages any of the following items. Nm taxation and revenue department Meals provided to your employee at your home for your convenience. Nm taxation and revenue department Lodging provided to your employee at your home for your convenience and as a condition of employment. Nm taxation and revenue department Up to $130 per month for 2014 for transit passes you give your employee (or for any cash reimbursement you make for the amount your employee pays for transit passes used to commute to your home if you qualify for this exclusion). Nm taxation and revenue department A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train. Nm taxation and revenue department See Publication 15-B for special requirements for this exclusion. Nm taxation and revenue department Up to $250 per month for 2014 for the value of parking you provide your employee or for any cash reimbursement you make for the amount your employee pays and substantiates for parking at or near your home or at or near a location from which your employee commutes to your home. Nm taxation and revenue department   See Publication 15 (Circular E) for more information on cash and noncash wages. Nm taxation and revenue department Paying tax without withholding. Nm taxation and revenue department   Any income tax you pay for your employee without withholding it from the employee's wages must be included in the employee's wages for federal income tax purposes. Nm taxation and revenue department It also must be included in social security and Medicare wages and in federal unemployment (FUTA) wages. Nm taxation and revenue department What Do You Need To Know About the Earned Income Credit? Certain workers can take the earned income credit (EIC) on their federal income tax return. Nm taxation and revenue department This credit reduces their tax or allows them to receive a payment from the IRS. Nm taxation and revenue department You also may have to give your employee a notice about the EIC. Nm taxation and revenue department Notice about the EIC. Nm taxation and revenue department   Copy B of the 2014 Form W-2 has a statement about the EIC on the back. Nm taxation and revenue department If you give your employee that copy by February 2, 2015 (as discussed under Form W-2 under What Forms Must You File, later), you do not have to give the employee any other notice about the EIC. Nm taxation and revenue department   If you do not give your employee Copy B of the Form W-2, your notice about the EIC can be any of the following items. Nm taxation and revenue department A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of the Form W-2. Nm taxation and revenue department Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC). Nm taxation and revenue department Your own written statement with the same wording as in Notice 797. Nm taxation and revenue department If a substitute Form W-2 is given on time but does not have the required EIC information, you must notify the employee within one week of the date the substitute Form W-2 is given. Nm taxation and revenue department If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement about the 2014 EIC by February 2, 2015. Nm taxation and revenue department If Form W-2 is not required, you must notify the employee by February 7, 2015. Nm taxation and revenue department   You must give your household employee a notice about the EIC if you agree to withhold federal income tax from the employee's wages (as discussed earlier under Do You Need To Withhold Federal Income Tax?) and the income tax withholding tables show that no tax should be withheld. Nm taxation and revenue department Even if not required, you are encouraged to give the employee a notice about the EIC if his or her 2014 wages are less than $46,997 ($52,427 if married filing jointly). Nm taxation and revenue department How Do You Make Tax Payments? When you file your 2014 federal income tax return in 2015, attach Schedule H (Form 1040) to your Form 1040, 1040NR, 1040-SS, or 1041. Nm taxation and revenue department Use Schedule H to figure your total household employment taxes (social security, Medicare, FUTA, and withheld federal income taxes). Nm taxation and revenue department Add these household employment taxes to your income tax. Nm taxation and revenue department Pay the amount due by April 15, 2015. Nm taxation and revenue department For more information about using Schedule H, see Schedule H under What Forms Must You File, later. Nm taxation and revenue department You can avoid owing tax with your return if you pay enough tax during the year to cover your household employment taxes, as well as your income tax. Nm taxation and revenue department You can pay the additional tax in any of the following ways. Nm taxation and revenue department Ask your employer to withhold more federal income tax from your wages in 2014. Nm taxation and revenue department Ask the payer of your pension or annuity to withhold more federal income tax from your benefits. Nm taxation and revenue department Make estimated tax payments for 2014 to the IRS. Nm taxation and revenue department Increase your payments if you already make estimated tax payments. Nm taxation and revenue department You may be subject to the estimated tax underpayment penalty if you did not pay enough income and household employment taxes during the year. Nm taxation and revenue department (See Publication 505, Tax Withholding and Estimated Tax, for information about the underpayment penalty. Nm taxation and revenue department ) However, you will not be subject to the penalty if both of the following situations apply to you. Nm taxation and revenue department You will not have federal income tax withheld from wages, pensions, or any other payments you receive. Nm taxation and revenue department Your income taxes, excluding your household employment taxes, would not be enough to require payment of estimated taxes. Nm taxation and revenue department Asking for more federal income tax withholding. Nm taxation and revenue department   If you are employed and want more federal income tax withheld from your wages to cover your household employment taxes, give your employer a new Form W-4. Nm taxation and revenue department Complete it as before, but show the additional amount you want withheld from each paycheck on line 6. Nm taxation and revenue department   If you receive a pension or annuity and want more federal income tax withheld to cover household employment taxes, give the payer a new Form W-4P, Withholding Certificate for Pension or Annuity Payments (or a similar form provided by the payer). Nm taxation and revenue department Complete it as before, but show the additional amount you want withheld from each benefit payment on line 3. Nm taxation and revenue department   See Publication 505 to make sure you will have the right amount withheld. Nm taxation and revenue department It will help you compare your total expected withholding for 2014 with the combined income tax and employment taxes that you can expect to figure on your 2014 tax return. Nm taxation and revenue department Paying estimated tax. Nm taxation and revenue department   If you want to make estimated tax payments to cover household employment taxes, get Form 1040-ES, Estimated Tax for Individuals. Nm taxation and revenue department You can use its payment vouchers to make your payments by check or money order. Nm taxation and revenue department You may be able to pay by Electronic Funds Withdrawal (EFW) or credit card. Nm taxation and revenue department For details, see the form instructions and visit IRS. Nm taxation and revenue department gov. Nm taxation and revenue department    You can pay all the employment taxes at once or you can pay them in installments. Nm taxation and revenue department If you have already made estimated tax payments for 2014, you can increase your remaining payments to cover the employment taxes. Nm taxation and revenue department Estimated tax payments for 2014 are due April 15, June 16, and September 15, 2014, and January 15, 2015. Nm taxation and revenue department Payment option for business employers. Nm taxation and revenue department   If you own a business as a sole proprietor or your home is on a farm operated for profit, you can choose either of two ways to pay your 2014 household employment taxes. Nm taxation and revenue department You can pay them with your federal income tax as previously described, or you can include them with your federal employment tax deposits or other payments for your business or farm employees. Nm taxation and revenue department For information on depositing employment taxes, see Publication 15 (Circular E). Nm taxation and revenue department   If you pay your household employment taxes with your business or farm employment taxes, you must report your household employment taxes with those other employment taxes on Form 941, Employer's QUARTERLY Federal Tax Return, Form 944, Employer's ANNUAL Federal Tax Return, or Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, and on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Nm taxation and revenue department See Business employment tax returns, later. Nm taxation and revenue department    The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. Nm taxation and revenue department You cannot deduct the wages and employment taxes paid for your household employees on your Schedule C or F. Nm taxation and revenue department More information. Nm taxation and revenue department   For more information about paying taxes through federal income tax withholding and estimated tax payments, and figuring the estimated tax penalty, see Publication 505. Nm taxation and revenue department What Forms Must You File? You must file certain forms to report your household employee's wages and the federal employment taxes for the employee if you pay any of the following wages to the employee. Nm taxation and revenue department Social security and Medicare wages. Nm taxation and revenue department FUTA wages. Nm taxation and revenue department Wages from which you withhold federal income tax. Nm taxation and revenue department For information on ordering employment tax forms, see How To Get Tax Help, later. Nm taxation and revenue department Employer identification number (EIN). Nm taxation and revenue department   You must include your employer identification number (EIN) on the forms you file for your household employee. Nm taxation and revenue department An EIN is a nine-digit number issued by the IRS. Nm taxation and revenue department It is not the same as a social security number. Nm taxation and revenue department    You ordinarily will have an EIN if you previously paid taxes for employees, either as a household employer or as a sole proprietor of a business you own. Nm