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Corporate Tax Software

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Corporate Tax Software

Corporate tax software 4. Corporate tax software   Deductions Table of Contents Standard DeductionStandard Deduction for Dependents Itemized DeductionsMedical and Dental Expenses Most taxpayers have a choice of taking a standard deduction or itemizing their deductions. Corporate tax software You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. Corporate tax software If you have a choice, you should use the method that gives you the lower tax. Corporate tax software Standard Deduction The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. Corporate tax software Generally, the standard deduction amounts are adjusted each year for inflation. Corporate tax software In most cases, you can use Worksheet 4-1 to figure your standard deduction amount. Corporate tax software Persons not eligible for the standard deduction. Corporate tax software   Your standard deduction is zero and you should itemize any deductions you have if: You are married and filing a separate return, and your spouse itemizes deductions, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. Corporate tax software You are considered a dual-status alien if you were both a nonresident alien and a resident alien during the year. Corporate tax software   If you are a nonresident alien who is married to a U. Corporate tax software S. Corporate tax software citizen or resident alien at the end of the year, you can choose to be treated as a U. Corporate tax software S. Corporate tax software resident. Corporate tax software See Publication 519, U. Corporate tax software S. Corporate tax software Tax Guide for Aliens. Corporate tax software If you make this choice, you can take the standard deduction. Corporate tax software Decedent's final return. Corporate tax software   The amount of the standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. Corporate tax software However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. Corporate tax software Higher standard deduction for age (65 or older). Corporate tax software   If you do not itemize deductions, you are entitled to a higher standard deduction if you are age 65 or older at the end of the year. Corporate tax software You are considered age 65 on the day before your 65th birthday. Corporate tax software Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. Corporate tax software Higher standard deduction for blindness. Corporate tax software   If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. Corporate tax software You qualify for this benefit if you are totally or partly blind. Corporate tax software Not totally blind. Corporate tax software   If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is not more than 20 degrees. Corporate tax software   If your eye condition will never improve beyond these limits, the statement should include this fact. Corporate tax software You must keep the statement in your records. Corporate tax software   If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. Corporate tax software Spouse 65 or older or blind. Corporate tax software   You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and an exemption for your spouse could not be claimed by another taxpayer. Corporate tax software    You cannot claim the higher standard deduction for an individual other than yourself and your spouse. Corporate tax software Example. Corporate tax software This example illustrates how to determine your standard deduction using Worksheet 4-1. Corporate tax software Bill and Lisa are filing a joint return for 2013. Corporate tax software Both are over age 65. Corporate tax software Neither is blind, and neither can be claimed as a dependent. Corporate tax software They do not itemize deductions, so they use Worksheet 4-1. Corporate tax software Because they are married filing jointly, they enter $12,200 on line 1. Corporate tax software They check the “No” box on line 2, so they also enter $12,200 on line 4. Corporate tax software Because they are both over age 65, they enter $2,400 ($1,200 × 2) on line 5. Corporate tax software They enter $14,600 ($12,200 + $2,400) on line 6, so their standard deduction is $14,600. Corporate tax software Standard Deduction for Dependents The standard deduction for an individual for whom an exemption can be claimed on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). Corporate tax software However, the standard deduction may be higher if the individual is 65 or older or blind. Corporate tax software If an exemption for you (or your spouse if you are filing jointly) can be claimed on someone else's return, use Worksheet 4-1, if applicable, to determine your standard deduction. Corporate tax software Worksheet 4-1. Corporate tax software 2013 Standard Deduction Worksheet Caution. Corporate tax software If you are married filing separately and your spouse itemizes deductions, or if you are a dual-status alien, do not complete this worksheet. Corporate tax software If you were born before January 2, 1949, and/or blind, check the correct number of boxes below. Corporate tax software Put the total number of boxes checked in box c and go to line 1. Corporate tax software a. Corporate tax software You   Born before  January 2, 1949     Blind b. Corporate tax software Your spouse, if claiming  spouse's exemption   Born before January 2, 1949     Blind c. Corporate tax software Total boxes checked             1. Corporate tax software Enter the amount shown below for your filing status. Corporate tax software               Single or married filing separately — $6,100 Married filing jointly or Qualifying widow(er) — $12,200 Head of household — $8,950   1. Corporate tax software           2. Corporate tax software Can you (or your spouse if filing jointly) be claimed as a dependent on someone else's return?  