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Free Federal And State Tax Filing 2012

Free federal and state tax filing 2012 Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. Free federal and state tax filing 2012 Hybrid method. Free federal and state tax filing 2012 Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Free federal and state tax filing 2012 Accounting Periods You must use a tax year to figure your taxable income. Free federal and state tax filing 2012 A tax year is an annual accounting period for keeping records and reporting income and expenses. Free federal and state tax filing 2012 An annual accounting period does not include a short tax year (discussed later). Free federal and state tax filing 2012 You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Free federal and state tax filing 2012 Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Free federal and state tax filing 2012 A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Free federal and state tax filing 2012 You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. Free federal and state tax filing 2012 This section discusses: A calendar year. Free federal and state tax filing 2012 A fiscal year (including a period of 52 or 53 weeks). Free federal and state tax filing 2012 A short tax year. Free federal and state tax filing 2012 An improper tax year. Free federal and state tax filing 2012 A change in tax year. Free federal and state tax filing 2012 Special situations that apply to individuals. Free federal and state tax filing 2012 Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Free federal and state tax filing 2012 Special situations that apply to corporations. Free federal and state tax filing 2012 Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Free federal and state tax filing 2012 If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. Free federal and state tax filing 2012 If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. Free federal and state tax filing 2012 See Change in Tax Year, later. Free federal and state tax filing 2012 Generally, anyone can adopt the calendar year. Free federal and state tax filing 2012 However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. Free federal and state tax filing 2012 Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Free federal and state tax filing 2012 If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. Free federal and state tax filing 2012 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. Free federal and state tax filing 2012 If you make this election, your 52-53-week tax year must always end on the same day of the week. Free federal and state tax filing 2012 Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. Free federal and state tax filing 2012 For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. Free federal and state tax filing 2012 Election. Free federal and state tax filing 2012   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Free federal and state tax filing 2012 The month in which the new 52-53-week tax year ends. Free federal and state tax filing 2012 The day of the week on which the tax year always ends. Free federal and state tax filing 2012 The date the tax year ends. Free federal and state tax filing 2012 It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. Free federal and state tax filing 2012   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Free federal and state tax filing 2012   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Free federal and state tax filing 2012 For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. Free federal and state tax filing 2012 Short Tax Year A short tax year is a tax year of less than 12 months. Free federal and state tax filing 2012 A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. Free federal and state tax filing 2012 Tax on a short period tax return is figured differently for each situation. Free federal and state tax filing 2012 Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. Free federal and state tax filing 2012 Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. Free federal and state tax filing 2012 Example 1. Free federal and state tax filing 2012 XYZ Corporation was organized on July 1, 2012. Free federal and state tax filing 2012 It elected the calendar year as its tax year. Free federal and state tax filing 2012 Therefore, its first tax return was due March 15, 2013. Free federal and state tax filing 2012 This short period return will cover the period from July 1, 2012, through December 31, 2012. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 A calendar year corporation dissolved on July 23, 2012. Free federal and state tax filing 2012 Its final return is due by October 15, 2012. Free federal and state tax filing 2012 It will cover the short period from January 1, 2012, through July 23, 2012. Free federal and state tax filing 2012 Death of individual. Free federal and state tax filing 2012   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. Free federal and state tax filing 2012 The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Free federal and state tax filing 2012 In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012   Agnes Green was a single, calendar year taxpayer. Free federal and state tax filing 2012 She died on March 6, 2012. Free federal and state tax filing 2012 Her final income tax return must be filed by April 15, 2013. Free federal and state tax filing 2012 It will cover the short period from January 1, 2012, to March 6, 2012. Free federal and state tax filing 2012 Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. Free federal and state tax filing 2012 The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. Free federal and state tax filing 2012 Figure tax for a short year under the general rule, explained below. Free federal and state tax filing 2012 You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Free federal and state tax filing 2012 General rule. Free federal and state tax filing 2012   Income tax for a short tax year must be annualized. Free federal and state tax filing 2012 However, self-employment tax is figured on the actual self-employment income for the short period. Free federal and state tax filing 2012 Individuals. Free federal and state tax filing 2012   An individual must figure income tax for the short tax year as follows. Free federal and state tax filing 2012 Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Free federal and state tax filing 2012 You must itemize deductions when you file a short period tax return. Free federal and state tax filing 2012 Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Free federal and state tax filing 2012 Subtract the amount in (2) from the amount in (1). Free federal and state tax filing 2012 The result is your modified taxable income. Free federal and state tax filing 2012 Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Free federal and state tax filing 2012 The result is your annualized income. Free federal and state tax filing 2012 Figure the total tax on your annualized income using the appropriate tax rate schedule. Free federal and state tax filing 2012 Multiply the total tax by the number of months in the short tax year and divide the result by 12. Free federal and state tax filing 2012 The result is your tax for the short tax year. Free federal and state tax filing 2012 Relief procedure. Free federal and state tax filing 2012   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Free federal and state tax filing 2012 It may result in less tax. Free federal and state tax filing 2012 Under this procedure, the tax is figured by two separate methods. Free federal and state tax filing 2012 If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. Free federal and state tax filing 2012 For more information, see section 443(b)(2) of the Internal Revenue Code. Free federal and state tax filing 2012 Alternative minimum tax. Free federal and state tax filing 2012   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. Free federal and state tax filing 2012 Multiply the AMTI by 12. Free federal and state tax filing 2012 Divide the result by the number of months in the short tax year. Free federal and state tax filing 2012 Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Free federal and state tax filing 2012 The result is the annualized AMT. Free federal and state tax filing 2012 Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Free federal and state tax filing 2012   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Free federal and state tax filing 2012 For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Free federal and state tax filing 2012 Tax withheld from wages. Free federal and state tax filing 2012   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Free federal and state tax filing 2012 Federal income tax is withheld on a calendar year basis. Free federal and state tax filing 2012 The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Free federal and state tax filing 2012 Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Free federal and state tax filing 2012 For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. Free federal and state tax filing 2012 See Accounting Periods, earlier, for a description of permissible tax years. Free federal and state tax filing 2012 To change to a proper tax year, you must do one of the following. Free federal and state tax filing 2012 If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. Free federal and state tax filing 2012 Attach a completed Form 1128 to the amended tax return. Free federal and state tax filing 2012 Write “FILED UNDER REV. Free federal and state tax filing 2012 PROC. Free federal and state tax filing 2012 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Free federal and state tax filing 2012 If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. Free federal and state tax filing 2012 Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Free federal and state tax filing 2012 See the Instructions for Form 1128 for exceptions. Free federal and state tax filing 2012 If you qualify for an automatic approval request, a user fee is not required. Free federal and state tax filing 2012 Individuals Generally, individuals must adopt the calendar year as their tax year. Free federal and state tax filing 2012 An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. Free federal and state tax filing 2012 Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Free federal and state tax filing 2012 A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Free federal and state tax filing 2012 The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). Free federal and state tax filing 2012 The following discussions provide the rules for partnerships, S corporations, and PSCs. Free federal and state tax filing 2012 Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Free federal and state tax filing 2012 The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. Free federal and state tax filing 2012 The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. Free federal and state tax filing 2012 The partnership can establish a business purpose for a different tax year. Free federal and state tax filing 2012 The rules for the required tax year for partnerships are as follows. Free federal and state tax filing 2012 If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. Free federal and state tax filing 2012 If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Free federal and state tax filing 2012 A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Free federal and state tax filing 2012 If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. Free federal and state tax filing 2012 If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Free federal and state tax filing 2012 Least aggregate deferral of income. Free federal and state tax filing 2012   The tax year that results in the least aggregate deferral of income is determined as follows. Free federal and state tax filing 2012 Figure the number of months of deferral for each partner using one partner's tax year. Free federal and state tax filing 2012 Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. Free federal and state tax filing 2012 Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). Free federal and state tax filing 2012 Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Free federal and state tax filing 2012 Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Free federal and state tax filing 2012   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Free federal and state tax filing 2012 If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. Free federal and state tax filing 2012 However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Free federal and state tax filing 2012 A uses the calendar year and B uses a fiscal year ending November 30. Free federal and state tax filing 2012 P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. Free federal and state tax filing 2012 Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Free federal and state tax filing 2012 5 -0- -0- B 11/30 0. Free federal and state tax filing 2012 5 11 5. Free federal and state tax filing 2012 5 Total Deferral 5. Free federal and state tax filing 2012 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Free federal and state tax filing 2012 5 1 0. Free federal and state tax filing 2012 5 B 11/30 0. Free federal and state tax filing 2012 5 -0- -0- Total Deferral 0. Free federal and state tax filing 2012 5 When determination is made. Free federal and state tax filing 2012   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. Free federal and state tax filing 2012 However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Free federal and state tax filing 2012 This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Free federal and state tax filing 2012 Short period return. Free federal and state tax filing 2012   When a partnership changes its tax year, a short period return must be filed. Free federal and state tax filing 2012 The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. Free federal and state tax filing 2012   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. Free federal and state tax filing 2012 The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Free federal and state tax filing 2012 706-1. Free federal and state tax filing 2012 ” More information. Free federal and state tax filing 2012   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Free federal and state tax filing 2012 S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Free federal and state tax filing 2012 A permitted tax year is any of the following. Free federal and state tax filing 2012 The calendar year. Free federal and state tax filing 2012 A tax year elected under section 444 of the Internal Revenue Code. Free federal and state tax filing 2012 See Section 444 Election, below for details. Free federal and state tax filing 2012 A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Free federal and state tax filing 2012 Any other tax year for which the corporation establishes a business purpose. Free federal and state tax filing 2012 If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. Free federal and state tax filing 2012 For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Free federal and state tax filing 2012 Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Free federal and state tax filing 2012 The corporation makes an election under section 444 of the Internal Revenue Code. Free federal and state tax filing 2012 See Section 444 Election, below for details. Free federal and state tax filing 2012 The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Free federal and state tax filing 2012 The corporation establishes a business purpose for a fiscal year. Free federal and state tax filing 2012 See the Instructions for Form 1120 for general information about PSCs. Free federal and state tax filing 2012 For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Free federal and state tax filing 2012 Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. Free federal and state tax filing 2012 Certain restrictions apply to the election. Free federal and state tax filing 2012 A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). Free federal and state tax filing 2012 The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. Free federal and state tax filing 2012 A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Free federal and state tax filing 2012 It is not a member of a tiered structure (defined in section 1. Free federal and state tax filing 2012 444-2T of the regulations). Free federal and state tax filing 2012 It has not previously had a section 444 election in effect. Free federal and state tax filing 2012 It elects a year that meets the deferral period requirement. Free federal and state tax filing 2012 Deferral period. Free federal and state tax filing 2012   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. Free federal and state tax filing 2012 Retaining tax year. Free federal and state tax filing 2012   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. Free federal and state tax filing 2012 This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Free federal and state tax filing 2012 Adopting or changing tax year. Free federal and state tax filing 2012   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. Free federal and state tax filing 2012 The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. Free federal and state tax filing 2012 This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Free federal and state tax filing 2012 If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Free federal and state tax filing 2012 Example 1. Free federal and state tax filing 2012 BD Partnership uses a calendar year, which is also its required tax year. Free federal and state tax filing 2012 BD cannot make a section 444 election because the deferral period is zero. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 E, a newly formed partnership, began operations on December 1. Free federal and state tax filing 2012 E is owned by calendar year partners. Free federal and state tax filing 2012 E wants to make a section 444 election to adopt a September 30 tax year. Free federal and state tax filing 2012 E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Free federal and state tax filing 2012 Making the election. Free federal and state tax filing 2012   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Free federal and state tax filing 2012 Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. Free federal and state tax filing 2012 For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Free federal and state tax filing 2012 Note. Free federal and state tax filing 2012 If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Free federal and state tax filing 2012   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. Free federal and state tax filing 2012 Example 1. Free federal and state tax filing 2012 AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. Free federal and state tax filing 2012 AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Free federal and state tax filing 2012 AB must file Form 8716 by March 17, 2013. Free federal and state tax filing 2012 Example 3. Free federal and state tax filing 2012 B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Free federal and state tax filing 2012 B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Free federal and state tax filing 2012 B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. Free federal and state tax filing 2012 Note. Free federal and state tax filing 2012 The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Free federal and state tax filing 2012 Extension of time for filing. Free federal and state tax filing 2012   There is an automatic extension of 12 months to make this election. Free federal and state tax filing 2012 See the Form 8716 instructions for more information. Free federal and state tax filing 2012 Terminating the election. Free federal and state tax filing 2012   The section 444 election remains in effect until it is terminated. Free federal and state tax filing 2012 If the election is terminated, another section 444 election cannot be made for any tax year. Free federal and state tax filing 2012   The election ends when any of the following applies to the partnership, S corporation, or PSC. Free federal and state tax filing 2012 The entity changes to its required tax year. Free federal and state tax filing 2012 The entity liquidates. Free federal and state tax filing 2012 The entity becomes a member of a tiered structure. Free federal and state tax filing 2012 The IRS determines that the entity willfully failed to comply with the required payments or distributions. Free federal and state tax filing 2012   The election will also end if either of the following events occur. Free federal and state tax filing 2012 An S corporation's S election is terminated. Free federal and state tax filing 2012 However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Free federal and state tax filing 2012 A PSC ceases to be a PSC. Free federal and state tax filing 2012 If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Free federal and state tax filing 2012 Required payment for partnership or S corporation. Free federal and state tax filing 2012   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Free federal and state tax filing 2012 The required payment for that year (or any preceding tax year) is more than $500. Free federal and state tax filing 2012    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Free federal and state tax filing 2012   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. Free federal and state tax filing 2012 If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. Free federal and state tax filing 2012 If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. Free federal and state tax filing 2012 Applicable election year. Free federal and state tax filing 2012   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Free federal and state tax filing 2012 Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. Free federal and state tax filing 2012 Required distribution for PSC. Free federal and state tax filing 2012   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Free federal and state tax filing 2012 If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Free federal and state tax filing 2012 The amount deferred is treated as paid or incurred in the following tax year. Free federal and state tax filing 2012   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). Free federal and state tax filing 2012 Back-up election. Free federal and state tax filing 2012   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. Free federal and state tax filing 2012 If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Free federal and state tax filing 2012 Making back-up election. Free federal and state tax filing 2012   The general rules for making a section 444 election, as discussed earlier, apply. Free federal and state tax filing 2012 When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Free federal and state tax filing 2012 However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. Free federal and state tax filing 2012 Activating election. Free federal and state tax filing 2012   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Free federal and state tax filing 2012 The due date for filing Form 8752 and making the payment is the later of the following dates. Free federal and state tax filing 2012 May 15 of the calendar year following the calendar year in which the applicable election year begins. Free federal and state tax filing 2012 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Free federal and state tax filing 2012   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. Free federal and state tax filing 2012 ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). Free federal and state tax filing 2012 A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. Free federal and state tax filing 2012 However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. Free federal and state tax filing 2012 Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Free federal and state tax filing 2012 See the Instructions for Form 1128 for details. Free federal and state tax filing 2012 Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Free federal and state tax filing 2012 A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. Free federal and state tax filing 2012 An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Free federal and state tax filing 2012 Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. Free federal and state tax filing 2012 See the Instructions for Form 1128 for details. Free federal and state tax filing 2012 Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Free federal and state tax filing 2012 Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Free federal and state tax filing 2012 You choose an accounting method when you file your first tax return. Free federal and state tax filing 2012 If you later want to change your accounting method, you must get IRS approval. Free federal and state tax filing 2012 See Change in Accounting Method, later. Free federal and state tax filing 2012 No single accounting method is required of all taxpayers. Free federal and state tax filing 2012 You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. Free federal and state tax filing 2012 In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Free federal and state tax filing 2012 You must use the same accounting method from year to year. Free federal and state tax filing 2012 An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Free federal and state tax filing 2012 If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. Free federal and state tax filing 2012 Methods you can use. Free federal and state tax filing 2012   In general, you can compute your taxable income under any of the following accounting methods. Free federal and state tax filing 2012 Cash method. Free federal and state tax filing 2012 Accrual method. Free federal and state tax filing 2012 Special methods of accounting for certain items of income and expenses. Free federal and state tax filing 2012 A hybrid method which combines elements of two or more of the above accounting methods. Free federal and state tax filing 2012 The cash and accrual methods of accounting are explained later. Free federal and state tax filing 2012 Special methods. Free federal and state tax filing 2012   This publication does not discuss special methods of accounting for certain items of income or expenses. Free federal and state tax filing 2012 For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. Free federal and state tax filing 2012 The following publications also discuss special methods of reporting income or expenses. Free federal and state tax filing 2012 Publication 225, Farmer's Tax Guide. Free federal and state tax filing 2012 Publication 535, Business Expenses. Free federal and state tax filing 2012 Publication 537, Installment Sales. Free federal and state tax filing 2012 Publication 946, How To Depreciate Property. Free federal and state tax filing 2012 Hybrid method. Free federal and state tax filing 2012   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Free federal and state tax filing 2012 However, the following restrictions apply. Free federal and state tax filing 2012 If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Free federal and state tax filing 2012 See Exceptions under Inventories, later. Free federal and state tax filing 2012 Generally, you can use the cash method for all other items of income and expenses. Free federal and state tax filing 2012 See Inventories, later. Free federal and state tax filing 2012 If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Free federal and state tax filing 2012 If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Free federal and state tax filing 2012 Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Free federal and state tax filing 2012 Business and personal items. Free federal and state tax filing 2012   You can account for business and personal items using different accounting methods. Free federal and state tax filing 2012 For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. Free federal and state tax filing 2012 Two or more businesses. Free federal and state tax filing 2012   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Free federal and state tax filing 2012 No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Free federal and state tax filing 2012 Note. Free federal and state tax filing 2012 If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. Free federal and state tax filing 2012 Cash Method Most individuals and many small businesses use the cash method of accounting. Free federal and state tax filing 2012 Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Free federal and state tax filing 2012 See Inventories, later, for exceptions to this rule. Free federal and state tax filing 2012 Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Free federal and state tax filing 2012 If you receive property and services, you must include their fair market value (FMV) in income. Free federal and state tax filing 2012 Constructive receipt. Free federal and state tax filing 2012   Income is constructively received when an amount is credited to your account or made available to you without restriction. Free federal and state tax filing 2012 You need not have possession of it. Free federal and state tax filing 2012 If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Free federal and state tax filing 2012 Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 You are a calendar year taxpayer. Free federal and state tax filing 2012 Your bank credited, and made available, interest to your bank account in December 2012. Free federal and state tax filing 2012 You did not withdraw it or enter it into your books until 2013. Free federal and state tax filing 2012 You must include the amount in gross income for 2012, the year you constructively received it. Free federal and state tax filing 2012 You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Free federal and state tax filing 2012 You must report the income in the year the property is received or made available to you without restriction. Free federal and state tax filing 2012 Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Free federal and state tax filing 2012 This includes business expenses for which you contest liability. Free federal and state tax filing 2012 However, you may not be able to deduct an expense paid in advance. Free federal and state tax filing 2012 Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Free federal and state tax filing 2012 Expense paid in advance. Free federal and state tax filing 2012   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Free federal and state tax filing 2012   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Free federal and state tax filing 2012 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Free federal and state tax filing 2012   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. Free federal and state tax filing 2012 See Change in Accounting Method, later. Free federal and state tax filing 2012 Example 1. Free federal and state tax filing 2012 You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. Free federal and state tax filing 2012 The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. Free federal and state tax filing 2012 Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. Free federal and state tax filing 2012 The 12-month rule applies. Free federal and state tax filing 2012 Therefore, the full $10,000 is deductible in 2012. Free federal and state tax filing 2012 Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Free federal and state tax filing 2012 (See Special