taxation and revenue department If you already have an EIN, use that number. Nm taxation and revenue department   If you do not have an EIN, you may apply for one online. Nm taxation and revenue department Go to IRS. Nm taxation and revenue department gov and click on the Apply for an EIN Online link under Tools. Nm taxation and revenue department You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Nm taxation and revenue department Form W-2. Nm taxation and revenue department   File a separate 2014 Form W-2, for each household employee to whom you pay either of the following wages during the year. Nm taxation and revenue department Social security and Medicare wages of $1,900 or more. Nm taxation and revenue department Wages from which you withhold federal income tax. Nm taxation and revenue department You must complete Form W-2 and give Copies B, C, and 2 to your employee by February 2, 2015. Nm taxation and revenue department You must send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the SSA by March 2, 2015 (March 31, 2015, if you file your Form W-2 electronically). Nm taxation and revenue department Electronic filing is available to all employers and is free, fast, secure, and offers a later filing deadline. Nm taxation and revenue department Visit the SSA's Employer W-2 Filing Instructions & Information website at www. Nm taxation and revenue department socialsecurity. Nm taxation and revenue department gov/employer for guidelines on filing electronically. Nm taxation and revenue department Employee who leaves during the year. Nm taxation and revenue department   If an employee stops working for you before the end of 2014, you can file Form W-2 and provide copies to your employee immediately after you make your final payment of wages. Nm taxation and revenue department You do not need to wait until 2015. Nm taxation and revenue department If the employee asks you for Form W-2, give it to him or her within 30 days after the request or the last wage payment, whichever is later. Nm taxation and revenue department Schedule H. Nm taxation and revenue department   Use Schedule H to report household employment taxes if you pay any of the following wages to the employee. Nm taxation and revenue department Social security and Medicare wages of $1,900 or more. Nm taxation and revenue department FUTA wages. Nm taxation and revenue department Wages from which you withhold federal income tax. Nm taxation and revenue department File Schedule H with your 2014 federal income tax return by April 15, 2015. Nm taxation and revenue department If you get an extension to file your return, the extension also will apply to your Schedule H. Nm taxation and revenue department Filing options when no return is required. Nm taxation and revenue department   If you are not required to file a 2014 tax return, you have the following two options. Nm taxation and revenue department You can file Schedule H by itself. Nm taxation and revenue department See the Schedule H instructions for details. Nm taxation and revenue department If, besides your household employee, you have other employees for whom you report employment taxes on Form 941, Form 944, or Form 943 and on Form 940, you can include your taxes for your household employee on those forms. Nm taxation and revenue department See Business employment tax returns, next. Nm taxation and revenue department   Employers having the options listed above include certain tax-exempt organizations that do not have to file a tax return, such as churches that pay a household worker to take care of a minister's home. Nm taxation and revenue department Business employment tax returns. Nm taxation and revenue department   Do not use Schedule H if you choose to pay the employment taxes for your household employee with business or farm employment taxes. Nm taxation and revenue department (See Payment option for business employers, earlier. Nm taxation and revenue department ) Instead, include the social security, Medicare, and withheld federal income taxes for the employee on the Form 941 or Form 944 you file for your business or on the Form 943 you file for your farm. Nm taxation and revenue department Include the FUTA tax for the employee on your Form 940. Nm taxation and revenue department   If you report the employment taxes for your household employee on Form 941, Form 944, or Form 943, file Form W-2 for that employee with the Forms W-2 and Form W-3 for your business or farm employees. Nm taxation and revenue department   For information on filing Form 941 or Form 944, see Publication 15 (Circular E). Nm taxation and revenue department For information on filing Form 943, see Publication 51 (Circular A), Agricultural Employer's Tax Guide. Nm taxation and revenue department Both of these publications also provide information about filing Form 940. Nm taxation and revenue department What Records Must You Keep? Keep your copies of Schedule H or other employment tax forms you file and related Forms W-2, W-3, and W-4. Nm taxation and revenue department You must also keep records to support the information you enter on the forms you file. Nm taxation and revenue department If you must file Form W-2, you will need to keep a record of your employee's name, address, and social security number. Nm taxation and revenue department Wage and tax records. Nm taxation and revenue department   On each payday, you should record the date and amounts of all the following items. Nm taxation and revenue department Your employee's cash and noncash wages. Nm taxation and revenue department Any employee social security tax you withhold or agree to pay for your employee. Nm taxation and revenue department Any employee Medicare tax you withhold or agree to pay for your employee. Nm taxation and revenue department Any federal income tax you withhold. Nm taxation and revenue department Any state employment taxes you withhold. Nm taxation and revenue department Employee's social security number. Nm taxation and revenue department   You must keep a record of your employee's name and social security number exactly as they appear on his or her social security card if you pay the employee either of the following. Nm taxation and revenue department Social security and Medicare wages of $1,900 or more. Nm taxation and revenue department Wages from which you withhold federal income tax. Nm taxation and revenue department You must ask for your employee's social security number no later than the first day on which you pay the wages. Nm taxation and revenue department You may wish to ask for it when you hire your employee. Nm taxation and revenue department You should ask your employee to show you his or her social security card. Nm taxation and revenue department The employee may show the card if it is available. Nm taxation and revenue department You may, but are not required to, photocopy the card if the employee provides it. Nm taxation and revenue department   An employee who does not have a social security number must apply for one on Form SS-5, Application for a Social Security Card. Nm taxation and revenue department An employee who has lost his or her social security card or whose name is not correctly shown on the card may apply for a replacement card. Nm taxation and revenue department    Employees can get Form SS-5 from any Social Security Administration office or by calling 1-800-772-1213. Nm taxation and revenue department    You also can download Form SS-5 from the Social Security Administration website at  www. Nm taxation and revenue department socialsecurity. Nm taxation and revenue department gov/online/ss-5. Nm taxation and revenue department pdf. Nm taxation and revenue department How long to keep records. Nm taxation and revenue department   Keep your employment tax records for at least 4 years after the due date of the return on which you report the taxes or the date the taxes were paid, whichever is later. Nm taxation and revenue department Can You Claim a Credit for Child and Dependent Care Expenses? If your household employee cares for your dependent who is under age 13 or for your spouse or dependent who is not capable of self-care, you may be able to take an income tax credit against some of your expenses. Nm taxation and revenue department To qualify, you must pay these expenses so you can work or look for work. Nm taxation and revenue department If you can take the credit, you can include in your qualifying expenses your share of the federal and state employment taxes you pay, as well as the employee's wages. Nm taxation and revenue department For information about the credit, see Publication 503, Child and Dependent Care Expenses. Nm taxation and revenue department How Can You Correct Schedule H? If you discover that you made an error on a Schedule H (or Anexo H-PR), the forms used to correct the error depend on whether the Schedule H was attached to another form or whether it was filed by itself. Nm taxation and revenue department Schedule H attached to another form. Nm taxation and revenue department    If you discover an error on a Schedule H that you previously filed with Form 1040, Form 1040NR, or Form 1040-SS, file Form 1040X, Amended U. Nm taxation and revenue department S. Nm taxation and revenue department Individual Income Tax Return, and attach a corrected Schedule H. Nm taxation and revenue department If you filed Formulario 1040-PR, file a Form 1040X and attach a corrected Anexo H-PR. Nm taxation and revenue department If you discover an error on a Schedule H that you previously filed with Form 1041, U. Nm taxation and revenue department S. Nm taxation and revenue department Income Tax Return for Estates and Trusts, file an “amended” Form 1041 and attach a corrected Schedule H. Nm taxation and revenue department You discovered (that is, ascertained) the error when you had enough information to be able to correct the error. Nm taxation and revenue department Write “CORRECTED” (or “CORREGIDO”) and the date you discovered the error in the top margin of your corrected Schedule H (or Anexo H-PR), in dark, bold letters. Nm taxation and revenue department In addition, explain the reason for your correction and the date the error was discovered in Part III of Form 1040X or in a statement attached to the amended Form 1041. Nm taxation and revenue department Schedule H filed by itself. Nm taxation and revenue department   If you discover an error on a Schedule H (or Anexo H-PR) that you filed as a stand-alone return, file another stand-alone Schedule H with the corrected information. Nm taxation and revenue department You discovered (that is, ascertained) the error when you had enough information to be able to correct the error. Nm taxation and revenue department Write “CORRECTED” (or “CORREGIDO”) and the date you discovered