No. Corporate tax software Skip line 3; enter the amount from line 1 on line 4. Corporate tax software   Yes. Corporate tax software Go to line 3. Corporate tax software         3. Corporate tax software Is your earned income* more than $650?               Yes. Corporate tax software Add $350 to your earned income. Corporate tax software Enter the total   3. Corporate tax software         No. Corporate tax software Enter $1,000 4. Corporate tax software Enter the smaller of line 1 or line 3 4. Corporate tax software   5. Corporate tax software If born before January 2, 1949, or blind, multiply the number in box c by $1,200 ($1,500 if single or head of household). Corporate tax software Enter the result here. Corporate tax software Otherwise, enter -0- 5. Corporate tax software   6. Corporate tax software Add lines 4 and 5. Corporate tax software This is your standard deduction for 2013. Corporate tax software 6. Corporate tax software   * Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Corporate tax software It also includes any amount received as a scholarship that you must include in your income. Corporate tax software Generally, your earned income is the total of the amount(s) you reported on Form 1040, lines 7, 12, and 18, minus the amount, if any, on line 27 (or the amount you reported on Form 1040A, line 7). Corporate tax software Itemized Deductions Some individuals should itemize their deductions because it will save them money. Corporate tax software Others should itemize because they do not qualify for the standard deduction. Corporate tax software See the discussion under Standard Deduction , earlier, to decide if it would be to your advantage to itemize deductions. Corporate tax software You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than $150,000. Corporate tax software For more information, see Overall limitation, later. Corporate tax software Medical and dental expenses, some taxes, certain interest expenses, charitable contributions, casualty and theft losses, and certain other miscellaneous expenses may be itemized as deductions on Schedule A (Form 1040). Corporate tax software You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Cannot take the standard deduction, Had uninsured medical or dental expenses that are more than 10% of your adjusted gross income (or more than 7. Corporate tax software 5% of your adjusted gross income if either you or your spouse is age 65 or older), Paid interest on your home, Paid real estate or personal property taxes, Paid mortgage insurance premiums, Paid state and local income or general sales taxes, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities (see Publication 526, Charitable Contributions), or Have total itemized deductions that are more than the standard deduction that applies to you. Corporate tax software See the Schedule A (Form 1040) instructions for more information. Corporate tax software Overall limitation. Corporate tax software   You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000, if married filing separately, $250,000, if single, $275,000, if head of household, or $300,000, if married filing jointly or qualifying widow(er). Corporate tax software  If your adjusted gross income exceeds the applicable amount, you will use the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040) to figure your total itemized deductions. Corporate tax software Medical and Dental Expenses You can deduct certain medical and dental expenses you paid for yourself, your spouse, and your dependent(s) if you itemize your deductions on Schedule A (Form 1040). Corporate tax software Table 4-1 shows some common items that you can or cannot include in figuring your medical expense deduction. Corporate tax software For more information, see the following discussions of selected items, which are presented in alphabetical order. Corporate tax software A more extensive list of items and further details can be found in Publication 502, Medical and Dental Expenses. Corporate tax software Table 4-1. Corporate tax software Medical and Dental Expenses Checklist You can include: You cannot include: Bandages Capital expenses for equipment or improvements to your home needed for medical care (see Publication 502) Certain weight-loss expenses for obesity Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc. Corporate tax software ) Lead-based paint removal (see Publication 502) Long-term care contracts, qualified (see Publication 502) Meals and lodging provided by a hospital during medical treatment Medical and hospital insurance premiums Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Medicare Part D premiums Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Publication 502) Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchair, etc. Corporate tax software ) Special education for mentally or physically disabled persons (see Publication 502) Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services (see Publication 502) Contributions to Archer MSAs (see Publication 969) Bottled water Diaper service Expenses for your general health (even if following your doctor's advice) such as: —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pretax basis) (see Publication 502) Funeral, burial, or cremation expenses Health savings account payments for medical expenses (see Publication 502) Illegal operation or treatment Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. Corporate tax software Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases (see Publication 502) Surgery for purely cosmetic reasons (see Publication 502) Toothpaste, toiletries, cosmetics, etc. Corporate tax software Teeth whitening Weight-loss expenses not for the treatment of obesity or other disease You can deduct only the amount of your medical and dental expenses that is more than 10% of your adjusted gross income (or that is more than 7. Corporate tax software 5% of your adjusted gross income if you or your spouse is age 65 or older). Corporate tax software What to include. Corporate tax software   Generally, you