rules for farming businesses, later. Free federal and state tax filing 2012 ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Free federal and state tax filing 2012 See Gross receipts test, below. Free federal and state tax filing 2012 A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. Free federal and state tax filing 2012 See Gross receipts test, below. Free federal and state tax filing 2012 A tax shelter. Free federal and state tax filing 2012 Exceptions The following entities are not prohibited from using the cash method of accounting. Free federal and state tax filing 2012 Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Free federal and state tax filing 2012 A qualified personal service corporation (PSC). Free federal and state tax filing 2012 Gross receipts test. Free federal and state tax filing 2012   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Free federal and state tax filing 2012 A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. Free federal and state tax filing 2012    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. Free federal and state tax filing 2012 See Gross receipts test for qualifying taxpayers, for more information. Free federal and state tax filing 2012 Generally, a partnership applies the test at the partnership level. Free federal and state tax filing 2012 Gross receipts for a short tax year are annualized. Free federal and state tax filing 2012 Aggregation rules. Free federal and state tax filing 2012   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. Free federal and state tax filing 2012 Change to accrual method. Free federal and state tax filing 2012   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. Free federal and state tax filing 2012 Special rules for farming businesses. Free federal and state tax filing 2012   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Free federal and state tax filing 2012 However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. Free federal and state tax filing 2012 For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). Free federal and state tax filing 2012   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. Free federal and state tax filing 2012 For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Free federal and state tax filing 2012 See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Free federal and state tax filing 2012 Qualified PSC. Free federal and state tax filing 2012   A PSC that meets the following function and ownership tests can use the cash method. Free federal and state tax filing 2012 Function test. Free federal and state tax filing 2012   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. Free federal and state tax filing 2012 Ownership test. Free federal and state tax filing 2012   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. Free federal and state tax filing 2012 Employees performing services for the corporation in a field qualifying under the function test. Free federal and state tax filing 2012 Retired employees who had performed services in those fields. Free federal and state tax filing 2012 The estate of an employee described in (1) or (2). Free federal and state tax filing 2012 Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. Free federal and state tax filing 2012   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Free federal and state tax filing 2012 Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Free federal and state tax filing 2012 Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. Free federal and state tax filing 2012   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. Free federal and state tax filing 2012 Change to accrual method. Free federal and state tax filing 2012   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. Free federal and state tax filing 2012 A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. Free federal and state tax filing 2012 Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. Free federal and state tax filing 2012 The purpose of an accrual method of accounting is to match income and expenses in the correct year. Free federal and state tax filing 2012 Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Free federal and state tax filing 2012 Under this rule, you report an amount in your gross income on the earliest of the following dates. Free federal and state tax filing 2012 When you receive payment. Free federal and state tax filing 2012 When the income amount is due to you. Free federal and state tax filing 2012 When you earn the income. Free federal and state tax filing 2012 When title has passed. Free federal and state tax filing 2012 Estimated income. Free federal and state tax filing 2012   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. Free federal and state tax filing 2012 Change in payment schedule. Free federal and state tax filing 2012   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. Free federal and state tax filing 2012 Continue this procedure until you complete the services, then account for the difference. Free federal and state tax filing 2012 Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Free federal and state tax filing 2012 However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Free federal and state tax filing 2012 However, you cannot postpone including any payment beyond that tax year. Free federal and state tax filing 2012 Service agreement. Free federal and state tax filing 2012   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Free federal and state tax filing 2012 This includes an agreement providing for incidental replacement of parts or materials. Free federal and state tax filing 2012 However, this applies only if you offer the property without a service agreement in the normal course of business. Free federal and state tax filing 2012 Postponement not allowed. Free federal and state tax filing 2012   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Free federal and state tax filing 2012 You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. Free federal and state tax filing 2012 You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. Free federal and state tax filing 2012 Examples. Free federal and state tax filing 2012   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Free federal and state tax filing 2012 Example 1. Free federal and state tax filing 2012 You manufacture, sell, and service computers. Free federal and state tax filing 2012 You received payment in 2012 for a one-year contingent service contract on a computer you sold. Free federal and state tax filing 2012 You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 You are in the television repair business. Free federal and state tax filing 2012 You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. Free federal and state tax filing 2012 You include the payments in gross income as you earn them. Free federal and state tax filing 2012 Example 3. Free federal and state tax filing 2012 You own a dance studio. Free federal and state tax filing 2012 On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Free federal and state tax filing 2012 You give eight lessons in 2012. Free federal and state tax filing 2012 Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. Free federal and state tax filing 2012 Example 4. Free federal and state tax filing 2012 Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Free federal and state tax filing 2012 You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Free federal and state tax filing 2012 Guarantee or warranty. Free federal and state tax filing 2012   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Free federal and state tax filing 2012 Prepaid rent. Free federal and state tax filing 2012   You cannot postpone reporting income from prepaid rent. Free federal and state tax filing 2012 Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Free federal and state tax filing 2012 You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. Free federal and state tax filing 2012 Books and records. Free federal and state tax filing 2012   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. Free federal and state tax filing 2012 Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Free federal and state tax filing 2012 IRS approval. Free federal and state tax filing 2012   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Free federal and state tax filing 2012 Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. Free federal and state tax filing 2012 However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. Free federal and state tax filing 2012 An agreement includes a gift certificate that can be redeemed for goods. Free federal and state tax filing 2012 Amounts due and payable are considered received. Free federal and state tax filing 2012 How to report payments. Free federal and state tax filing 2012   Generally, include an advance payment in income in the year in which you receive it. Free federal and state tax filing 2012 However, you can use the alternative method, discussed next. Free federal and state tax filing 2012 Alternative method of reporting. Free federal and state tax filing 2012   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. Free federal and state tax filing 2012 Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Free federal and state tax filing 2012 Example 1. Free federal and state tax filing 2012 You are a retailer. Free federal and state tax filing 2012 You use an accrual method of accounting and account for the sale of goods when you ship the goods. Free federal and state tax filing 2012 You use this method for both tax and financial reporting purposes. Free federal and state tax filing 2012 You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. Free federal and state tax filing 2012 However, see Exception for inventory goods, later. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 You are a calendar year taxpayer. Free federal and state tax filing 2012 You manufacture household furniture and use an accrual method of accounting. Free federal and state tax filing 2012 Under this method, you accrue income for your financial reports when you ship the furniture. Free federal and state tax filing 2012 For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Free federal and state tax filing 2012 In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. Free federal and state tax filing 2012 You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Free federal and state tax filing 2012 For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. Free federal and state tax filing 2012 Information schedule. Free federal and state tax filing 2012   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. Free federal and state tax filing 2012 Total advance payments received in the current tax year. Free federal and state tax filing 2012 Total advance payments received in earlier tax years and not included in income before the current tax year. Free federal and state tax filing 2012 Total payments received in earlier tax years included in income for the current tax year. Free federal and state tax filing 2012 Exception for inventory goods. Free federal and state tax filing 2012   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. Free federal and state tax filing 2012 You account for the advance payment under the alternative method (discussed earlier). Free federal and state tax filing 2012 You have received a substantial advance payment on the agreement (discussed next). Free federal and state tax filing 2012 You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Free federal and state tax filing 2012 These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. Free federal and state tax filing 2012   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. Free federal and state tax filing 2012 You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Free federal and state tax filing 2012 If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Free federal and state tax filing 2012 Note. Free federal and state tax filing 2012 You must report any advance payments you receive after the second year in the year received. Free federal and state tax filing 2012 No further deferral is allowed. Free federal and state tax filing 2012 Substantial advance payments. Free federal and state tax filing 2012   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Free federal and state tax filing 2012 In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Free federal and state tax filing 2012 The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Free federal and state tax filing 2012 You receive the following advance payments under the contract. Free federal and state tax filing 2012 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. Free federal and state tax filing 2012 In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Free federal and state tax filing 2012 Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. Free federal and state tax filing 2012   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. Free federal and state tax filing 2012 You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. Free federal and state tax filing 2012 If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Free federal and state tax filing 2012   No further deferral is allowed. Free federal and state tax filing 2012 You must include in gross income the advance payment you receive each remaining year of the contract. Free federal and state tax filing 2012 Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Free federal and state tax filing 2012 IRS approval. Free federal and state tax filing 2012   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Free federal and state tax filing 2012 Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Free federal and state tax filing 2012 The all-events test has been met. Free federal and state tax filing 2012 The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Free federal and state tax filing 2012 Economic performance has occurred. Free federal and state tax filing 2012 Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Free federal and state tax filing 2012 If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. Free federal and state tax filing 2012 If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 You are a calendar year taxpayer. Free federal and state tax filing 2012 You buy office supplies in December 2012. Free federal and state tax filing 2012 You receive the supplies and the bill in December, but you pay the bill in January 2013. Free federal and state tax filing 2012 You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. Free federal and state tax filing 2012 Your office supplies may qualify as a recurring item, discussed later. Free federal and state tax filing 2012 If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Free federal and state tax filing 2012 Workers' compensation and tort liability. Free federal and state tax filing 2012   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. Free federal and state tax filing 2012 If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. Free federal and state tax filing 2012 Taxes. Free federal and state tax filing 2012   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Free federal and state tax filing 2012 are paid. Free federal and state tax filing 2012 However, you can elect to treat taxes as a recurring item, discussed later. Free federal and state tax filing 2012 You can also elect to ratably accrue real estate taxes. Free federal and state tax filing 2012 See chapter 5 of Publication 535 for information about real estate taxes. Free federal and state tax filing 2012 Other liabilities. Free federal and state tax filing 2012   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. Free federal and state tax filing 2012 Interest. Free federal and state tax filing 2012   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. Free federal and state tax filing 2012 Compensation for services. Free federal and state tax filing 2012   