the error in the top margin of your corrected Schedule H (or Anexo H-PR), in dark, bold letters. Nm taxation and revenue department In addition, explain the reason for your correction and the date the error was discovered in a statement attached to the corrected Schedule H. Nm taxation and revenue department If you have an overpayment, also write “ADJUSTED” (or “CORREGIDO”) or “REFUND” (or “REEMBOLSO”) in the top margin, depending on whether you want to adjust your overpayment or claim a refund. Nm taxation and revenue department (See Overpayment of tax, later. Nm taxation and revenue department ) When to file. Nm taxation and revenue department   File a corrected Schedule H when you discover an error on a previously filed Schedule H. Nm taxation and revenue department If you are correcting an underpayment, file a corrected Schedule H no later than the due date of your next tax return (generally, April 15 of the following calendar year) after you discover the error. Nm taxation and revenue department If you are correcting an overpayment, file a corrected Schedule H within the refund period of limitations (generally 3 years from the date your original form was filed or within 2 years from the date you paid the tax, whichever is later). Nm taxation and revenue department Underpayment of tax. Nm taxation and revenue department   You must pay any underpayment of social security and Medicare taxes by the time you file the corrected Schedule H. Nm taxation and revenue department Generally, by filing on time and paying by the time you file the return, you will not be charged interest (and will not be subject to failure-to-pay or estimated tax penalties) on the balance due. Nm taxation and revenue department However, underreported FUTA taxes will be subject to interest. Nm taxation and revenue department Overpayment of tax. Nm taxation and revenue department    You may either adjust or claim a refund of an overpayment of social security and Medicare taxes on a previously filed Schedule H. Nm taxation and revenue department However, if you are correcting an overpayment and are filing the corrected Schedule H within 90 days of the expiration of the period of limitations, you can only claim a refund of the overpayment. Nm taxation and revenue department Adjust the overpayment. Nm taxation and revenue department   If the corrected Schedule H is filed with a Form 1040X or an amended Form 1041, adjust your return by indicating on line 22 of the Form 1040X or on line 29a of the Form 1041 that you would like the overpayment applied to your estimated taxes on Form 1040, Form 1040NR, Form 1040-PR, Form 1040-SS, or Form 1041 for the year in which you are filing the corrected Schedule H. Nm taxation and revenue department If the corrected Schedule H is filed as a stand-alone return, adjust your return by writing “ADJUSTED” (or “CORREGIDO”) in the top margin (in dark, bold letters). Nm taxation and revenue department If you adjust your return, you will not receive interest on your overpayment. Nm taxation and revenue department If the corrected Schedule H will be filed within 90 days of the expiration of the refund period of limitations, you may not adjust the return and must claim a refund for the overpayment. Nm taxation and revenue department You may not adjust your return to correct overpayments of FUTA tax. Nm taxation and revenue department Claim for refund process. Nm taxation and revenue department   If the corrected Schedule H is filed with a Form 1040X or an amended Form 1041, claim a refund by indicating that you would like the overpayment refunded to you on line 21 of the Form 1040X or line 29b of the Form 1041. Nm taxation and revenue department If the corrected Schedule H is filed as a stand-alone return, claim a refund by writing “REFUND” (or “REEMBOLSO”) in the top margin (in dark, bold letters). Nm taxation and revenue department You will receive interest on any overpayment refunded, unless the overpayment is for FUTA tax because you were entitled to increased credits for state contributions. Nm taxation and revenue department Required repayment or consent. Nm taxation and revenue department   If you previously overreported social security and Medicare taxes, you may adjust your overpayment only after you have repaid or reimbursed your employees in the amount of the overcollection of employee tax. Nm taxation and revenue department You reimburse your employees by applying the overwithheld amount against taxes to be withheld on future wages. Nm taxation and revenue department You may claim a refund for the overpayment only after you have repaid or reimbursed your employees in the amount of the overcollection or you have obtained consents from your employees to file the claim for refund for the employee tax. Nm taxation and revenue department Include a statement that you repaid or reimbursed your employees, or obtained their written consents in the case of a claim for refund, in Part III of Form 1040X or in a statement attached to the amended Form 1041 or the stand-alone corrected Schedule H. Nm taxation and revenue department Filing required Forms W-2 or Forms W-2c. Nm taxation and revenue department   Whether you previously underreported tax or overreported tax, you will generally be required to file Form W-2, or their territorial equivalents (if none was previously filed), or Form W-2c, Corrected Wage and Tax Statement, to reflect the changes reported on your corrected Schedule H. Nm taxation and revenue department Additional Medicare Tax. Nm taxation and revenue department   Generally, you may not correct an error in Additional Medicare Tax withholding for wages paid to employees in a prior year unless it is an administrative error. Nm taxation and revenue department An administrative error occurs if the amount you entered on Schedule H is not the amount you actually withheld. Nm taxation and revenue department For example, if the Additional Medicare Tax actually withheld was incorrectly reported on Schedule H due to a mathematical or transposition error, this would be an administrative error. Nm taxation and revenue department   Any underwithheld Additional Medicare Tax must be recovered from employees on or before the last day of the calendar year in which the underwithholding occurred. Nm taxation and revenue department Any excess Additional Medicare Tax withholding must be repaid or reimbursed to employees before the end of the calendar year in which it was withheld. Nm taxation and revenue department Additional information. Nm taxation and revenue department   For more information about correcting errors on a previously filed Schedule H, see page 4 of Form 944-X, Form 944-X: Which process should you use? (substitute “Schedule H” for “Form 944-X”) and the Instructions for Form 944-X (or Formulario 944-X (PR)). Nm taxation and revenue department Also, visit IRS. Nm taxation and revenue department gov. Nm taxation and revenue department How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Nm taxation and revenue department Free help with your tax return. Nm taxation and revenue department   You can get free help preparing your return nationwide from IRS-certified volunteers. Nm taxation and revenue department The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Nm taxation and revenue department The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Nm taxation and revenue department Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Nm taxation and revenue department In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Nm taxation and revenue department To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Nm taxation and revenue department gov, download the IRS2Go app, or call 1-800-906-9887. Nm taxation and revenue department   As part of the TCE program, AARP offers the Tax-Aide counseling program. Nm taxation and revenue department To find the nearest AARP Tax-Aide site, visit AARP's website at www. Nm taxation and revenue department aarp. Nm taxation and revenue department org/money/taxaide or call 1-888-227-7669. Nm taxation and revenue department For more information on these programs, go to IRS. Nm taxation and revenue department gov and enter “VITA” in the search box. Nm taxation and revenue department Internet. Nm taxation and revenue department    IRS. Nm taxation and revenue department gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Nm taxation and revenue department Download the free IRS2Go app from the iTunes app store or from Google Play. Nm taxation and revenue department Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Nm taxation and revenue department Check the status of your 2013 refund with the Where's My Refund? application on IRS. Nm taxation and revenue department gov or download the IRS2Go app and select the Refund Status option. Nm taxation and revenue department The IRS issues more than 9 out of 10 refunds in less than 21 days. Nm taxation and revenue department Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Nm taxation and revenue department You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Nm taxation and revenue department The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Nm taxation and revenue department Use the Interactive Tax Assistant (ITA) to research your tax questions. Nm taxation and revenue department No need to wait on the phone or stand in line. Nm taxation and revenue department The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Nm taxation and revenue department When you reach the response screen, you can print the entire interview and the final response for your records. Nm taxation and revenue department New subject areas are added on a regular basis. Nm taxation and revenue department  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Nm taxation and revenue department gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Nm taxation and revenue department You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Nm taxation and revenue department The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Nm taxation and revenue department When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Nm taxation and revenue department Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Nm taxation and revenue department You can also ask the IRS to mail a return or an account transcript to you. Nm taxation and revenue department Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Nm taxation and revenue department gov or by calling 1-800-908-9946. Nm taxation and revenue department Tax return and tax account transcripts are generally available for the current year and the past three years. Nm taxation and revenue department Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Nm taxation and revenue department Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Nm