can include only the medical and dental expenses you paid this year, regardless of when the services were provided. Corporate tax software If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. Corporate tax software If you use a pay-by-phone or online account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. Corporate tax software You can include medical expenses you charge to your credit card in the year the charge is made. Corporate tax software It does not matter when you actually pay the amount charged. Corporate tax software Home Improvements You can include in medical expenses amounts you pay for home improvements if their main purpose is medical care for you, your spouse, or your dependent. Corporate tax software Only reasonable costs to accommodate a home to your disabled condition (or that of your spouse or your dependent(s) who live with you) are considered medical care. Corporate tax software Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. Corporate tax software Publication 502 contains additional information and examples, including a capital expense worksheet, to assist you in figuring the amount of the capital expense that you can include in your medical expenses. Corporate tax software Also, see Publication 502 for information about deductible operating and upkeep expenses related to such capital expense items, and for information about improvements, for medical reasons, to property rented by a person with disabilities. Corporate tax software Household Help You cannot include in medical expenses the cost of household help, even if such help is recommended by a doctor. Corporate tax software This is a personal expense that is not deductible. Corporate tax software However, you may be able to include certain expenses paid to a person providing nursing-type services. Corporate tax software For more information, see Nursing Services , later. Corporate tax software Also, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Corporate tax software For more information, see Qualified long-term care services under Long-Term Care, later. Corporate tax software Hospital Services You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. Corporate tax software This includes amounts paid for meals and lodging. Corporate tax software Also, see Meals and Lodging , later. Corporate tax software Long-Term Care You can include in medical expenses amounts paid for qualified long-term care services and premiums paid for qualified long-term care insurance contracts. Corporate tax software Qualified long-term care services. Corporate tax software   Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are: Required by a chronically ill individual, and Provided under a plan of care prescribed by a licensed health care practitioner. Corporate tax software Chronically ill individual. Corporate tax software    An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions. Corporate tax software He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Corporate tax software Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Corporate tax software He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Corporate tax software Maintenance and personal care services. Corporate tax software    Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). Corporate tax software Qualified long-term care insurance contracts. Corporate tax software   A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. Corporate tax software The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. Corporate tax software   The amount of qualified long-term care premiums you can include is limited. Corporate tax software You can include the following as medical expenses on Schedule A (Form 1040). Corporate tax software Qualified long-term care premiums up to the following amounts. Corporate tax software Age 40 or under – $360. Corporate tax software Age 41 to 50 – $680. Corporate tax software Age 51 to 60 – $1,360. Corporate tax software Age 61 to 70 – $3,640. Corporate tax software Age 71 or over – $4,550. Corporate tax software Unreimbursed expenses for qualified long-term care services. Corporate tax software Note. Corporate tax software The limit on premiums is for each person. Corporate tax software Meals and Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if your main reason for being there is to receive medical care. Corporate tax software You may be able to include in medical expenses the cost of lodging (but not meals) not provided in a hospital or similar institution. Corporate tax software You can include the cost of such lodging while away from home if all of the following requirements are met. Corporate tax software The lodging is primarily for, and essential to, medical care. Corporate tax software The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. Corporate tax software The lodging is not lavish or extravagant under the circumstances. Corporate tax software There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Corporate tax software The amount you include in medical expenses for lodging cannot be more than $50 per night for each person. Corporate tax software You can include lodging for a person traveling with the person receiving the medical care. Corporate tax software For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Corporate tax software (Meals are not included. Corporate tax software ) Nursing home. Corporate tax software   You can include in medical expenses the cost of medical care in a nursing home or a home for the aged for yourself, your spouse, or your dependent(s). Corporate tax software This includes the cost of meals and lodging in the home if a main reason for being there is to get medical care. Corporate tax software   Do not include the cost of meals and lodging if the reason for being in the home is personal. Corporate tax software However, you can include in medical expenses the part of the cost that is for medical or nursing care. Corporate tax software