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Filing Past Years Taxes

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Filing Past Years Taxes

Filing past years taxes 5. Filing past years taxes   Student Loan Cancellations and Repayment Assistance Table of Contents Introduction Student Loan CancellationQualifying Loans Student Loan Repayment Assistance Introduction Generally, if you are responsible for making loan payments, and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes. Filing past years taxes However, if you fulfill certain requirements, two types of student loan assistance may be tax free. Filing past years taxes The types of assistance discussed in this chapter are: Student loan cancellation, and Student loan repayment assistance. Filing past years taxes Student Loan Cancellation If your student loan is canceled, you may not have to include any amount in income. Filing past years taxes This section describes the requirements for tax-free treatment of canceled student loans. Filing past years taxes Qualifying Loans To qualify for tax-free treatment, for the cancellation of your loan, your loan must have been made by a qualified lender to assist you in attending an eligible educational institution and contain a provision that all or part of the debt will be canceled if you work: For a certain period of time, In certain professions, and For any of a broad class of employers. Filing past years taxes The cancellation of your loan will not qualify for tax-free treatment if it is cancelled because of services you performed for the educational institution that made the loan or other organization that provided the funds. Filing past years taxes See Exception, later. Filing past years taxes Eligible educational institution. Filing past years taxes   This is an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Filing past years taxes Qualified lenders. Filing past years taxes   These include the following. Filing past years taxes The United States, or an instrumentality thereof. Filing past years taxes A state, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof. Filing past years taxes A public benefit corporation that is tax-exempt under section 501(c)(3); and that has assumed control of a state, county, or municipal hospital; and whose employees are considered public employees under state law. Filing past years taxes An eligible educational institution, if the loan is made: As part of an agreement with an entity described in (1), (2), (3) under which the funds to make the loan were provided to the educational institution, or Under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs where the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Filing past years taxes   Occupations with unmet needs include medicine, nursing, teaching, and law. Filing past years taxes Section 501(c)(3) organization. Filing past years taxes   This is any corporation, community chest, fund, or foundation organized and operated exclusively for one or more of the following purposes. Filing past years taxes Charitable. Filing past years taxes Religious. Filing past years taxes Educational. Filing past years taxes Scientific. Filing past years taxes Literary. Filing past years taxes Testing for public safety. Filing past years taxes Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment). Filing past years taxes The prevention of cruelty to children or animals. Filing past years taxes Exception. Filing past years taxes   The cancellation of your loan does not qualify as tax-free student loan cancellation if your student loan was made by an educational institution and is canceled because of services you performed for the educational institution or other organization that provided the funds. Filing past years taxes Refinanced Loan If you refinanced a student loan with another loan from an eligible educational institution or a tax-exempt organization, that loan may also be considered as made by a qualified lender. Filing past years taxes The refinanced loan is considered made by a qualified lender if it is made under a program of the refinancing organization that is designed to encourage students to serve in occupations with unmet needs or in areas with unmet needs where the services required of the students are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Filing past years taxes Student Loan Repayment Assistance Student loan repayments made to you are tax free if you received them for any of the following: The National Health Service Corps (NHSC) Loan Repayment Program (NHSC Loan Repayment Program). Filing past years taxes A state education loan repayment program eligible for funds under the Public Health Service Act. Filing past years taxes Any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in under served or health professional shortage areas (as determined by such state). Filing past years taxes You cannot deduct the interest you paid on a student loan to the extent payments were made through your participation in the above programs. Filing past years taxes Prev  Up  Next   Home   More Online Publications
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The Filing Past Years Taxes

Filing past years taxes 10. Filing past years taxes   Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. Filing past years taxes Cash method. Filing past years taxes Debt acquired from a decedent. Filing past years taxes Liquidation. Filing past years taxes Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. Filing past years taxes Introduction You have a bad debt if you cannot collect money owed to you. Filing past years taxes A bad debt is either a business bad debt or a nonbusiness bad debt. Filing past years taxes This chapter discusses only business bad debts. Filing past years taxes Generally, a business bad debt is one that comes from operating your trade or business. Filing past years taxes You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. Filing past years taxes All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. Filing past years taxes For more information on nonbusiness bad debts, see Publication 550. Filing past years taxes Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. Filing