taxation and revenue department If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Nm taxation and revenue department Check the status of your amended return using Where's My Amended Return? Go to IRS. Nm taxation and revenue department gov and enter Where's My Amended Return? in the search box. Nm taxation and revenue department You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Nm taxation and revenue department It can take up to 3 weeks from the date you mailed it to show up in our system. Nm taxation and revenue department Make a payment using one of several safe and convenient electronic payment options available on IRS. Nm taxation and revenue department gov. Nm taxation and revenue department Select the Payment tab on the front page of IRS. Nm taxation and revenue department gov for more information. Nm taxation and revenue department Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Nm taxation and revenue department Figure your income tax withholding with the IRS Withholding Calculator on IRS. Nm taxation and revenue department gov. Nm taxation and revenue department Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Nm taxation and revenue department Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Nm taxation and revenue department gov. Nm taxation and revenue department Request an Electronic Filing PIN by going to IRS. Nm taxation and revenue department gov and entering Electronic Filing PIN in the search box. Nm taxation and revenue department Download forms, instructions and publications, including accessible versions for people with disabilities. Nm taxation and revenue department Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Nm taxation and revenue department gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Nm taxation and revenue department An employee can answer questions about your tax account or help you set up a payment plan. Nm taxation and revenue department Before you visit, check the Office Locator on IRS. Nm taxation and revenue department gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Nm taxation and revenue department If you have a special need, such as a disability, you can request an appointment. Nm taxation and revenue department Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Nm taxation and revenue department Apply for an Employer Identification Number (EIN). Nm taxation and revenue department Go to IRS. Nm taxation and revenue department gov and enter Apply for an EIN in the search box. Nm taxation and revenue department Read the Internal Revenue Code, regulations, or other official guidance. Nm taxation and revenue department Read Internal Revenue Bulletins. Nm taxation and revenue department Sign up to receive local and national tax news and more by email. Nm taxation and revenue department Just click on “subscriptions” above the search box on IRS. Nm taxation and revenue department gov and choose from a variety of options. Nm taxation and revenue department Phone. Nm taxation and revenue department    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Nm taxation and revenue department Download the free IRS2Go app from the iTunes app store or from Google Play. Nm taxation and revenue department Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Nm taxation and revenue department gov, or download the IRS2Go app. Nm taxation and revenue department Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Nm taxation and revenue department The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Nm taxation and revenue department Most VITA and TCE sites offer free electronic filing. Nm taxation and revenue department Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Nm taxation and revenue department Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Nm taxation and revenue department Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Nm taxation and revenue department If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Nm taxation and revenue department The IRS issues more than 9 out of 10 refunds in less than 21 days. Nm taxation and revenue department Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Nm taxation and revenue department Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Nm taxation and revenue department The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Nm taxation and revenue department Note, the above information is for our automated hotline. Nm taxation and revenue department Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Nm taxation and revenue department Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Nm taxation and revenue department You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Nm taxation and revenue department It can take up to 3 weeks from the date you mailed it to show up in our system. Nm taxation and revenue department Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Nm taxation and revenue department You should receive your order within 10 business days. Nm taxation and revenue department Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Nm taxation and revenue department If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Nm taxation and revenue department Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Nm taxation and revenue department The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Nm taxation and revenue department These individuals can also contact the IRS through relay services such as the Federal Relay Service. Nm taxation and revenue department Walk-in. Nm taxation and revenue department   You can find a selection of forms, publications and services — in-person. Nm taxation and revenue department Products. Nm taxation and revenue department You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Nm taxation and revenue department Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Nm taxation and revenue department Services. Nm taxation and revenue department You can walk in to your local TAC for face-to-face tax help. Nm taxation and revenue department An employee can answer questions about your tax account or help you set up a payment plan. Nm taxation and revenue department Before visiting, use the Office Locator tool on IRS. Nm taxation and revenue department gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Nm taxation and revenue department Mail. Nm taxation and revenue department   You can send your order for forms, instructions, and publications to the address below. Nm taxation and revenue department You should receive a response within 10 business days after your request is received. Nm taxation and revenue department Internal Revenue Service 1201 N. Nm taxation and revenue department Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Nm taxation and revenue department The Taxpayer Advocate Service (TAS) is your voice at the IRS. Nm taxation and revenue department Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Nm taxation and revenue department   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Nm taxation and revenue department We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Nm taxation and revenue department You face (or your business is facing) an immediate threat of adverse action. Nm taxation and revenue department You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Nm taxation and revenue department   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Nm taxation and revenue department Here's why we can help: TAS is an independent organization within the IRS. Nm taxation and revenue department Our advocates know how to work with the IRS. Nm taxation and revenue department Our services are free and tailored to meet your needs. Nm taxation and revenue department We have offices in every state, the District of Columbia, and Puerto Rico. Nm taxation and revenue department   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Nm taxation and revenue department   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Nm taxation and revenue department If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Nm taxation and revenue department Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. Nm taxation and revenue department Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Nm taxation and revenue department Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. Nm taxation and revenue department Sample W-2 Form This image is too large to be displayed in the current screen. Nm taxation and revenue department Please click the link to view the image. Nm taxation and revenue department Webtitle: Form W-2 Wage and Tax Statement and Form W-3 Transmitttal of Wage and Tax Statemtents Prev  Up  Next   Home   More Online Publications
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Nm taxation and revenue department 1. Nm taxation and revenue department   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Nm taxation and revenue department It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Nm taxation and revenue department This chapter discusses the general rules for depreciating property and answers the following questions. Nm taxation and revenue department What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Nm taxation and revenue department What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Nm taxation and revenue department You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Nm taxation and revenue department To be depreciable, the property must meet all the following requirements. Nm taxation and revenue department It must be property you own. Nm taxation and revenue department It must be used in your business or income-producing activity. Nm taxation and revenue department It must have a determinable useful life. Nm taxation and revenue department It must be expected to last more than one year. Nm taxation and revenue department The following discussions provide information about these requirements. Nm taxation and revenue department Property You Own To claim depreciation, you usually must be the owner of the property. Nm taxation and revenue department You are considered as owning property even if it is subject to a debt. Nm taxation and revenue department Example 1. Nm taxation and revenue department You made a down payment to purchase rental property and assumed the previous owner's mortgage. Nm taxation and revenue department You own the property and you can depreciate it. Nm taxation and revenue department Example 2. Nm taxation and revenue department You bought a new van that you will use only for your courier business. Nm taxation and revenue department You will be making payments on the van over the next 5 years. Nm taxation and revenue department You own the van and you can depreciate it. Nm taxation and revenue department Leased property. Nm taxation and revenue department   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Nm