Medical Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. Corporate tax software Policies can provide payment for: Hospitalization, surgical fees, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Qualified long-term care insurance contracts (subject to the additional limits included in the discussion on qualified long-term care insurance contracts under Long-Term Care , earlier). Corporate tax software If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. Corporate tax software The cost of the medical portion must be separately stated in the insurance contract or given to you in a separate statement. Corporate tax software Medicare Part A. Corporate tax software   If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare Part A. Corporate tax software The payroll tax paid for Medicare Part A is not a medical expense. Corporate tax software If you are not covered under social security (or were not a government employee who paid Medicare tax), you can enroll voluntarily in Medicare Part A. Corporate tax software In this situation you can include the premiums you paid for Medicare Part A as a medical expense. Corporate tax software Medicare Part B. Corporate tax software   Medicare Part B is a supplemental medical insurance. Corporate tax software Premiums you pay for Medicare Part B are a medical expense. Corporate tax software If you applied for it at age 65 or after you became disabled, you can include in medical expenses the monthly premiums you paid. Corporate tax software If you were over age 65 or disabled when you first enrolled, check with your local Social Security Administration office, or go to their website at www. Corporate tax software SSA. Corporate tax software gov, to find out your premium. Corporate tax software Medicare Part D. Corporate tax software   Medicare Part D is a voluntary prescription drug insurance program for persons with Medicare Part A or Part B. Corporate tax software You can include as a medical expense premiums you pay for Medicare Part D. Corporate tax software Prepaid insurance premiums. Corporate tax software   Insurance premiums you pay before you are age 65 for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments, or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). Corporate tax software Medicines You can include in medical expenses amounts you pay for prescribed medicines and drugs. Corporate tax software A prescribed drug is one that requires a prescription by a doctor for its use by an individual. Corporate tax software You can also include amounts you pay for insulin. Corporate tax software Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Corporate tax software Imported medicines and drugs. Corporate tax software   If you import medicines or drugs from other countries, see Medicines and Drugs From Other Countries, under What Expenses Are Not Includible, in Publication 502. Corporate tax software Nursing Services You can include in medical expenses wages and other amounts you pay for nursing services. Corporate tax software The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. Corporate tax software This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. Corporate tax software These services can be provided in your home or another care facility. Corporate tax software Generally, only the amount spent for nursing services is a medical expense. Corporate tax software If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. Corporate tax software However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Corporate tax software See Maintenance and personal care services under Qualified long-term care services, earlier. Corporate tax software Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit. Corporate tax software See Child and Dependent Care Credit , later, and Publication 503, Child and Dependent Care Expenses. Corporate tax software You can also include in medical expenses part of the amount you pay for that attendant's meals. Corporate tax software Divide the food expense among the household members to find the cost of the attendant's food. Corporate tax software Then divide that cost in the same manner as in the preceding paragraph. Corporate tax software If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. Corporate tax software This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant. Corporate tax software Employment taxes. Corporate tax software   You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for a nurse, attendant, or other person who provides medical care. Corporate tax software If the attendant also provides personal and household services, you can include as a medical expense only the amount of employment taxes paid for medical services as explained earlier under Nursing Services. Corporate tax software For information on employment tax responsibilities of household employers, see Publication 926, Household Employer's Tax Guide. Corporate tax software Transportation You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. Corporate tax software Car expenses. Corporate tax software    You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. Corporate tax software You cannot include depreciation, insurance, general repair, or maintenance expenses. Corporate tax software   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents a mile. Corporate tax software   You can also include parking fees and tolls. Corporate tax software You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate. Corporate tax software You can also include:    Bus, taxi, train, or plane fares or ambulance service, and Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone. Corporate tax software Do not include transportation expenses if, for purely personal reasons, you choose to travel to another city for an operation or other medical care prescribed by your doctor. Corporate tax software Prev  Up  Next   Home   More Online Publications
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Abusive Tax Schemes - Criminal Investigation (CI)