Generally, economic performance occurs as an employee renders service to the employer. Free federal and state tax filing 2012 However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. Free federal and state tax filing 2012 For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free federal and state tax filing 2012 Vacation pay. Free federal and state tax filing 2012   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. Free federal and state tax filing 2012 If you pay it later than this, you must deduct it in the year actually paid. Free federal and state tax filing 2012 An amount is vested if your right to it cannot be nullified or cancelled. Free federal and state tax filing 2012 Exception for recurring items. Free federal and state tax filing 2012   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. Free federal and state tax filing 2012 The exception applies if all the following requirements are met. Free federal and state tax filing 2012 The all-events test, discussed earlier, is met. Free federal and state tax filing 2012 Economic performance occurs by the earlier of the following dates. Free federal and state tax filing 2012 8½ months after the close of the year. Free federal and state tax filing 2012 The date you file a timely return (including extensions) for the year. Free federal and state tax filing 2012 The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. Free federal and state tax filing 2012 Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. Free federal and state tax filing 2012 This exception does not apply to workers' compensation or tort liabilities. Free federal and state tax filing 2012 Amended return. Free federal and state tax filing 2012   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Free federal and state tax filing 2012 You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. Free federal and state tax filing 2012 Recurrence and consistency. Free federal and state tax filing 2012   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. Free federal and state tax filing 2012 A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. Free federal and state tax filing 2012 Materiality. Free federal and state tax filing 2012   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. Free federal and state tax filing 2012   An item considered material for financial statement purposes is also considered material for tax purposes. Free federal and state tax filing 2012 However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Free federal and state tax filing 2012 Matching expenses with income. Free federal and state tax filing 2012   Costs directly associated with the revenue of a period are properly allocable to that period. Free federal and state tax filing 2012 To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. Free federal and state tax filing 2012 fasab. Free federal and state tax filing 2012 gov/accepted. Free federal and state tax filing 2012 html) are an important factor. Free federal and state tax filing 2012   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. Free federal and state tax filing 2012 Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. Free federal and state tax filing 2012 However, the matching requirement is considered met for certain types of expenses. Free federal and state tax filing 2012 These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Free federal and state tax filing 2012 Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Free federal and state tax filing 2012 Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Free federal and state tax filing 2012 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Free federal and state tax filing 2012 If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. Free federal and state tax filing 2012 See Change in Accounting Method, later, for information on how to get IRS approval. Free federal and state tax filing 2012 See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Free federal and state tax filing 2012 Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Free federal and state tax filing 2012 Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Free federal and state tax filing 2012 See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Free federal and state tax filing 2012 Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Free federal and state tax filing 2012 If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Free federal and state tax filing 2012 However, see Exceptions, next. Free federal and state tax filing 2012 See also Accrual Method, earlier. Free federal and state tax filing 2012 To figure taxable income, you must value your inventory at the beginning and end of each tax year. Free federal and state tax filing 2012 To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Free federal and state tax filing 2012 See Identifying Cost and Valuing Inventory, later. Free federal and state tax filing 2012 The rules for valuing inventory are not the same for all businesses. Free federal and state tax filing 2012 The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Free federal and state tax filing 2012 Your inventory practices must be consistent from year to year. Free federal and state tax filing 2012 The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. Free federal and state tax filing 2012 Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Free federal and state tax filing 2012 These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Free federal and state tax filing 2012 A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Free federal and state tax filing 2012 irs. Free federal and state tax filing 2012 gov/pub/irs-irbs/irb01–02. Free federal and state tax filing 2012 pdf. Free federal and state tax filing 2012 A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Free federal and state tax filing 2012 irs. Free federal and state tax filing 2012 gov/pub/irs-irbs/irb02–18. Free federal and state tax filing 2012 pdf. Free federal and state tax filing 2012 In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). Free federal and state tax filing 2012 Qualifying taxpayer. Free federal and state tax filing 2012   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). Free federal and state tax filing 2012 Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Free federal and state tax filing 2012 You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Free federal and state tax filing 2012 Gross receipts test for qualifying taxpayers. Free federal and state tax filing 2012   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Free federal and state tax filing 2012 List each of the test years. Free federal and state tax filing 2012 For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Free federal and state tax filing 2012 Step 2. Free federal and state tax filing 2012 Determine your average annual gross receipts for each test year listed in Step 1. Free federal and state tax filing 2012 Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Free federal and state tax filing 2012 Step 3. Free federal and state tax filing 2012 You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. Free federal and state tax filing 2012 Qualifying small business taxpayer. Free federal and state tax filing 2012   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). Free federal and state tax filing 2012 Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Free federal and state tax filing 2012 You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Free federal and state tax filing 2012 Your principle business activity is an eligible business. Free federal and state tax filing 2012 See Eligible business, later. Free federal and state tax filing 2012 You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. Free federal and state tax filing 2012 Note. Free federal and state tax filing 2012 Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Free federal and state tax filing 2012 A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Free federal and state tax filing 2012 See Special rules for farming businesses under Cash Method, earlier. Free federal and state tax filing 2012 Gross receipts test for qualifying small business taxpayers. Free federal and state tax filing 2012   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Free federal and state tax filing 2012 List each of the test years. Free federal and state tax filing 2012 For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. Free federal and state tax filing 2012 Step 2. Free federal and state tax filing 2012 Determine your average annual gross receipts for each test year listed in Step 1. Free federal and state tax filing 2012 Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Free federal and state tax filing 2012 Step 3. Free federal and state tax filing 2012 You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. Free federal and state tax filing 2012 Eligible business. Free federal and state tax filing 2012   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. Free federal and state tax filing 2012 You have an eligible business if you meet any of the following requirements. Free federal and state tax filing 2012 Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). Free federal and state tax filing 2012 NAICS codes 31-33 (manufacturing). Free federal and state tax filing 2012 NAICS code 42 (wholesale trade). Free federal and state tax filing 2012 NAICS codes 44-45 (retail trade). Free federal and state tax filing 2012 NAICS codes 5111 and 5122 (information industries). Free federal and state tax filing 2012 Your principal business activity is the provision of services, including the provision of property incident to those services. Free federal and state tax filing 2012 Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Free federal and state tax filing 2012   Information about the NAICS codes can be found at http://www. Free federal and state tax filing 2012 census. Free federal and state tax filing 2012 gov/naics or in the instructions for your federal income tax return. Free federal and state tax filing 2012 Gross receipts. Free federal and state tax filing 2012   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. Free federal and state tax filing 2012 See the definit
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The Free Federal And State Tax Filing 2012

Free federal and state tax filing 2012 Publication 915 - Main Content Table of Contents Are Any of Your Benefits Taxable?Worksheet A. Free federal and state tax filing 2012 Exemption from withholding. Free federal and state tax filing 2012 How To Report Your Benefits How Much Is Taxable?Examples Lump-Sum ElectionExample Deductions Related to Your BenefitsRepayments More Than Gross Benefits Worksheets AppendixForm SSA-1099, Social Security Benefit Statement 2013 Form SSA-1042S, Social Security Benefit Statement 2013 (Nonresident Aliens) Form RRB-1099, Payments by the Railroad Retirement Board 2013 Form RRB-1042S, Payments by the Railroad Retirement Board 2013 (Nonresident Aliens) How To Get Tax HelpLow Income Taxpayer Clinics Are Any of Your Benefits Taxable? To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Free federal and state tax filing 2012 When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned by bona fide residents of American Samoa or Puerto Rico. Free federal and state tax filing 2012 Children's benefits. Free federal and state tax filing 2012   The rules in this publication apply to benefits received by children. Free federal and state tax filing 2012 See Who is taxed , later. Free federal and state tax filing 2012 The SSA issues Form SSA-1099 and Form SSA-1042S. Free federal and state tax filing 2012 The RRB issues Form RRB-1099 and Form RRB-1042S. Free federal and state tax filing 2012 These forms (tax statements) report the amounts paid and repaid, and taxes withheld for a tax year. Free federal and state tax filing 2012 You may receive more than one of these forms for the same tax year. Free federal and state tax filing 2012 See the Appendix at the end of this publication for more information. Free federal and state tax filing 2012 Each original Form RRB-1099 or Form RRB-1042S is valid unless it has been corrected. Free federal and state tax filing 2012 The RRB will issue a corrected Form RRB-1099 or Form RRB-1042S if there is an error in the original. Free federal and state tax filing 2012 A corrected Form RRB-1099 or Form RRB-1042S is indicated as “CORRECTED” and replaces the corresponding original Form RRB-1099 or Form RRB-1042S. Free federal and state tax filing 2012 You must use the latest corrected Form RRB-1099 or Form RRB-1042S you received and any original Form RRB-1099 or Form RRB-1042S that the RRB has not corrected when you determine what amounts to report on your tax return. Free federal and state tax filing 2012 Figuring total income. Free federal and state tax filing 2012   To figure the total of one-half of your benefits plus your other income, use Worksheet A, discussed later. Free federal and state tax filing 2012 If the total is more than your base amount, part of your benefits may be taxable. Free federal and state tax filing 2012   If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Free federal and state tax filing 2012 Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Free federal and state tax filing 2012 If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Free federal and state tax filing 2012 If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Free federal and state tax filing 2012 Base amount. Free federal and state tax filing 2012   Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er), $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $-0- if you are married filing separately and lived with your spouse at any time during 2013. Free federal and state tax filing 2012 Worksheet A. Free federal and state tax filing 2012   You can use Worksheet A to figure the amount of income to compare with your base amount. Free federal and state tax filing 2012 This is a quick way to check whether some of your benefits may be taxable. Free federal and state tax filing 2012     Worksheet A. Free federal and state tax filing 2012 A Quick Way To Check if Your Benefits May Be Taxable Keep for your records A. Free federal and state tax filing 2012 Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Free federal and state tax filing 2012 (If you received more than one form, combine the amounts from box 5 and enter the total. Free federal and state tax filing 2012 ) A. Free federal and state tax filing 2012   Note. Free federal and state tax filing 2012 If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Free federal and state tax filing 2012 B. Free federal and state tax filing 2012 Enter one-half of the amount on line A B. Free federal and state tax filing 2012   C. Free federal and state tax filing 2012 Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Free federal and state tax filing 2012   D. Free federal and state tax filing 2012 Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Free federal and state tax filing 2012   E. Free federal and state tax filing 2012 Add lines B, C, and D E. Free federal and state tax filing 2012   Note. Free federal and state tax filing 2012 Compare the amount on line E to your base amount for your filing status. Free federal and state tax filing 2012 If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Free federal and state tax filing 2012 If the amount on line E is more than your base amount, some of your benefits may be taxable. Free federal and state tax filing 2012 You need to complete Worksheet 1, shown later. Free federal and state tax filing 2012 If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits . Free federal and state tax filing 2012   Example. Free federal and state tax filing 2012 You and your spouse (both over 65) are filing a joint return for 2013 and you both received social security benefits during the year. Free federal and state tax filing 2012 In January 2014, you received