taxation and revenue department This means you bear the burden of exhaustion of the capital investment in the property. Nm taxation and revenue department Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Nm taxation and revenue department You can, however, depreciate any capital improvements you make to the property. Nm taxation and revenue department See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Nm taxation and revenue department   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Nm taxation and revenue department However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Nm taxation and revenue department Incidents of ownership. Nm taxation and revenue department   Incidents of ownership in property include the following. Nm taxation and revenue department The legal title to the property. Nm taxation and revenue department The legal obligation to pay for the property. Nm taxation and revenue department The responsibility to pay maintenance and operating expenses. Nm taxation and revenue department The duty to pay any taxes on the property. Nm taxation and revenue department The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Nm taxation and revenue department Life tenant. Nm taxation and revenue department   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Nm taxation and revenue department However, see Certain term interests in property under Excepted Property, later. Nm taxation and revenue department Cooperative apartments. Nm taxation and revenue department   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Nm taxation and revenue department   Figure your depreciation deduction as follows. Nm taxation and revenue department Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Nm taxation and revenue department If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Nm taxation and revenue department Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Nm taxation and revenue department Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Nm taxation and revenue department Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Nm taxation and revenue department Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Nm taxation and revenue department Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Nm taxation and revenue department Multiply the result of (2) by the percentage you figured in (3). Nm taxation and revenue department This is your depreciation on the stock. Nm taxation and revenue department   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Nm taxation and revenue department You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Nm taxation and revenue department Example. Nm taxation and revenue department You figure your share of the cooperative housing corporation's depreciation to be $30,000. Nm taxation and revenue department Your adjusted basis in the stock of the corporation is $50,000. Nm taxation and revenue department You use one half of your apartment solely for business purposes. Nm taxation and revenue department Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Nm taxation and revenue department Change to business use. Nm taxation and revenue department   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Nm taxation and revenue department The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Nm taxation and revenue department The fair market value of the property on the date you change your apartment to business use. Nm taxation and revenue department This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Nm taxation and revenue department The corporation's adjusted basis in the property on that date. Nm taxation and revenue department Do not subtract depreciation when figuring the corporation's adjusted basis. Nm taxation and revenue department   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Nm taxation and revenue department The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Nm taxation and revenue department   For a discussion of fair market value and adjusted basis, see Publication 551. Nm taxation and revenue department Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Nm taxation and revenue department If you use property to produce income (investment use), the income must be taxable. Nm taxation and revenue department You cannot depreciate property that you use solely for personal activities. Nm taxation and revenue department Partial business or investment use. Nm taxation and revenue department   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Nm taxation and revenue department For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Nm taxation and revenue department    You must keep records showing the business, investment, and personal use of your property. Nm taxation and revenue department For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Nm taxation and revenue department    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Nm taxation and revenue department For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Nm taxation and revenue department Office in the home. Nm taxation and revenue department   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Nm taxation and revenue department For information about depreciating your home office, see Publication 587. Nm taxation and revenue department Inventory. Nm taxation and revenue department   You cannot depreciate inventory because it is not held for use in your business. Nm taxation and revenue department Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Nm taxation and revenue department   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Nm taxation and revenue department See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Nm taxation and revenue department   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Nm taxation and revenue department If it is unclear, examine carefully all the facts in the operation of the particular business. Nm taxation and revenue department The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Nm taxation and revenue department Example. Nm taxation and revenue department Maple Corporation is in the business of leasing cars. Nm taxation and revenue department At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Nm taxation and revenue department Maple does not have a showroom, used car lot, or individuals to sell the cars. Nm taxation and revenue department Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Nm taxation and revenue department Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Nm taxation and revenue department If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Nm taxation and revenue department In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Nm taxation and revenue department Containers. Nm taxation and revenue department   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Nm taxation and revenue department However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Nm taxation and revenue department They qualify as property used in your business. Nm taxation and revenue department Title to the containers does not pass to the buyer. Nm taxation and revenue department   To determine if these requirements are met, consider the following questions. Nm taxation and revenue department Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Nm taxation and revenue department This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Nm taxation and revenue department Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Nm taxation and revenue department Example. Nm taxation and revenue department You maintain a library for use in your profession. Nm taxation and revenue department You can depreciate it. Nm taxation and revenue department However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Nm taxation and revenue department Instead, you deduct their cost as a business expense. Nm taxation and revenue department What Property Cannot Be Depreciated? Certain property cannot be depreciated. Nm taxation and revenue department This includes land and certain excepted property. Nm taxation and revenue department Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Nm taxation and revenue department The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Nm taxation and revenue department Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Nm taxation and revenue department These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Nm taxation and revenue department Example. Nm taxation and revenue department You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Nm taxation and revenue department Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Nm taxation and revenue department If you replace the building, you would have to destroy the bushes and trees right next to it. Nm taxation and revenue department These bushes and trees are closely associated with the building, so they have a determinable useful life. Nm taxation and revenue department Therefore, you can depreciate them. Nm taxation and revenue department Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Nm taxation and revenue department Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Nm taxation and revenue department Property placed in service and disposed of in the same year. Nm taxation and revenue department Determining when property is placed in service is explained later. Nm taxation and revenue department Equipment used to build capital improvements. Nm taxation and revenue department You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Nm taxation and revenue department See Uniform Capitalization Rules in Publication 551. Nm taxation and revenue department Section 197 intangibles. Nm taxation and revenue department You must amortize these costs. Nm taxation and revenue department Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Nm taxation and revenue department Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Nm taxation and revenue department See Intangible Property , later. Nm taxation and revenue department Certain term interests. Nm taxation and revenue department Certain term interests in property. Nm taxation and revenue department   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Nm taxation and revenue department A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Nm taxation and revenue department Related persons. Nm taxation and revenue department   For a description of related persons, see Related Persons, later. Nm taxation and revenue department For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Nm taxation and revenue department Basis adjustments. Nm taxation and revenue department   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Nm taxation and revenue department   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Nm taxation and revenue department