Overview - Abusive Tax Schemes
Since the mid-1990s, the IRS has witnessed a proliferation of abusive tax schemes, particularly those with offshore components. 

What are some of the Most Common Abusive Tax Schemes?
The most common abusive tax schemes involve numerous domestic and foreign trusts, partnerships, or nominees.

How Does the Taxpayer Access the Funds in Offshore Accounts? - Abusive Tax Schemes
There are two methods commonly used to get funds back to the taxpayers. They are through credit/debit cards and fraudulent loans. 

In Partnership - IRS Criminal and Civil Enforcement and Department of Justice - Abusive Tax Schemes
Parallel civil and criminal investigations are an effective and aggressive approach that halts these schemes quickly and permanently.

Civil and Criminal Penalties - Abusive Tax Schemes
Investors of abusive tax schemes that improperly evade tax are still liable for taxes, interest, and civil penalties.

Statistical Data - Abusive Tax Schemes
Enforcement statistics on investigations initiated, prosecutions recommended, indictments, sentenced, and months to serve in prison.

Examples of Abusive Tax Scheme
Examples have been written from public record documents filed in the district courts where the case was prosecuted.

 


Criminal Enforcement Home Page

How to Report Suspected Tax Fraud Activities

Page Last Reviewed or Updated: 30-Oct-2013

The Corporate Tax Software

Corporate tax software 3. Corporate tax software   Savings Incentive Match Plans for Employees (SIMPLE) Table of Contents Introduction What Is a SIMPLE Plan?Eligible Employees How Are Contributions Made? How Much Can Be Contributed on Your Behalf?Matching contributions less than 3%. Corporate tax software Traditional IRA mistakenly moved to SIMPLE IRA. Corporate tax software When Can You Withdraw or Use Assets?Are Distributions Taxable? Introduction This chapter is for employees who need information about savings incentive match plans for employees (SIMPLE plans). Corporate tax software It explains what a SIMPLE plan is, contributions to a SIMPLE plan, and distributions from a SIMPLE plan. Corporate tax software Under a SIMPLE plan, SIMPLE retirement accounts for participating employees can be set up either as: Part of a 401(k) plan, or A plan using IRAs (SIMPLE IRA). Corporate tax software This chapter only discusses the SIMPLE plan rules that relate to SIMPLE IRAs. Corporate tax software See chapter 3 of Publication 560 for information on any special rules for SIMPLE plans that do not use IRAs. Corporate tax software If your employer maintains a SIMPLE plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution. Corporate tax software See Rollovers and Transfers Exception, later under When Can You Withdraw or Use Assets. Corporate tax software What Is a SIMPLE Plan? A SIMPLE plan is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Corporate tax software See chapter 3 of Publication 560 for information on the requirements employers must satisfy to set up a SIMPLE plan. Corporate tax software A SIMPLE plan is a written agreement (salary reduction agreement) between you and your employer that allows you, if you are an eligible employee (including a self-employed individual), to choose to: Reduce your compensation (salary) by a certain percentage each pay period, and Have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. Corporate tax software These contributions are called salary reduction contributions. Corporate tax software All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA. Corporate tax software The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described in chapter 1. Corporate tax software Contributions are made on behalf of eligible employees. Corporate tax software (See Eligible Employees below. Corporate tax software ) Contributions are also subject to various limits. Corporate tax software (See How Much Can Be Contributed on Your Behalf , later. Corporate tax software ) In addition to salary reduction contributions, your employer must make either matching contributions or nonelective contributions. Corporate tax software See How Are Contributions Made , later. Corporate tax software You may be able to claim a credit for contributions to your SIMPLE plan. Corporate tax software For more information, see chapter 4. Corporate tax software Eligible Employees You must be allowed to participate in your employer's SIMPLE plan if you: Received at least $5,000 in compensation from your employer during any 2 years prior to the current year, and Are reasonably expected to receive at least $5,000 in compensation during the calendar