past years taxes S. Filing past years taxes Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. Filing past years taxes Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. Filing past years taxes A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. Filing past years taxes Bad debts of a corporation (other than an S corporation) are always business bad debts. Filing past years taxes Credit sales. Filing past years taxes   Business bad debts are mainly the result of credit sales to customers. Filing past years taxes Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. Filing past years taxes After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. Filing past years taxes   Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. Filing past years taxes If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. Filing past years taxes    You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. Filing past years taxes This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. Filing past years taxes Accrual method. Filing past years taxes   If you use the accrual method of accounting, you generally report income as you earn it. Filing past years taxes You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. Filing past years taxes   If you qualify, you can use the nonaccrual-experience method of accounting discussed later. Filing past years taxes Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. Filing past years taxes Cash method. Filing past years taxes   If you use the cash method of accounting, you generally report income when you receive payment. Filing past years taxes You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. Filing past years taxes For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. Filing past years taxes Debts from a former business. Filing past years taxes   If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. Filing past years taxes If any of these receivables subsequently become worthless, the loss is still a business bad debt. Filing past years taxes Debt acquired from a decedent. Filing past years taxes   The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. Filing past years taxes The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. Filing past years taxes Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. Filing past years taxes Liquidation. Filing past years taxes   If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. Filing past years taxes Types of Business Bad Debts Business bad debts may result from the following. Filing past years taxes Loans to clients and suppliers. Filing past years taxes   If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. Filing past years taxes Debts owed by political parties. Filing past years taxes   If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. Filing past years taxes You use the accrual method of accounting. Filing past years taxes The debt arose from the sale of goods or services in the ordinary course of your trade or business. Filing past years taxes More than 30% of your receivables accrued in the year of the sale were from sales to political parties. Filing past years taxes You made substantial and continuing efforts to collect on the debt. Filing past years taxes Loan or capital contribution. Filing past years taxes   You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. Filing past years taxes Debts of an insolvent partner. Filing past years taxes   If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. Filing past years taxes If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. Filing past years taxes Business loan guarantee. Filing past years taxes   If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. Filing past years taxes You made the guarantee in the course of your trade or business. Filing past years taxes You have a legal duty to pay the debt. Filing past years taxes You made the guarantee before the debt became worthless. Filing past years taxes You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. Filing past years taxes You received reasonable consideration for making the guarantee. Filing past years taxes You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. Filing past years taxes Example. Filing past years taxes Jane Zayne owns the Zayne Dress Company. Filing past years taxes She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. Filing past years taxes Elegant Fashions is one of Zayne's largest clients. Filing past years taxes Elegant Fashions later defaulted on the loan. Filing past years taxes As a result, Ms. Filing past years taxes Zayne paid the remaining balance of the loan in full to the bank. Filing past years taxes She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. Filing past years taxes She was motivated by the desire to retain one of her better clients and keep a sales outlet. Filing past years taxes Deductible in the year paid. Filing past years taxes   If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. Filing past years taxes Rights against a borrower. Filing past years taxes   When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. Filing past years taxes The debt is then owed to you. Filing past years taxes If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. Filing past years taxes Joint debtor. Filing past years taxes   If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. Filing past years taxes Sale of mortgaged property. Filing past years taxes   If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. Filing past years taxes When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. Filing past years taxes This may occur when the debt is due or prior to that date. Filing past years taxes To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. Filing past years taxes It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Filing past years taxes Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Filing past years taxes Property received for debt. Filing past years taxes   If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. Filing past years taxes You can deduct the remaining debt as a bad debt if and when it becomes worthless. Filing past