However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Nm taxation and revenue department The term interest is held by an organization exempt from tax. Nm taxation and revenue department The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Nm taxation and revenue department Exceptions. Nm taxation and revenue department   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Nm taxation and revenue department They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Nm taxation and revenue department When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Nm taxation and revenue department You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Nm taxation and revenue department Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Nm taxation and revenue department Even if you are not using the property, it is in service when it is ready and available for its specific use. Nm taxation and revenue department Example 1. Nm taxation and revenue department Donald Steep bought a machine for his business. Nm taxation and revenue department The machine was delivered last year. Nm taxation and revenue department However, it was not installed and operational until this year. Nm taxation and revenue department It is considered placed in service this year. Nm taxation and revenue department If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Nm taxation and revenue department Example 2. Nm taxation and revenue department On April 6, Sue Thorn bought a house to use as residential rental property. Nm taxation and revenue department She made several repairs and had it ready for rent on July 5. Nm taxation and revenue department At that time, she began to advertise it for rent in the local newspaper. Nm taxation and revenue department The house is considered placed in service in July when it was ready and available for rent. Nm taxation and revenue department She can begin to depreciate it in July. Nm taxation and revenue department Example 3. Nm taxation and revenue department James Elm is a building contractor who specializes in constructing office buildings. Nm taxation and revenue department He bought a truck last year that had to be modified to lift materials to second-story levels. Nm taxation and revenue department The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Nm taxation and revenue department The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Nm taxation and revenue department Conversion to business use. Nm taxation and revenue department   If you place property in service in a personal activity, you cannot claim depreciation. Nm taxation and revenue department However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Nm taxation and revenue department You place the property in service in the business or income-producing activity on the date of the change. Nm taxation and revenue department Example. Nm taxation and revenue department You bought a home and used it as your personal home several years before you converted it to rental property. Nm taxation and revenue department Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Nm taxation and revenue department You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Nm taxation and revenue department Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Nm taxation and revenue department For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Nm taxation and revenue department Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Nm taxation and revenue department You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Nm taxation and revenue department See What Is the Basis of Your Depreciable Property , later. Nm taxation and revenue department Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Nm taxation and revenue department You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Nm taxation and revenue department You sell or exchange the property. Nm taxation and revenue department You convert the property to personal use. Nm taxation and revenue department You abandon the property. Nm taxation and revenue department You transfer the property to a supplies or scrap account. Nm taxation and revenue department The property is destroyed. Nm taxation and revenue department If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Nm taxation and revenue department What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Nm taxation and revenue department MACRS is discussed in chapter 4. Nm taxation and revenue department You cannot use MACRS to depreciate the following property. Nm taxation and revenue department Property you placed in service before 1987. Nm taxation and revenue department Certain property owned or used in 1986. Nm taxation and revenue department Intangible property. Nm taxation and revenue department Films, video tapes, and recordings. Nm taxation and revenue department Certain corporate or partnership property acquired in a nontaxable transfer. Nm taxation and revenue department Property you elected to exclude from MACRS. Nm taxation and revenue department The following discussions describe the property listed above and explain what depreciation method should be used. Nm taxation and revenue department Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Nm taxation and revenue department Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Nm taxation and revenue department For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Nm taxation and revenue department Use of real property changed. Nm taxation and revenue department   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Nm taxation and revenue department Improvements made after 1986. Nm taxation and revenue department   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Nm taxation and revenue department Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Nm taxation and revenue department For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Nm taxation and revenue department Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Nm taxation and revenue department If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Nm taxation and revenue department For the following discussions, do not treat property as owned before you placed it in service. Nm taxation and revenue department If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Nm taxation and revenue department Personal property. Nm taxation and revenue department   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Nm taxation and revenue department You or someone related to you owned or used the property in 1986. Nm taxation and revenue department You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Nm taxation and revenue department You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Nm taxation and revenue department You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Nm taxation and revenue department Real property. Nm taxation and revenue department   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Nm taxation and revenue department You or someone related to you owned the property in 1986. Nm taxation and revenue department You lease the property to a person who owned the property in 1986 (or someone related to that person). Nm taxation and revenue department You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Nm taxation and revenue department MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Nm taxation and revenue department It does not apply to the carried-over part of the basis. Nm taxation and revenue department Exceptions. Nm taxation and revenue department   The rules above do not apply to the following. Nm taxation and revenue department Residential rental property or nonresidential real property. Nm taxation and revenue department Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Nm taxation and revenue department For information on how to figure depreciation under ACRS, see Publication 534. Nm taxation and revenue department Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Nm taxation and revenue department Related persons. Nm taxation and revenue department   For this purpose, the following are related persons. Nm taxation and revenue department An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Nm taxation and revenue department A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Nm taxation and revenue department Two corporations that are members of the same controlled group. Nm taxation and revenue department A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Nm taxation and revenue department The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Nm taxation and revenue department The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Nm taxation and revenue department A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Nm taxation and revenue department Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Nm taxation and revenue department A corporation and a partnership if the same persons own both of the following. Nm taxation and revenue department More than 10% of the value of the outstanding stock of the corporation. Nm taxation and revenue department More than 10% of the capital or profits interest in the partnership. Nm taxation and revenue department The executor and beneficiary of any estate. Nm taxation and revenue department A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Nm taxation and revenue department Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Nm taxation and revenue department The related person and a person who is engaged in trades or businesses under common control. Nm taxation and revenue department See section 52(a) and 52(b) of the Internal Revenue Code. Nm taxation and revenue department When to determine relationship. Nm taxation and revenue department   You must determine whether you are related to another person at the time you acquire the property. Nm taxation and revenue department   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Nm taxation and revenue department For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Nm taxation and revenue department Constructive ownership of stock or partnership interest. Nm taxation and revenue department   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Nm taxation and revenue department Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Nm taxation and revenue department However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Nm taxation and revenue department An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Nm taxation and revenue department An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Nm taxation and revenue department For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Nm taxation and revenue department However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Nm taxation and revenue department Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Nm taxation and revenue