year for which contributions are made. Corporate tax software Self-employed individual. Corporate tax software   For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income. Corporate tax software Excludable employees. Corporate tax software   Your employer can exclude the following employees from participating in the SIMPLE plan. Corporate tax software Employees whose retirement benefits are covered by a collective bargaining agreement (union contract). Corporate tax software Employees who are nonresident aliens and received no earned income from sources within the United States. Corporate tax software Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year. Corporate tax software Compensation. Corporate tax software   For purposes of the SIMPLE plan rules, your compensation for a year generally includes the following amounts. Corporate tax software Wages, tips, and other pay from your employer that is subject to income tax withholding. Corporate tax software Deferred amounts elected under any 401(k) plans, 403(b) plans, government (section 457) plans, SEP plans, and SIMPLE plans. Corporate tax software Self-employed individual compensation. Corporate tax software   For purposes of the SIMPLE plan rules, if you are self-employed, your compensation for a year is your net earnings from self-employment (Schedule SE (Form 1040), Section A, line 4, or Section B, line 6) before subtracting any contributions made to a SIMPLE IRA on your behalf. Corporate tax software   For these purposes, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits. Corporate tax software How Are Contributions Made? Contributions under a salary reduction agreement are called salary reduction contributions. Corporate tax software They are made on your behalf by your employer. Corporate tax software Your employer must also make either matching contributions or nonelective contributions. Corporate tax software Salary reduction contributions. Corporate tax software   During the 60-day period before the beginning of any year, and during the 60-day period before you are eligible, you can choose salary reduction contributions expressed either as a percentage of compensation, or as a specific dollar amount (if your employer offers this choice). Corporate tax software You can choose to cancel the election at any time during the year. Corporate tax software   Salary reduction contributions are also referred to as “elective deferrals. Corporate tax software ”   Your employer cannot place restrictions on the contributions amount (such as by limiting the contributions percentage), except to comply with the salary reduction contributions limit, discussed under How Much Can Be Contributed on Your Behalf, later. Corporate tax software Matching contributions. Corporate tax software   Unless your employer chooses to make nonelective contributions, your employer must make contributions equal to the salary reduction contributions you choose (elect), but only up to certain limits. Corporate tax software See How Much Can Be Contributed on Your Behalf below. Corporate tax software These contributions are in addition to the salary reduction contributions and must be made to the SIMPLE IRAs of all eligible employees (defined earlier) who chose salary reductions. Corporate tax software These contributions are referred to as matching contributions. Corporate tax software   Matching contributions on behalf of a self-employed individual are not treated as salary reduction contributions. Corporate tax software Nonelective contributions. Corporate tax software   Instead of making matching contributions, your employer may be able to choose to make nonelective contributions on behalf of all eligible employees. Corporate tax software These nonelective contributions must be made on behalf of each eligible employee who has at least $5,000 of compensation from your employer, whether or not the employee chose salary reductions. Corporate tax software   One of the requirements your employer must satisfy is notifying the employees that the election was made. Corporate tax software For other requirements that your employer must satisfy, see chapter 3 of Publication 560. Corporate tax software How Much Can Be Contributed on Your Behalf? The limits on contributions to a SIMPLE IRA vary with the type of contribution that is made. Corporate tax software Salary reduction contributions limit. Corporate tax software   Salary reduction contributions (employee-chosen contributions or elective deferrals) that your employer can make on your behalf under a SIMPLE plan are limited to $12,000 for 2013. Corporate