a Form SSA-1099 showing net benefits of $7,500 in box 5. Free federal and state tax filing 2012 Your spouse received a Form SSA-1099 showing net benefits of $3,500 in box 5. Free federal and state tax filing 2012 You also received a taxable pension of $22,800 and interest income of $500. Free federal and state tax filing 2012 You did not have any tax-exempt interest income. Free federal and state tax filing 2012 Your benefits are not taxable for 2013 because your income, as figured in Worksheet A below, is not more than your base amount ($32,000) for married filing jointly. Free federal and state tax filing 2012   Even though none of your benefits are taxable, you must file a return for 2013 because your taxable gross income ($23,300) exceeds the minimum filing requirement amount for your filing status. Free federal and state tax filing 2012     Filled-in Worksheet A. Free federal and state tax filing 2012 A Quick Way To Check if Your Benefits May Be Taxable Keep for your records A. Free federal and state tax filing 2012 Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Free federal and state tax filing 2012 (If you received more than one form, combine the amounts from box 5 and enter the total. Free federal and state tax filing 2012 ) A. Free federal and state tax filing 2012 $11,000 Note. Free federal and state tax filing 2012 If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Free federal and state tax filing 2012 B. Free federal and state tax filing 2012 Enter one-half of the amount on line A B. Free federal and state tax filing 2012 5,500 C. Free federal and state tax filing 2012 Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Free federal and state tax filing 2012 23,300 D. Free federal and state tax filing 2012 Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Free federal and state tax filing 2012 -0- E. Free federal and state tax filing 2012 Add lines B, C, and D E. Free federal and state tax filing 2012 $28,800 Note. Free federal and state tax filing 2012 Compare the amount on line E to your base amount for your filing status. Free federal and state tax filing 2012 If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Free federal and state tax filing 2012 If the amount on line E is more than your base amount, some of your benefits may be taxable. Free federal and state tax filing 2012 You need to complete Worksheet 1, shown later. Free federal and state tax filing 2012 If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits . Free federal and state tax filing 2012   Who is taxed. Free federal and state tax filing 2012   Benefits are included in the taxable income (to the extent they are taxable) of the person who has the legal right to receive the benefits. Free federal and state tax filing 2012 For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. Free federal and state tax filing 2012 One-half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to your child. Free federal and state tax filing 2012 Repayment of benefits. Free federal and state tax filing 2012   Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Free federal and state tax filing 2012 It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Free federal and state tax filing 2012 If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Free federal and state tax filing 2012   Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Free federal and state tax filing 2012 Your repayments are shown in box 4. Free federal and state tax filing 2012 The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Free federal and state tax filing 2012 Use the amount in box 5 to figure whether any of your benefits are taxable. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 In 2012, you received $3,000 in social security benefits, and in 2013 you received $2,700. Free federal and state tax filing 2012 In March 2013, SSA notified you that you should have received only $2,500 in benefits in 2012. Free federal and state tax filing 2012 During 2013, you repaid $500 to SSA. Free federal and state tax filing 2012 The Form SSA-1099 you received for 2013 shows $2,700 in box 3 (gross amount) and $500 in box 4 (repayment). Free federal and state tax filing 2012 The amount in box 5 shows your net benefits of $2,200 ($2,700 minus $500). Free federal and state tax filing 2012 Tax withholding and estimated tax. Free federal and state tax filing 2012   You can choose to have federal income tax withheld from your social security benefits and/or the SSEB portion of your tier 1 railroad retirement benefits. Free federal and state tax filing 2012 If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Statement. Free federal and state tax filing 2012   If you do not choose to have income tax withheld, you may have to request additional withholding from other income or pay estimated tax during the year. Free federal and state tax filing 2012 For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Free federal and state tax filing 2012 U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 citizens residing abroad. Free federal and state tax filing 2012   U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 citizens who are residents of the following countries are exempt from U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 tax on their benefits. Free federal and state tax filing 2012 Canada. Free federal and state tax filing 2012 Egypt. Free federal and state tax filing 2012 Germany. Free federal and state tax filing 2012 Ireland. Free federal and state tax filing 2012 Israel. Free federal and state tax filing 2012 Italy. Free federal and state tax filing 2012 (You must also be a citizen of Italy for the exemption to apply. Free federal and state tax filing 2012 ) Romania. Free federal and state tax filing 2012 United Kingdom. Free federal and state tax filing 2012   The SSA will not withhold U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 tax from your benefits if you are a U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 citizen. Free federal and state tax filing 2012   The RRB will withhold U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 tax from your benefits unless you file Form RRB-1001, Nonresident Questionnaire, with the RRB to provide citizenship and residency information. Free federal and state tax filing 2012 If you do not file Form RRB-1001, the RRB will consider you a nonresident alien and withhold tax from your railroad retirement benefits at a 30% rate. Free federal and state tax filing 2012 Contact the RRB to get this form. Free federal and state tax filing 2012 Lawful permanent residents. Free federal and state tax filing 2012   For U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 income tax purposes, lawful permanent residents (green card holders) are considered resident aliens until their lawful permanent resident status under the immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Free federal and state tax filing 2012 Social security benefits paid to a green card holder are not subject to 30% withholding. Free federal and state tax filing 2012 If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. Free federal and state tax filing 2012 SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. Free federal and state tax filing 2012 If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. Free federal and state tax filing 2012 You must also attach the following information to your Form 1040 or 1040A: A copy of the Form SSA-1042S, Social Security Benefit Statement, A copy of the “green card,” and A signed declaration that includes the following statements:    “The SSA should not have withheld federal income tax from my social security benefits because I am a U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Free federal and state tax filing 2012 I am filing a U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 income tax return for the tax year as a resident alien reporting all of my worldwide income. Free federal and state tax filing 2012 I have not claimed benefits for the tax year under an income tax treaty as a nonresident alien. Free federal and state tax filing 2012 ” Nonresident aliens. Free federal and state tax filing 2012   A nonresident alien is an individual who is not a citizen or resident of the United States. Free federal and state tax filing 2012 If you are a nonresident alien, the rules discussed in this publication do not apply to you. Free federal and state tax filing 2012 Instead, 85% of your benefits are taxed at a 30% rate, unless exempt (or subject to a lower rate) by treaty. Free federal and state tax filing 2012 You will receive a Form SSA-1042S or Form RRB-1042S showing the amount of your benefits. Free federal and state tax filing 2012 These forms will also show the tax rate and the amount of tax withheld from your benefits. Free federal and state tax filing 2012   Under tax treaties with the following countries, residents of these countries are exempt from U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 tax on their benefits. Free federal and state tax filing 2012 Canada. Free federal and state tax filing 2012 Egypt. Free federal and state tax filing 2012 Germany. Free federal and state tax filing 2012 Ireland. Free federal and state tax filing 2012 Israel. Free federal and state tax filing 2012 Italy. Free federal and state tax filing 2012 Japan. Free federal and state tax filing 2012 Romania. Free federal and state tax filing 2012 United Kingdom. Free federal and state tax filing 2012   Under a treaty with India, benefits paid to individuals who are both residents and nationals of India are exempt from U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 tax if the benefits are for services performed for the United States, its subdivisions, or local government authorities. Free federal and state tax filing 2012   If you are a resident of Switzerland, your total benefit amount will be taxed at a 15% rate. Free federal and state tax filing 2012   For more information on whether you are a nonresident alien, see Publication 519, U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Tax Guide for Aliens. Free federal and state tax filing 2012 Exemption from withholding. Free federal and state tax filing 2012   If your social security benefits are exempt from tax because you are a resident of one of the treaty countries listed, the SSA will not withhold U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 tax from your benefits. Free federal and state tax filing 2012   If your railroad retirement benefits are exempt from tax because you are a resident of one of the treaty countries listed, you can claim an exemption from withholding by filing Form RRB-1001 with the RRB. Free federal and state tax filing 2012 Contact the RRB to get this form. Free federal and state tax filing 2012 Canadian or German social security benefits paid to U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 residents. Free federal and state tax filing 2012   Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 residents are treated for U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 income tax purposes as if they were paid under the social security legislation of the United States. Free federal and state tax filing 2012 If you receive social security benefits from Canada or Germany, include them on line 1 of Worksheet 1, shown later. Free federal and state tax filing 2012 How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040 or Form 1040A. Free federal and state tax filing 2012 You cannot use Form 1040EZ. Free federal and state tax filing 2012 Reporting on Form 1040. Free federal and state tax filing 2012   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 20a and the taxable part on line 20b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Free federal and state tax filing 2012 Reporting on Form 1040A. Free federal and state tax filing 2012   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 14a and the taxable part on line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Free federal and state tax filing 2012 Benefits not taxable. Free federal and state tax filing 2012   If you are filing Form 1040EZ, do not report any benefits on your tax return. Free federal and state tax filing 2012 If you are filing Form 1040 or Form 1040A, report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 How Much Is Taxable? If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. Free federal and state tax filing 2012 Generally, the higher that total amount, the greater the taxable part of your benefits. Free federal and state tax filing 2012 Maximum taxable part. Free federal and state tax filing 2012   Generally, up to 50% of your benefits will be taxable. Free federal and state tax filing 2012 However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Free federal and state tax filing 2012 The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Free federal and state tax filing 2012 You are married filing separately and lived with your spouse at any time during 2013. Free federal and state tax filing 2012 Which worksheet to use. Free federal and state tax filing 2012   A worksheet you can use to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Free federal and state tax filing 2012 You can use either that worksheet or Worksheet 1 in this publication, unless any of the following situations applies to you. Free federal and state tax filing 2012 You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse is covered by a retirement plan at work. Free federal and state tax filing 2012 In this situation you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Free federal and state tax filing 2012 Situation (1) does not apply and you take an exclusion for interest from qualified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 savings bonds (Form 8815), for adoption benefits (Form 8839), for foreign earned income or housing (Form 2555 or Form 2555-EZ), or for income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Free federal and state tax filing 2012 In this situation, you must use Worksheet 1 in this publication to figure your taxable benefits. Free federal and state tax filing 2012 You received a lump-sum payment for an earlier year. Free federal and state tax filing 2012 In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in this publication. Free federal and state tax filing 2012 See Lump-Sum Election , later. Free federal and state tax filing 2012 Examples A few examples you can use as a guide to figure the taxable part of your benefits follow. Free federal and state tax filing 2012 Filled-in Worksheet 1. Free federal and state tax filing 2012 Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free federal and state tax filing 2012 None of your benefits are taxable for 2013. Free federal and state tax filing 2012 For more information, see Repayments More Than Gross Benefits . Free federal and state tax filing 2012 If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free federal and state tax filing 2012 Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free federal and state tax filing 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free federal and state tax filing 2012 $5,980         2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012 2,990     3. Free federal and state tax filing 2012 Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free federal and state tax filing 2012 28,990     4. Free federal and state tax filing 2012 Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free federal and state tax filing 2012 -0-     5. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free federal and state tax filing 2012 -0-     6. Free federal and state tax filing 2012 Combine lines 2, 3, 4, and 5 6. Free federal and state tax filing 2012 31,980     7. Free federal and state tax filing 2012 Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free federal and state tax filing 2012  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free federal and state tax filing 2012 -0-     8. Free federal and state tax filing 2012 Is the amount on line 7 less than the amount on line 6?             