department However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Nm taxation and revenue department You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Nm taxation and revenue department Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Nm taxation and revenue department To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Nm taxation and revenue department Subtract the salvage value, if any, from the adjusted basis. Nm taxation and revenue department The balance is the total depreciation you can take over the useful life of the property. Nm taxation and revenue department Divide the balance by the number of years in the useful life. Nm taxation and revenue department This gives you your yearly depreciation deduction. Nm taxation and revenue department Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Nm taxation and revenue department If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Nm taxation and revenue department Example. Nm taxation and revenue department In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Nm taxation and revenue department He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Nm taxation and revenue department He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Nm taxation and revenue department He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Nm taxation and revenue department Next year, Frank can deduct $300 for the full year. Nm taxation and revenue department Patents and copyrights. Nm taxation and revenue department   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Nm taxation and revenue department The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Nm taxation and revenue department However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Nm taxation and revenue department Computer software. Nm taxation and revenue department   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Nm taxation and revenue department   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Nm taxation and revenue department It is readily available for purchase by the general public. Nm taxation and revenue department It is subject to a nonexclusive license. Nm taxation and revenue department It has not been substantially modified. Nm taxation and revenue department   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Nm taxation and revenue department If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Nm taxation and revenue department    Tax-exempt use property subject to a lease. Nm taxation and revenue department   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. Nm taxation and revenue department Certain created intangibles. Nm taxation and revenue department   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Nm taxation and revenue department For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Nm taxation and revenue department   The following are not eligible. Nm taxation and revenue department Any intangible asset acquired from another person. Nm taxation and revenue department Created financial interests. Nm taxation and revenue department Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Nm taxation and revenue department Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Nm taxation and revenue department Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Nm taxation and revenue department   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Nm taxation and revenue department For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Nm taxation and revenue department Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Nm taxation and revenue department Motion picture films or video tapes. Nm taxation and revenue department Sound recordings. Nm taxation and revenue department Copyrights. Nm taxation and revenue department Books. Nm taxation and revenue department Patents. Nm taxation and revenue department Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Nm taxation and revenue department The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Nm taxation and revenue department For more information, see section 167(g) of the Internal Revenue Code. Nm taxation and revenue department Films, video tapes, and recordings. Nm taxation and revenue department   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Nm taxation and revenue department For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Nm taxation and revenue department You can depreciate this property using either the straight line method or the income forecast method. Nm taxation and revenue department Participations and residuals. Nm taxation and revenue department   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Nm taxation and revenue department The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Nm taxation and revenue department For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Nm taxation and revenue department   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Nm taxation and revenue department Videocassettes. Nm taxation and revenue department   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Nm taxation and revenue department If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Nm taxation and revenue department Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Nm taxation and revenue department You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Nm taxation and revenue department However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Nm taxation and revenue department The nontaxable transfers covered by this rule include the following. Nm taxation and revenue department A distribution in complete liquidation of a subsidiary. Nm taxation and revenue department A transfer to a corporation controlled by the transferor. Nm taxation and revenue department An exchange of property solely for corporate stock or securities in a reorganization. Nm taxation and revenue department A contribution of property to a partnership in exchange for a partnership interest. Nm taxation and revenue department A partnership distribution of property to a partner. Nm taxation and revenue department Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Nm taxation and revenue department You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Nm taxation and revenue department You must make this election by the return due date (including extensions) for the tax year you place your property in service. Nm taxation and revenue department However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). Nm taxation and revenue department Attach the election to the amended return and write “Filed pursuant to section 301. Nm taxation and revenue department 9100-2” on the election statement. Nm taxation and revenue department File the amended return at the same address you filed the original return. Nm taxation and revenue department Use of standard mileage rate. Nm taxation and revenue department   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Nm taxation and revenue department See Publication 463 for a discussion of the standard mileage rate. Nm taxation and revenue department What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Nm taxation and revenue department To determine basis, you need to know the cost or other basis of your property. Nm taxation and revenue department Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Nm taxation and revenue department The cost includes the amount you pay in cash, debt obligations, other property, or services. Nm taxation and revenue department Exception. Nm taxation and revenue department   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Nm taxation and revenue department If you make that choice, you cannot include those sales taxes as part of your cost basis. Nm taxation and revenue department Assumed debt. Nm taxation and revenue department   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Nm taxation and revenue department Example. Nm taxation and revenue department You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Nm taxation and revenue department Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Nm taxation and revenue department Settlement costs. Nm taxation and revenue department   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Nm taxation and revenue department These generally are shown on your settlement statement and include the following. Nm taxation and revenue department Legal and recording fees. Nm taxation and revenue department Abstract fees. Nm taxation and revenue department Survey charges. Nm taxation and revenue department Owner's title insurance. Nm taxation and revenue department Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Nm taxation and revenue department   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Nm taxation and revenue department Property you construct or build. Nm taxation and revenue department   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Nm taxation and revenue department For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Nm taxation and revenue department Other Basis Other basis usually refers to basis that is determined by the way you received the property. Nm taxation and revenue department For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Nm taxation and revenue department If you acquired property in this or some other way, see Publication 551 to determine your basis. Nm taxation and revenue department Property changed from personal use. Nm taxation and revenue department   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Nm taxation and revenue department The fair market value (FMV) of the property on the date of the change in use. Nm taxation and revenue department Your original cost or other basis adjusted as follows. Nm taxation and revenue department Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Nm taxation and revenue department Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Nm taxation and revenue department Example. Nm taxation and revenue department Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Nm taxation and revenue department Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Nm taxation and revenue department Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Nm taxation and revenue department Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Nm taxation and revenue department On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Nm taxation and revenue department The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Nm taxation and revenue department Property acquired in a nontaxable transaction. Nm taxation and revenue department   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Nm taxation and revenue department Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Nm taxation and revenue department See Like-kind exchanges and involuntary conversions. Nm taxation and revenue department