tax software The limitation remains at $12,000 for 2014. Corporate tax software If you are a participant in any other employer plans during 2013 and you have elective salary reductions or deferred compensation under those plans, the salary reduction contributions under the SIMPLE plan also are included in the annual limit of $17,500 for 2013 on exclusions of salary reductions and other elective deferrals. Corporate tax software You, not your employer, are responsible for monitoring compliance with these limits. Corporate tax software Additional elective deferrals can be contributed to your SIMPLE plan if: You reached age 50 by the end of 2013, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit. Corporate tax software The most that can be contributed in additional elective deferrals to your SIMPLE plan is the lesser of the following two amounts. Corporate tax software $2,500 for 2013, or Your compensation for the year reduced by your other elective deferrals for the year. Corporate tax software The additional deferrals are not subject to any other contribution limit and are not taken into account in applying other contribution limits. Corporate tax software The additional deferrals are not subject to the nondiscrimination rules as long as all eligible participants are allowed to make them. Corporate tax software Matching employer contributions limit. Corporate tax software   Generally, your employer must make matching contributions to your SIMPLE IRA in an amount equal to your salary reduction contributions. Corporate tax software These matching contributions cannot be more than 3% of your compensation for the calendar year. Corporate tax software See Matching contributions less than 3% below. Corporate tax software Example 1. Corporate tax software In 2013, Joshua was a participant in his employer's SIMPLE plan. Corporate tax software His compensation, before SIMPLE plan contributions, was $41,600 ($800 per week). Corporate tax software Instead of taking it all in cash, Joshua elected to have 12. Corporate tax software 5% of his weekly pay ($100) contributed to his SIMPLE IRA. Corporate tax software For the full year, Joshua's salary reduction contributions were $5,200, which is less than the $12,000 limit on these contributions. Corporate tax software Under the plan, Joshua's employer was required to make matching contributions to Joshua's SIMPLE IRA. Corporate tax software Because his employer's matching contributions must equal Joshua's salary reductions, but cannot be more than 3% of his compensation (before salary reductions) for the year, his employer's matching contribution was limited to $1,248 (3% of $41,600). Corporate tax software Example 2. Corporate tax software Assume the same facts as in Example 1 , except that Joshua's compensation for the year was $408,163 and he chose to have 2. Corporate tax software 94% of his weekly pay contributed to his SIMPLE IRA. Corporate tax software In this example, Joshua's salary reduction contributions for the year (2. Corporate tax software 94% × $408,163) were equal to the 2013 limit for salary reduction contributions ($12,000). Corporate tax software Because 3% of Joshua's compensation ($12,245) is more than the amount his employer was required to match ($12,000), his employer's matching contributions were limited to $12,000. Corporate tax software In this example, total contributions made on Joshua's behalf for the year were $24,000 ($12,000 (Joshua's contributions) + $12,000 (matching contributions)), the maximum contributions permitted under a SIMPLE IRA for 2013. Corporate tax software Matching contributions less than 3%. Corporate tax software   Your employer can reduce the 3% limit on matching contributions for a calendar year, but only if: The limit is not reduced below 1%, The limit is not reduced for more than 2 years out of the 5-year period that ends with (and includes) the year for which the election is effective, and Employees are notified of the reduced limit within a reasonable period of time before the 60-day election period during which they can enter into salary reduction agreements. Corporate tax software   For purposes of applying the rule in item (2) in determining whether the limit was reduced below 3% for the year, any year before the first year in which your employer (or a former employer) maintains a SIMPLE IRA plan will be treated as a year for which the limit was 3%. Corporate tax software If your employer chooses to make nonelective contributions for a year, that year also will be treated as a year for which the limit was 3%. Corporate tax software Nonelective