No. Free federal and state tax filing 2012 None of your social security benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012 31,980     9. Free federal and state tax filing 2012 If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free federal and state tax filing 2012 25,000       Note. Free federal and state tax filing 2012 If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 9 less than the amount on line 8?             No. Free federal and state tax filing 2012 None of your benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012 6,980     11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free federal and state tax filing 2012 9,000     12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012 -0-     13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012 6,980     14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012 3,490     15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012 2,990     16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012 -0-     17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012 2,990     18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012 5,083     19. Free federal and state tax filing 2012 Taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free federal and state tax filing 2012 $2,990       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free federal and state tax filing 2012         Example 1. Free federal and state tax filing 2012 George White is single and files Form 1040 for 2013. Free federal and state tax filing 2012 In addition to receiving social security payments, he received a fully taxable pension of $18,600, wages from a part-time job of $9,400, and taxable interest income of $990, for a total of $28,990. Free federal and state tax filing 2012 He received a Form SSA-1099 in January 2014 that shows his net social security benefits of $5,980 in box 5. Free federal and state tax filing 2012   To figure his taxable benefits, George completes Worksheet 1, shown below. Free federal and state tax filing 2012 On line 20a of his Form 1040, George enters his net benefits of $5,980. Free federal and state tax filing 2012 On line 20b, he enters his taxable benefits of $2,990. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 Ray and Alice Hopkins file a joint return on Form 1040A for 2013. Free federal and state tax filing 2012 Ray is retired and received a fully taxable pension of $15,500. Free federal and state tax filing 2012 He also received social security benefits and his Form SSA-1099 for 2013 shows net benefits of $5,600 in box 5. Free federal and state tax filing 2012 Alice worked during the year and had wages of $14,000. Free federal and state tax filing 2012 She made a deductible payment to her IRA account of $1,000. Free federal and state tax filing 2012 Ray and Alice have two savings accounts with a total of $250 in taxable interest income. Free federal and state tax filing 2012 They complete Worksheet 1, entering $29,750 ($15,500 + $14,000 + $250) on line 3. Free federal and state tax filing 2012 They find none of Ray's social security benefits are taxable. Free federal and state tax filing 2012 On Form 1040A, they enter $5,600 on line 14a and -0- on line 14b. Free federal and state tax filing 2012 Filled-in Worksheet 1. Free federal and state tax filing 2012 Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free federal and state tax filing 2012 None of your benefits are taxable for 2013. Free federal and state tax filing 2012 For more information, see Repayments More Than Gross Benefits . Free federal and state tax filing 2012 If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free federal and state tax filing 2012 Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free federal and state tax filing 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free federal and state tax filing 2012 $5,600         2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012 2,800     3. Free federal and state tax filing 2012 Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free federal and state tax filing 2012 29,750     4. Free federal and state tax filing 2012 Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free federal and state tax filing 2012 -0-     5. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free federal and state tax filing 2012 -0-     6. Free federal and state tax filing 2012 Combine lines 2, 3, 4, and 5 6. Free federal and state tax filing 2012 32,550     7. Free federal and state tax filing 2012 Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free federal and state tax filing 2012  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free federal and state tax filing 2012 1,000     8. Free federal and state tax filing 2012 Is the amount on line 7 less than the amount on line 6?             No. Free federal and state tax filing 2012 None of your social security benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012 31,550     9. Free federal and state tax filing 2012 If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free federal and state tax filing 2012 32,000       Note. Free federal and state tax filing 2012 If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 9 less than the amount on line 8?             No. Free federal and state tax filing 2012 None of your benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012       11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free federal and state tax filing 2012       12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012       13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012       14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012       15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012       16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012       17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012       18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012       19. Free federal and state tax filing 2012 Taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free federal and state tax filing 2012         If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free federal and state tax filing 2012         Example 3. Free federal and state tax filing 2012 Joe and Betty Johnson file a joint return on Form 1040 for 2013. Free federal and state tax filing 2012 Joe is a retired railroad worker and in 2013 received the social security equivalent benefit (SSEB) portion of tier 1 railroad retirement benefits. Free federal and state tax filing 2012 Joe's Form RRB-1099 shows $10,000 in box 5. Free federal and state tax filing 2012 Betty is a retired government worker and received a fully taxable pension of $38,000. Free federal and state tax filing 2012 They had $2,300 in taxable interest income plus interest of $200 on a qualified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 savings bond. Free federal and state tax filing 2012 The savings bond interest qualified for the exclusion. Free federal and state tax filing 2012 They figure their taxable benefits by completing Worksheet 1 below. Free federal and state tax filing 2012 Because they have qualified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 savings bond interest, they follow the note at the beginning of the worksheet and use the amount from line 2 of their Schedule B (Form 1040A or 1040) on line 3 of the worksheet instead of the amount from line 8a of their Form 1040. Free federal and state tax filing 2012 On line 3 of the worksheet, they enter $40,500 ($38,000 + $2,500). Free federal and state tax filing 2012 More than 50% of Joe's net benefits are taxable because the income on line 8 of the worksheet ($45,500) is more than $44,000. Free federal and state tax filing 2012 (See Maximum taxable part under How Much Is Taxable earlier. Free federal and state tax filing 2012 ) Joe and Betty enter $10,000 on Form 1040, line 20a, and $6,275 on Form 1040, line 20b. Free federal and state tax filing 2012 Filled-in Worksheet 1. Free federal and state tax filing 2012 Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free federal and state tax filing 2012 None of your benefits are taxable for 2013. Free federal and state tax filing 2012 For more information, see Repayments More Than Gross Benefits . Free federal and state tax filing 2012 If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free federal and state tax filing 2012 Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free federal and state tax filing 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free federal and state tax filing 2012 $10,000         2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012 5,000     3. Free federal and state tax filing 2012 Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free federal and state tax filing 2012 40,500     4. Free federal and state tax filing 2012 Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free federal and state tax filing 2012 -0-     5. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free federal and state tax filing 2012 -0-     6. Free federal and state tax filing 2012 Combine lines 2, 3, 4, and 5 6. Free federal and state tax filing 2012 45,500     7. Free federal and state tax filing 2012 Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free federal and state tax filing 2012  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free federal and state tax filing 2012 -0-     8. Free federal and state tax filing 2012 Is the amount on line 7 less than the amount on line 6?             No. Free federal and state tax filing 2012 None of your social security benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012 45,500     9. Free federal and state tax filing 2012 If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free federal and state tax filing 2012 32,000       Note. Free federal and state tax filing 2012 If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 9 less than the amount on line 8?             No. Free federal and state tax filing 2012 None of your benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012 13,500     11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free federal and state tax filing 2012 12,000     12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012 1,500     13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012 12,000     14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012 6,000     15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012 5,000     16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012 1,275     17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012 6,275     18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012 8,500     19. Free federal and state tax filing 2012 Taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free federal and state tax filing 2012 $6,275       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free federal and state tax filing 2012         Filled-in Worksheet 1. Free federal and state tax filing 2012 Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free federal and state tax filing 2012 None of your benefits are taxable for 2013. Free federal and state tax filing 2012 For more information, see Repayments More Than Gross Benefits . Free federal and state tax filing 2012 If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free federal and state tax filing 2012 Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free federal and state tax filing 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free federal and state tax filing 2012 $4,000         2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012 2,000     3. Free federal and state tax filing 2012 Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free federal and state tax filing 2012 8,000     4. Free federal and state tax filing 2012 Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free federal and state tax filing 2012 -0-     5. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free federal and state tax filing 2012 -0-     6. Free federal and state tax filing 2012 Combine lines 2, 3, 4, and 5 6. Free federal and state tax filing 2012 10,000     7. Free federal and state tax filing 2012 Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free federal and state tax filing 2012  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free federal and state tax filing 2012 -0-     8. Free federal and state tax filing 2012 Is the amount on line 7 less than the amount on line 6?             No. Free federal and state tax filing 2012 None of your social security benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012 10,000     9. Free federal and state tax filing 2012 If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free federal and state tax filing 2012         Note. Free federal and state tax filing 2012 If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 9 less than the amount on line 8?             No. Free federal and state tax filing 2012 None of your benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012       11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free federal and state tax filing 2012       12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012       13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012       14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012       15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012       16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012       17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012 8,500     18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012 3,400     19. Free federal and state tax filing 2012 Taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free federal and state tax filing 2012 $3,400       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free federal and state tax filing 2012         Example 4. Free federal and state tax filing 2012 Bill and Eileen Jones are married and live together, but file separate Form 1040 returns for 2013. Free federal and state tax filing 2012 Bill earned $8,000 during 2013. Free federal and state tax filing 2012 The only other income he had for the year was $4,000 net social security benefits (box 5 of his Form SSA-1099). Free federal and state tax filing 2012 Bill figures his taxable benefits by completing Worksheet 1 below. Free federal and state tax filing 2012 He must include 85% of his social security benefits in his taxable income because he is married filing separately and lived with his spouse during 2013. Free federal and state tax filing 2012 See How Much Is Taxable earlier. Free federal and state tax filing 2012 Bill enters $4,000 on his Form 1040, line 20a, and $3,400 on Form 1040, line 20b. Free federal and state tax filing 2012 Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Free federal and state tax filing 2012 This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Free federal and state tax filing 2012 No part of the lump-sum death benefit is subject to tax. Free federal and state tax filing 2012 Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Free federal and state tax filing 2012 However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Free federal and state tax filing 2012 You can elect this method if it lowers your taxable benefits. Free federal and state tax filing 2012 Under the lump-sum election method, you refigure the taxable part of all your benefits for the earlier year (including the lump-sum payment) using that year's income. Free federal and state tax filing 2012 Then you subtract any taxable benefits for that year that you previously reported. Free federal and state tax filing 2012 The remainder is the taxable part of the lump-sum payment. Free federal and state tax filing 2012 Add it to the taxable part of your benefits for 2013 (figured without the lump-sum payment for the earlier year). Free federal and state tax filing 2012 Because the earlier year's taxable benefits are included in your 2013 income, no adjustment is made to the earlier year's return. Free federal and state tax filing 2012 Do not file an amended return for the earlier year. Free federal and state tax filing 2012 Will the lump-sum election method lower your taxable benefits?   