under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Nm taxation and revenue department   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Nm taxation and revenue department See How Do You Use General Asset Accounts in chapter 4. Nm taxation and revenue department Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Nm taxation and revenue department These events could include the following. Nm taxation and revenue department Installing utility lines. Nm taxation and revenue department Paying legal fees for perfecting the title. Nm taxation and revenue department Settling zoning issues. Nm taxation and revenue department Receiving rebates. Nm taxation and revenue department Incurring a casualty or theft loss. Nm taxation and revenue department For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Nm taxation and revenue department If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Nm taxation and revenue department For more information, see What Is the Basis for Depreciation in chapter 4. Nm taxation and revenue department . Nm taxation and revenue department Basis adjustment for depreciation allowed or allowable. Nm taxation and revenue department   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Nm taxation and revenue department Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Nm taxation and revenue department Depreciation allowable is depreciation you are entitled to deduct. Nm taxation and revenue department   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Nm taxation and revenue department   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Nm taxation and revenue department How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Nm taxation and revenue department Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Nm taxation and revenue department You generally deduct the cost of repairing business property in the same way as any other business expense. Nm taxation and revenue department However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Nm taxation and revenue department Example. Nm taxation and revenue department You repair a small section on one corner of the roof of a rental house. Nm taxation and revenue department You deduct the cost of the repair as a rental expense. Nm taxation and revenue department However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Nm taxation and revenue department You depreciate the cost of the new roof. Nm taxation and revenue department Improvements to rented property. Nm taxation and revenue department   You can depreciate permanent improvements you make to business property you rent from someone else. Nm taxation and revenue department Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Nm taxation and revenue department Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Nm taxation and revenue department A section 179 deduction for the current year or a section 179 carryover from a prior year. Nm taxation and revenue department See chapter 2 for information on the section 179 deduction. Nm taxation and revenue department Depreciation for property placed in service during the current year. Nm taxation and revenue department Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Nm taxation and revenue department See chapter 5 for information on listed property. Nm taxation and revenue department A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Nm taxation and revenue department Amortization of costs if the current year is the first year of the amortization period. Nm taxation and revenue department Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Nm taxation and revenue department S. Nm taxation and revenue department Income Tax Return for an S Corporation) regardless of when it was placed in service. Nm taxation and revenue department You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Nm taxation and revenue department Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Nm taxation and revenue department Employee. Nm taxation and revenue department   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Nm taxation and revenue department Instead, use either Form 2106 or Form 2106-EZ. Nm taxation and revenue department Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Nm taxation and revenue department How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Nm taxation and revenue department See Filing an Amended Return , next. Nm taxation and revenue department If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Nm taxation and revenue department See Changing Your Accounting Method , later. Nm taxation and revenue department Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Nm taxation and revenue department You claimed the incorrect amount because of a mathematical error made in any year. Nm taxation and revenue department You claimed the incorrect amount because of a posting error made in any year. Nm taxation and revenue department You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Nm taxation and revenue department You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Nm taxation and revenue department Adoption of accounting method defined. Nm taxation and revenue department   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Nm taxation and revenue department   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Nm taxation and revenue department irs. Nm taxation and revenue department gov/pub/irs-irbs/irb11-04. Nm taxation and revenue department pdf. Nm taxation and revenue department (Note. Nm taxation and revenue department Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Nm taxation and revenue department For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Nm taxation and revenue department irs. Nm taxation and revenue department gov/pub/irs-irbs/irb12-14. Nm taxation and revenue department pdf. Nm taxation and revenue department )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Nm taxation and revenue department irs. Nm taxation and revenue department gov/pub/irs-irbs/irb07-29. Nm taxation and revenue department pdf. Nm taxation and revenue department When to file. Nm taxation and revenue department   If an amended return is allowed, you must file it by the later of the following. Nm taxation and revenue department 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Nm taxation and revenue department A return filed before an unextended due date is considered filed on that due date. Nm taxation and revenue department 2 years from the time you paid your tax for that year. Nm taxation and revenue department Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Nm taxation and revenue department You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Nm taxation and revenue department The following are examples of a change in method of accounting for depreciation. Nm taxation and revenue department A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Nm taxation and revenue department A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Nm taxation and revenue department A change in the depreciation method, period of recovery, or convention of a depreciable asset. Nm taxation and revenue department A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Nm taxation and revenue department A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Nm taxation and revenue department Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Nm taxation and revenue department An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Nm taxation and revenue department A change in use of an asset in the hands of the same taxpayer. Nm taxation and revenue department Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Nm taxation and revenue department If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Nm taxation and revenue department Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Nm taxation and revenue department You must submit a request for a letter ruling to make a late election or revoke an election. Nm taxation and revenue department Any change in the placed in service date of a depreciable asset. Nm taxation and revenue department See section 1. Nm taxation and revenue department 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Nm taxation and revenue department IRS approval. Nm taxation and revenue department   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Nm taxation and revenue department If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Nm taxation and revenue department B. Nm taxation and revenue department 680. Nm taxation and revenue department Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Nm taxation and revenue department Additional guidance. Nm taxation and revenue department    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Nm taxation and revenue department irs. Nm taxation and revenue department gov/pub/irs-irbs/irb11-04. Nm taxation and revenue department pdf. Nm taxation and revenue department (Note. Nm taxation and revenue department Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Nm taxation and revenue department For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Nm taxation and revenue department irs. Nm taxation and revenue department gov/pub/irs-irbs/irb12-14. Nm taxation and revenue department pdf. Nm taxation and revenue department )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Nm taxation and revenue department irs. Nm taxation and revenue department gov/pub/irs-irbs/irb07-29. Nm taxation and revenue department pdf. Nm taxation and revenue department Table 1-1. Nm taxation and revenue department Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Nm taxation and revenue department For more information, see Form 4562 and its instructions. Nm taxation and revenue department Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Nm taxation and revenue department   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Nm taxation and revenue department The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Nm taxation and revenue department If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Nm taxation and revenue department A negative section 481(a) adjustment results in a decrease in taxable income. Nm taxation and revenue department It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Nm taxation and revenue department ” A positive section 481(a) adjustment results in an increase in taxable income. Nm taxation and revenue department It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Nm taxation and revenue department ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Nm taxation and revenue department Make the election by completing the appropriate line on Form 3115. Nm taxation and revenue department   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Nm taxation and revenue department Prev  Up  Next   Home   More Online Publications