employer contributions limit. Corporate tax software   If your employer chooses to make nonelective contributions, instead of matching contributions, to each eligible employee's SIMPLE IRA, contributions must be 2% of your compensation for the entire year. Corporate tax software For 2013, only $255,000 of your compensation can be taken into account to figure the contribution limit. Corporate tax software   Your employer can substitute the 2% nonelective contribution for the matching contribution for a year if both of the following requirements are met. Corporate tax software Eligible employees are notified that a 2% nonelective contribution will be made instead of a matching contribution. Corporate tax software This notice is provided within a reasonable period during which employees can enter into salary reduction agreements. Corporate tax software Example 3. Corporate tax software Assume the same facts as in Example 2 , except that Joshua's employer chose to make nonelective contributions instead of matching contributions. Corporate tax software Because his employer's nonelective contributions are limited to 2% of up to $255,000 of Joshua's compensation, his employer's contribution to Joshua's SIMPLE IRA was limited to $5,100. Corporate tax software In this example, total contributions made on Joshua's behalf for the year were $17,100 (Joshua's salary reductions of $12,000 plus his employer's contribution of $5,100). Corporate tax software Traditional IRA mistakenly moved to SIMPLE IRA. Corporate tax software   If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Corporate tax software For more information, see Recharacterizations in chapter 1. Corporate tax software Recharacterizing employer contributions. Corporate tax software   You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. Corporate tax software SEPs are discussed in chapter 2 of Publication 560. Corporate tax software SIMPLE plans are discussed in this chapter. Corporate tax software Converting from a SIMPLE IRA. Corporate tax software   Generally, you can convert an amount in your SIMPLE IRA to a Roth IRA under the same rules explained in chapter 1 under Converting From Any Traditional IRA Into a Roth IRA . Corporate tax software    However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer. Corporate tax software When Can You Withdraw or Use Assets? Generally, the same distribution (withdrawal) rules that apply to traditional IRAs apply to SIMPLE IRAs. Corporate tax software These rules are discussed in chapter 1. Corporate tax software Your employer cannot restrict you from taking distributions from a SIMPLE IRA. Corporate tax software Are Distributions Taxable? Generally, distributions from a SIMPLE IRA are fully taxable as ordinary income. Corporate tax software If the distribution is an early distribution (discussed in chapter 1), it may be subject to the additional tax on early distributions. Corporate tax software See Additional Tax on Early Distributions, later. Corporate tax software Rollovers and Transfers Exception Generally, rollovers and trustee-to-trustee transfers are not taxable distributions. Corporate tax software Two-year rule. Corporate tax software   To qualify as a tax-free rollover (or a tax-free trustee-to-trustee transfer), a rollover distribution (or a transfer) made from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer's SIMPLE plan must be contributed (or transferred) to another SIMPLE IRA. Corporate tax software The 2-year period begins on the first day on which contributions made by your employer are deposited in your SIMPLE IRA. Corporate tax software   After the 2-year period, amounts in a SIMPLE IRA can be rolled over or transferred tax free to an IRA other than a SIMPLE IRA, or to a qualified plan, a tax-sheltered annuity plan (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan). Corporate tax software Additional Tax on Early Distributions The additional tax on early distributions (discussed in chapter 1) applies to SIMPLE IRAs. Corporate tax software If a distribution is an early distribution and occurs during the 2-year period following the date on which you first participated in your employer's SIMPLE plan, the additional tax on early distributions is increased from 10% to 25%. Corporate tax software If a rollover distribution (or transfer) from a SIMPLE IRA does not satisfy the 2-year rule, and is otherwise an early distribution, the additional tax imposed because of the early distribution is increased from 10% to 25% of the amount distributed. Corporate tax software Prev  Up  Next   Home   More Online Publications