To find out, take the following steps. Free federal and state tax filing 2012 Complete Worksheet 1 in this publication. Free federal and state tax filing 2012 Complete Worksheet 2 and Worksheet 3 as appropriate. Free federal and state tax filing 2012 Use Worksheet 2 if your lump-sum payment was for a year after 1993. Free federal and state tax filing 2012 Use Worksheet 3 if it was for 1993 or an earlier year. Free federal and state tax filing 2012 Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received the lump-sum payment. Free federal and state tax filing 2012 Complete Worksheet 4. Free federal and state tax filing 2012 Compare the taxable benefits on line 19 of Worksheet 1 with the taxable benefits on line 21 of Worksheet 4. Free federal and state tax filing 2012 If the taxable benefits on Worksheet 4 are lower than the taxable benefits on Worksheet 1, you can elect to report the lower amount on your return. Free federal and state tax filing 2012 Making the election. Free federal and state tax filing 2012   If you elect to report your taxable benefits under the lump-sum election method, follow the instructions at the bottom of Worksheet 4. Free federal and state tax filing 2012 Do not attach the completed worksheets to your return. Free federal and state tax filing 2012 Keep them with your records. Free federal and state tax filing 2012    Once you elect this method of figuring the taxable part of a lump-sum payment, you can revoke your election only with the consent of the IRS. Free federal and state tax filing 2012 Lump-sum payment reported on Form SSA-1099 or RRB-1099. Free federal and state tax filing 2012   If you received a lump-sum payment in 2013 that includes benefits for one or more earlier years after 1983, it will be included in box 3 of either Form SSA-1099 or Form RRB-1099. Free federal and state tax filing 2012 That part of any lump-sum payment for years before 1984 is not taxed and will not be shown on the form. Free federal and state tax filing 2012 The form will also show the year (or years) the payment is for. Free federal and state tax filing 2012 However, Form RRB-1099 will not show a breakdown by year (or years) of any lump-sum payment for years before 2011. Free federal and state tax filing 2012 You must contact the RRB for a breakdown by year for any amount shown in box 9. Free federal and state tax filing 2012 Example Jane Jackson is single. Free federal and state tax filing 2012 In 2012 she applied for social security disability benefits but was told she was ineligible. Free federal and state tax filing 2012 She appealed the decision and won. Free federal and state tax filing 2012 In 2013, she received a lump-sum payment of $6,000, of which $2,000 was for 2012 and $4,000 was for 2013. Free federal and state tax filing 2012 Jane also received $5,000 in social security benefits in 2013, so her total benefits in 2013 were $11,000. Free federal and state tax filing 2012 Jane's other income for 2012 and 2013 is as follows. Free federal and state tax filing 2012   Income 2012 2013     Wages $20,000 $ 3,500     Interest income 2,000 2,500     Dividend income 1,000 1,500     Fully taxable pension   18,000     Total $23,000 $25,500   To see if the lump-sum election method results in lower taxable benefits, she completes Worksheets 1, 2, and 4 from this publication. Free federal and state tax filing 2012 She does not need to complete Worksheet 3 because her lump-sum payment was for years after 1993. Free federal and state tax filing 2012 Jane completes Worksheet 1 to find the amount of her taxable benefits for 2013 under the regular method. Free federal and state tax filing 2012 She completes Worksheet 2 to find the taxable part of the lump-sum payment for 2012 under the lump-sum election method. Free federal and state tax filing 2012 She completes Worksheet 4 to decide if the lump-sum election method will lower her taxable benefits. Free federal and state tax filing 2012 After completing the worksheets, Jane compares the amounts from Worksheet 4, line 21, and Worksheet 1, line 19. Free federal and state tax filing 2012 Because the amount on Worksheet 4 is smaller, she chooses to use the lump-sum election method. Free federal and state tax filing 2012 To do this, she prints “LSE” to the left of Form 1040, line 20a. Free federal and state tax filing 2012 She then enters $11,000 on Form 1040, line 20a, and her taxable benefits of $2,500 on line 20b. Free federal and state tax filing 2012 Jane's filled-in worksheets (1, 2, and 4) follow. Free federal and state tax filing 2012 Jane Jackson's Filled-in Worksheet 1. Free federal and state tax filing 2012 Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free federal and state tax filing 2012 None of your benefits are taxable for 2013. Free federal and state tax filing 2012 For more information, see Repayments More Than Gross Benefits . Free federal and state tax filing 2012 If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free federal and state tax filing 2012 Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free federal and state tax filing 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free federal and state tax filing 2012 $11,000         2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012 5,500     3. Free federal and state tax filing 2012 Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free federal and state tax filing 2012 25,500     4. Free federal and state tax filing 2012 Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free federal and state tax filing 2012 -0-     5. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free federal and state tax filing 2012 -0-     6. Free federal and state tax filing 2012 Combine lines 2, 3, 4, and 5 6. Free federal and state tax filing 2012 31,000     7. Free federal and state tax filing 2012 Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free federal and state tax filing 2012  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free federal and state tax filing 2012 -0-     8. Free federal and state tax filing 2012 Is the amount on line 7 less than the amount on line 6?             No. Free federal and state tax filing 2012 None of your social security benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012 31,000     9. Free federal and state tax filing 2012 If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free federal and state tax filing 2012 25,000       Note. Free federal and state tax filing 2012 If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 9 less than the amount on line 8?             No. Free federal and state tax filing 2012 None of your benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012 6,000     11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free federal and state tax filing 2012 9,000     12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012 -0-     13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012 6,000     14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012 3,000     15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012 3,000     16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012 -0-     17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012 3,000     18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012 9,350     19. Free federal and state tax filing 2012 Taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free federal and state tax filing 2012 $3,000       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free federal and state tax filing 2012         Jane Jackson's Filled-in Worksheet 2. Free federal and state tax filing 2012 Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993)     Enter earlier year 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Free federal and state tax filing 2012 $2,000           Note. Free federal and state tax filing 2012 If line 1 is zero or less, skip lines 2 through 20 and enter -0- on line 21. Free federal and state tax filing 2012 Otherwise, go on to line 2. Free federal and state tax filing 2012             2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012 1,000   3. Free federal and state tax filing 2012 Enter your adjusted gross income for the earlier year 3. Free federal and state tax filing 2012 23,000   4. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments you claimed in the earlier year for: Adoption benefits (Form 8839) Qualified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 savings bond interest (Form 8815) Student loan interest (Form 1040, page 1, or Form 1040A, page 1) Tuition and fees (Form 1040, page 1, or Form 1040A, page 1) Domestic production activities (for 2005 through 2012) (Form 1040, page 1) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Free federal and state tax filing 2012 -0-   5. Free federal and state tax filing 2012 Enter any tax-exempt interest received in the earlier year 5. Free federal and state tax filing 2012 -0-   6. Free federal and state tax filing 2012 Add lines 2 through 5 6. Free federal and state tax filing 2012 24,000   7. Free federal and state tax filing 2012 Enter your taxable benefits for the earlier year that you previously reported 7. Free federal and state tax filing 2012 -0-   8. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012 24,000   9. Free federal and state tax filing 2012 If, for the earlier year, you were:     Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), married filing separately and you lived apart from your spouse for all of the earlier year, enter $25,000 9. Free federal and state tax filing 2012 25,000     Note. Free federal and state tax filing 2012 If you were married filing separately and you lived with your spouse at any time during the earlier year, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 8 more than the amount on line 9?       No. Free federal and state tax filing 2012 Skip lines 10 through 20 and enter -0- on line 21. Free federal and state tax filing 2012       Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012     11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly for the earlier year; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of the earlier year 11. Free federal and state tax filing 2012     12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012     13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012     14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012     15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012     16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012     17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012     18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012     19. Free federal and state tax filing 2012 Refigured taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18 19. Free federal and state tax filing 2012     20. Free federal and state tax filing 2012 Enter your taxable benefits for the earlier year (or as refigured due to a previous lump-sum payment for the year) 20. Free federal and state tax filing 2012     21. Free federal and state tax filing 2012 Additional taxable benefits. Free federal and state tax filing 2012 Subtract line 20 from line 19. Free federal and state tax filing 2012 Also enter this amount on Worksheet 4, line 20 21. Free federal and state tax filing 2012 -0-     Do not file an amended return for this earlier year. Free federal and state tax filing 2012 Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received a lump-sum payment in 2013. Free federal and state tax filing 2012   Jane Jackson's Filled-in Worksheet 4. Free federal and state tax filing 2012 Figure Your Taxable Benefits Under the Lump-Sum Election Method (Use With Worksheet 2 or 3)     Complete Worksheet 1 and Worksheets 2 and 3 as appropriate before completing this worksheet. Free federal and state tax filing 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for 2013, minus the lump-sum payment for years before 2013 1. Free federal and state tax filing 2012 $9,000         Note. Free federal and state tax filing 2012 If line 1 is zero or less, skip lines 2 through 18, enter -0- on line 19 and go to line 20. Free federal and state tax filing 2012 Otherwise, go on to line 2. Free federal and state tax filing 2012           2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012 4,500   3. Free federal and state tax filing 2012 Enter the amount from Worksheet 1, line 3 3. Free federal and state tax filing 2012 25,500   4. Free federal and state tax filing 2012 Enter the amount from Worksheet 1, line 4 4. Free federal and state tax filing 2012 -0-   5. Free federal and state tax filing 2012 Enter the amount from Worksheet 1, line 5 5. Free federal and state tax filing 2012 -0-   6. Free federal and state tax filing 2012 Combine lines 2, 3, 4, and 5 6. Free federal and state tax filing 2012 30,000   7. Free federal and state tax filing 2012 Enter the amount from Worksheet 1, line 7 7. Free federal and state tax filing 2012 -0-   8. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012 30,000   9. Free federal and state tax filing 2012 Enter the amount from Worksheet 1, line 9. Free federal and state tax filing 2012 But if you are married filing separately and lived with your spouse at any time during 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then, go to line 18 9. Free federal and state tax filing 2012 25,000   10. Free federal and state tax filing 2012 Is the amount on line 8 more than the amount on line 9? No. Free federal and state tax filing 2012 Skip lines 10 through 18, enter -0- on line 19, and go to line 20. Free federal and state tax filing 2012  Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012 5,000   11. Free federal and state tax filing 2012 Enter the amount from Worksheet 1, line 11 11. Free federal and state tax filing 2012 9,000   12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012 -0-   13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012 5,000   14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012 2,500   15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012 2,500   16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012 -0-   17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012 2,500   18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012 7,650   19. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18 19. Free federal and state tax filing 2012 2,500   20. Free federal and state tax filing 2012 Enter the total of the amounts from Worksheet 2, line 21, and Worksheet 3, line 14, for all earlier years for which the lump-sum payment was received 20. Free federal and state tax filing 2012 -0-   21. Free federal and state tax filing 2012 Taxable benefits under lump-sum election method. Free federal and state tax filing 2012 Add lines 19 and 20 21. Free federal and state tax filing 2012 $2,500   Next. Free federal and state tax filing 2012 Is line 21 above smaller than Worksheet 1, line 19? No. Free federal and state tax filing 2012 Do not use this method to figure your taxable benefits. Free federal and state tax filing 2012 Follow the instructions on Worksheet 1 to report your benefits. Free federal and state tax filing 2012  Yes. Free federal and state tax filing 2012 You can elect to report your taxable benefits under this method. Free federal and state tax filing 2012 To elect this method:     Enter “LSE” to the left of Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 If line 21 above is zero, follow the instructions in line 10 for “No” on Worksheet 1. Free federal and state tax filing 2012 Otherwise: Enter the amount from Worksheet 1, line 1, on Form 1040, line 20a, or on Form 1040A, line 14a. Free federal and state tax filing 2012 Enter the amount from line 21 above on Form 1040, line 20b, or on Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012   Deductions Related to Your Benefits You may be entitled to deduct certain amounts related to the benefits you receive. Free federal and state tax filing 2012 Disability payments. Free federal and state tax filing 2012   You may have received disability payments from your employer or an insurance company that you included as income on your tax return in an earlier year. Free federal and state tax filing 2012 If you received a lump-sum payment from SSA or RRB, and you had to repay the employer or insurance company for the disability payments, you can take an itemized deduction for the part of the payments you included in gross income in the earlier year. Free federal and state tax filing 2012 If the amount you repay is more than $3,000, you may be able to claim a tax credit instead. Free federal and state tax filing 2012 Claim the deduction or credit in the same way explained under Repayment of benefits received in an earlier year in the section Repayments More Than Gross Benefits , later. Free federal and state tax filing 2012 Legal expenses. Free federal and state tax filing 2012   You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax. Free federal and state tax filing 2012   Legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Free federal and state tax filing 2012 Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Free federal and state tax filing 2012 If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Free federal and state tax filing 2012 Do not use Worksheet 1 in this case. Free federal and state tax filing 2012 If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Free federal and state tax filing 2012 If you have any questions about this negative figure, contact your local SSA office or your local RRB field office. Free federal and state tax filing 2012 Joint return. Free federal and state tax filing 2012   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5, but your spouse's does not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. Free federal and state tax filing 2012 You do this to get your net benefits when figuring if your combined benefits are taxable. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 John and Mary file a joint return for 2013. Free federal and state tax filing 2012 John received Form SSA-1099 showing $3,000 in box 5. Free federal and state tax filing 2012 Mary also received Form SSA-1099 and the amount in box 5 was ($500). Free federal and state tax filing 2012 John and Mary will use $2,500 ($3,000 minus $500) as the amount of their net benefits when figuring if any of their combined benefits are taxable. Free federal and state tax filing 2012 Repayment of benefits received in an earlier year. Free federal and state tax filing 2012   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Free federal and state tax filing 2012 Deduction $3,000 or less. Free federal and state tax filing 2012   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Free federal and state tax filing 2012 Claim it on Schedule A (Form 1040), line 23. Free federal and state tax filing 2012 Deduction more than $3,000. Free federal and state tax filing 2012   If this deduction is more than $3,000, you should figure your tax two ways: Figure your tax for 2013 with the itemized deduction included on Schedule A, line 28. Free federal and state tax filing 2012 Figure your tax for 2013 in the following steps: Figure the tax without the itemized deduction included on Schedule A, line 28. Free federal and state tax filing 2012 For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your total benefits for the year were reduced by that part of the negative figure. Free federal and state tax filing 2012 Then refigure the tax for that year. Free federal and state tax filing 2012 Subtract the total of the refigured tax amounts in (b) from the total of your actual tax amounts. Free federal and state tax filing 2012 Subtract the result in (c) from the result in (a). Free federal and state tax filing 2012   Compare the tax figured in methods (1) and (2). Free federal and state tax filing 2012 Your tax for 2013 is the smaller of the two amounts. Free federal and state tax filing 2012 If method (1) results in less tax, take the itemized deduction on Schedule A (Form 1040), line 28. Free federal and state tax filing 2012 If method (2) results in less tax, claim a credit for the amount from step 2(c) above on Form 1040, line 71. Free federal and state tax filing 2012 Check box d and enter “I. Free federal and state tax filing 2012 R. Free federal and state tax filing 2012 C. Free federal and state tax filing 2012 1341” in the space next to that box. Free federal and state tax filing 2012 If both methods produce the same tax, deduct the repayment on Schedule A (Form 1040), line 28. Free federal and state tax filing 2012 Worksheets Blank Worksheets 1 through 4 are provided in this section: Worksheet 1, Figuring Your Taxable Benefits; Worksheet 2, Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993); Worksheet 3, Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year Before 1994); Worksheet 4, Figure Your Taxable Benefits Under the Lump-Sum Election Method (Use With Worksheet 2 or 3). Free federal and state tax filing 2012 Worksheet 1. Free federal and state tax filing 2012 Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Free federal and state tax filing 2012 Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Free federal and state tax filing 2012 None of your benefits are taxable for 2013. Free federal and state tax filing 2012 For more information, see Repayments More Than Gross Benefits . Free federal and state tax filing 2012 If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Free federal and state tax filing 2012 Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Free federal and state tax filing 2012 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Free federal and state tax filing 2012           2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012       3. Free federal and state tax filing 2012 Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Free federal and state tax filing 2012       4. Free federal and state tax filing 2012 Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Free federal and state tax filing 2012       5. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Free federal and state tax filing 2012       6. Free federal and state tax filing 2012 Combine lines 2, 3, 4, and 5 6. Free federal and state tax filing 2012       7. Free federal and state tax filing 2012 Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Free federal and state tax filing 2012  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Free federal and state tax filing 2012       8. Free federal and state tax filing 2012 Is the amount on line 7 less than the amount on line 6?             No. Free federal and state tax filing 2012 None of your social security benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012       9. Free federal and state tax filing 2012 If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Free federal and state tax filing 2012         Note. Free federal and state tax filing 2012 If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 9 less than the amount on line 8?             No. Free federal and state tax filing 2012 None of your benefits are taxable. Free federal and state tax filing 2012 Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Free federal and state tax filing 2012 If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Free federal and state tax filing 2012             Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012       11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Free federal and state tax filing 2012       12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012       13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012       14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012       15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012       16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012       17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012       18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012       19. Free federal and state tax filing 2012 Taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18. Free federal and state tax filing 2012 Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Free federal and state tax filing 2012         If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Free federal and state tax filing 2012         Worksheet 2. Free federal and state tax filing 2012 Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993)     Enter earlier year 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Free federal and state tax filing 2012             Note. Free federal and state tax filing 2012 If line 1 is zero or less, skip lines 2 through 20 and enter -0- on line 21. Free federal and state tax filing 2012 Otherwise, go on to line 2. Free federal and state tax filing 2012             2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012     3. Free federal and state tax filing 2012 Enter your adjusted gross income for the earlier year 3. Free federal and state tax filing 2012     4. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments you claimed in the earlier year for: Adoption benefits (Form 8839) Qualified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 savings bond interest (Form 8815) Student loan interest (Form 1040, page 1, or Form 1040A, page 1) Tuition and fees (Form 1040, page 1, or Form 1040A, page 1) Domestic production activities (for 2005 through 2012) (Form 1040, page 1) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Free federal and state tax filing 2012     5. Free federal and state tax filing 2012 Enter any tax-exempt interest received in the earlier year 5. Free federal and state tax filing 2012     6. Free federal and state tax filing 2012 Add lines 2 through 5 6. Free federal and state tax filing 2012     7. Free federal and state tax filing 2012 Enter your taxable benefits for the earlier year that you previously reported 7. Free federal and state tax filing 2012     8. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012     9. Free federal and state tax filing 2012 If, for the earlier year, you were:     Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), married filing separately and you lived apart from your spouse for all of the earlier year, enter $25,000 9. Free federal and state tax filing 2012       Note. Free federal and state tax filing 2012 If you were married filing separately and you lived with your spouse at any time during the earlier year, skip lines 9 through 16; multiply line 8 by 85% (. Free federal and state tax filing 2012 85) and enter the result on line 17. Free federal and state tax filing 2012 Then go to line 18. Free federal and state tax filing 2012         10. Free federal and state tax filing 2012 Is the amount on line 8 more than the amount on line 9?       No. Free federal and state tax filing 2012 Skip lines 10 through 20 and enter -0- on line 21. Free federal and state tax filing 2012       Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8 10. Free federal and state tax filing 2012     11. Free federal and state tax filing 2012 Enter $12,000 if married filing jointly for the earlier year; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of the earlier year 11. Free federal and state tax filing 2012     12. Free federal and state tax filing 2012 Subtract line 11 from line 10. Free federal and state tax filing 2012 If zero or less, enter -0- 12. Free federal and state tax filing 2012     13. Free federal and state tax filing 2012 Enter the smaller of line 10 or line 11 13. Free federal and state tax filing 2012     14. Free federal and state tax filing 2012 Enter one-half of line 13 14. Free federal and state tax filing 2012     15. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 14 15. Free federal and state tax filing 2012     16. Free federal and state tax filing 2012 Multiply line 12 by 85% (. Free federal and state tax filing 2012 85). Free federal and state tax filing 2012 If line 12 is zero, enter -0- 16. Free federal and state tax filing 2012     17. Free federal and state tax filing 2012 Add lines 15 and 16 17. Free federal and state tax filing 2012     18. Free federal and state tax filing 2012 Multiply line 1 by 85% (. Free federal and state tax filing 2012 85) 18. Free federal and state tax filing 2012     19. Free federal and state tax filing 2012 Refigured taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 17 or line 18 19. Free federal and state tax filing 2012     20. Free federal and state tax filing 2012 Enter your taxable benefits for the earlier year (or as refigured due to a previous lump-sum payment for the year) 20. Free federal and state tax filing 2012     21. Free federal and state tax filing 2012 Additional taxable benefits. Free federal and state tax filing 2012 Subtract line 20 from line 19. Free federal and state tax filing 2012 Also enter this amount on Worksheet 4, line 20 21. Free federal and state tax filing 2012       Do not file an amended return for this earlier year. Free federal and state tax filing 2012 Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received a lump-sum payment in 2013. Free federal and state tax filing 2012   Worksheet 3. Free federal and state tax filing 2012 Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year Before 1994) Enter earlier year 1. Free federal and state tax filing 2012 Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Free federal and state tax filing 2012           Note. Free federal and state tax filing 2012 If line 1 is zero or less, skip lines 2 through 13 and enter -0- on line 14. Free federal and state tax filing 2012 Otherwise, go on to line 2. Free federal and state tax filing 2012           2. Free federal and state tax filing 2012 Enter one-half of line 1 2. Free federal and state tax filing 2012     3. Free federal and state tax filing 2012 Enter your adjusted gross income for the earlier year 3. Free federal and state tax filing 2012     4. Free federal and state tax filing 2012 Enter the total of any exclusions/adjustments you claimed in the earlier year for: Qualified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 savings bond interest (Form 8815) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Free federal and state tax filing 2012     5. Free federal and state tax filing 2012 Enter any tax-exempt interest received in the earlier year 5. Free federal and state tax filing 2012     6. Free federal and state tax filing 2012 Add lines 2 through 5 6. Free federal and state tax filing 2012     7. Free federal and state tax filing 2012 Enter your taxable benefits for the earlier year that you previously reported 7. Free federal and state tax filing 2012     8. Free federal and state tax filing 2012 Subtract line 7 from line 6 8. Free federal and state tax filing 2012     9. Free federal and state tax filing 2012 Enter $25,000 ($32,000 if married filing jointly for the earlier year; $-0- if married filing separately for the earlier year and you lived with your spouse at any time during the earlier year) 9. Free federal and state tax filing 2012     10. Free federal and state tax filing 2012 Is the amount on line 8 more than the amount on line 9? No. Free federal and state tax filing 2012 Skip lines 10 through 13 and enter -0- on line 14. Free federal and state tax filing 2012  Yes. Free federal and state tax filing 2012 Subtract line 9 from line 8. Free federal and state tax filing 2012 10. Free federal and state tax filing 2012     11. Free federal and state tax filing 2012 Enter one-half of line 10 11. Free federal and state tax filing 2012     12. Free federal and state tax filing 2012 Refigured taxable benefits. Free federal and state tax filing 2012 Enter the smaller of line 2 or line 11 12. Free federal and state tax filing 2012     13. Free federal and state tax filing 2012 Enter your taxable benefits for the earlier year (or as refigured due to a previous