years taxes   If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. Filing past years taxes It is not a recovery of a bad debt. Filing past years taxes For information on the sale of an asset, see Publication 544. Filing past years taxes How To Claim a Business Bad Debt There are two methods to claim a business bad debt. Filing past years taxes The specific charge-off method. Filing past years taxes The nonaccrual-experience method. Filing past years taxes Generally, you must use the specific charge-off method. Filing past years taxes However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . Filing past years taxes Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. Filing past years taxes However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. Filing past years taxes Partly worthless debts. Filing past years taxes   You can deduct specific bad debts that become partly uncollectible during the tax year. Filing past years taxes Your tax deduction is limited to the amount you charge off on your books during the year. Filing past years taxes You do not have to charge off and deduct your partly worthless debts annually. Filing past years taxes You can delay the charge off until a later year. Filing past years taxes However, you cannot deduct any part of a debt after the year it becomes totally worthless. Filing past years taxes Significantly modified debt. Filing past years taxes   An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. Filing past years taxes For more information, see Regulations section 1. Filing past years taxes 166-3(a)(3). Filing past years taxes Deduction disallowed. Filing past years taxes   Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. Filing past years taxes If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. Filing past years taxes The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. Filing past years taxes Totally worthless debts. Filing past years taxes   If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. Filing past years taxes   You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. Filing past years taxes However, you may want to do so. Filing past years taxes If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. Filing past years taxes See Partly worthless debts, earlier. Filing past years taxes Filing a claim for refund. Filing past years taxes   If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. Filing past years taxes If the bad debt was totally worthless, you must file the claim by the later of the following dates. Filing past years taxes 7 years from the date your original return was due (not including extensions). Filing past years taxes 2 years from the date you paid the tax. Filing past years taxes   If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. Filing past years taxes 3 years from the date you filed your original return. Filing past years taxes 2 years from the date you paid the tax. Filing past years taxes You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. Filing past years taxes Such an impairment requires proof of existence. Filing past years taxes   For details and more information about filing a claim, see Publication 556. Filing past years taxes Use one of the following forms to file a claim. Filing past years taxes For more information, see the instructions for the applicable form. Filing past years taxes Table 10-1. Filing past years taxes Forms Used To File a Claim IF you filed as a. Filing past years taxes . Filing past years taxes . Filing past years taxes THEN file. Filing past years taxes . Filing past years taxes . Filing past years taxes Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or  Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. Filing past years taxes Under this method, you do not accrue service related income you expect to be uncollectible. Filing past years taxes Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. Filing past years taxes Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. Filing past years taxes Service related income. Filing past years taxes   You can use the nonaccrual-experience method only for amounts earned by performing services. Filing past years taxes You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. Filing past years taxes Gross receipts test. Filing past years taxes   To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. Filing past years taxes If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. Filing past years taxes   The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. Filing past years taxes For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. Filing past years taxes Interest or penalty charged. Filing past years taxes   Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. Filing past years taxes However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. Filing past years taxes You otherwise accrue the full amount due as gross income at the time you provide the services. Filing past years taxes You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. Filing past years taxes Change in accounting method. Filing past years taxes   Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. Filing past years taxes See Form 3115 and the Instructions for Form 3115 for more information. Filing past years taxes Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. Filing past years taxes The amount you include is limited to the amount you actually deducted. Filing past years taxes However, you can exclude the amount deducted that did not reduce your tax. Filing past years taxes Report the recovery as “Other income” on the appropriate business form or schedule. Filing past years taxes See Recoveries in Publication 525 for more information. Filing past years taxes Net operating loss (NOL) carryover. Filing past years taxes   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. Filing past years taxes A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. Filing past years taxes For more information about NOLs, see Publication 536. Filing past years taxes Also, see the Instructions for Form 1045, and the Instructions for Form 1139. 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