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Free Income Tax Preparation

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Free Income Tax Preparation

Free income tax preparation Publication 3920 - Main Contents Table of Contents Tax ForgivenessYears Eligible for Tax Forgiveness Amount of Tax Forgiven Refund of Taxes Paid How To Claim Tax Forgiveness Payments to SurvivorsSeptember 11th Victim Compensation Fund of 2001 Qualified Disaster Relief Payments Disability Payments Death Benefits Canceled Debt Payments to Survivors of Public Safety Officers Postponed Tax DeadlinesCovered area. Free income tax preparation Disaster Area Losses Estate Tax Reduction Structured Settlement Factoring Transactions Illustrated Worksheets B and C Additional Worksheets How To Get Tax Help Tax Forgiveness The IRS will forgive the federal income tax liabilities of decedents who died as a result of the Oklahoma City attack, September 11 attacks, and anthrax attacks. Free income tax preparation Income tax is forgiven for these decedents whether they were killed in an attack or in rescue or recovery operations. Free income tax preparation Any forgiven tax liability owed to the IRS will not have to be paid. Free income tax preparation Any forgiven tax liability that has already been paid will be refunded. Free income tax preparation (See Refund of Taxes Paid, later. Free income tax preparation ) To determine the amount of tax to be forgiven, read Years Eligible for Tax Forgiveness first. Free income tax preparation Then read Amount of Tax Forgiven. Free income tax preparation Decedents whose total forgiven tax liability for all eligible years is less than $10,000 are entitled to $10,000 minimum relief. Free income tax preparation Even decedents who were not required to file tax returns for the eligible tax years are entitled to $10,000 minimum relief. Free income tax preparation See Minimum Amount of Relief later under Amount of Tax Forgiven. Free income tax preparation Years Eligible for Tax Forgiveness The following paragraphs explain which years are eligible for tax forgiveness. Free income tax preparation Oklahoma City attack. Free income tax preparation   For those who died from this attack, income tax is forgiven for 1994 and all later years up to and including the year of death. Free income tax preparation Example 1. Free income tax preparation A man was killed in the bombing of the federal building in Oklahoma City on April 19, 1995. Free income tax preparation His income tax is forgiven for 1994 and 1995. Free income tax preparation Example 2. Free income tax preparation A woman was wounded while walking outside the federal building in Oklahoma City on April 19, 1995. Free income tax preparation She subsequently died of her wounds in 1996. Free income tax preparation Her income tax is forgiven for 1994, 1995, and 1996. Free income tax preparation September 11 attacks and anthrax attacks. Free income tax preparation   For those who die from these attacks, income tax is forgiven for 2000 and all later years up to and including the year of death. Free income tax preparation Example 1. Free income tax preparation A Pentagon employee died in the September 11 attack. Free income tax preparation Her income tax is forgiven for 2000 and 2001. Free income tax preparation Example 2. Free income tax preparation A visitor to the World Trade Center died in 2002 of wounds he sustained in the September 11 attack. Free income tax preparation His income tax liability is forgiven for 2000, 2001, and 2002. Free income tax preparation Amount of Tax Forgiven The IRS will forgive the decedent's income tax liability for all years eligible for tax forgiveness. Free income tax preparation On a joint return, only the decedent's part of the joint income tax liability is eligible for forgiveness. Free income tax preparation To figure the tax to be forgiven, use the following worksheets. Free income tax preparation Use Worksheet A for any eligible year the decedent filed a return as single, married filing separately, head of household, or qualifying widow(er). Free income tax preparation Use Worksheet B for any eligible year the decedent filed a joint return. Free income tax preparation See the illustrated Worksheet B near the end of this publication. Free income tax preparation Do not complete Worksheet A or B if the decedent was not required to file tax returns for the eligible tax years. Free income tax preparation Instead, complete Worksheet C and file a return for the decedent's last tax year. Free income tax preparation See Minimum Amount of Relief, later. Free income tax preparation If you need assistance, call the IRS at 1–866–562–5227 Monday through Friday during the following times. Free income tax preparation In English–7 a. Free income tax preparation m. Free income tax preparation to 10 p. Free income tax preparation m. Free income tax preparation local time. Free income tax preparation In Spanish–8 a. Free income tax preparation m. Free income tax preparation to 9:30 p. Free income tax preparation m. Free income tax preparation local time. Free income tax preparation Both spouses died. Free income tax preparation   If both spouses died as a result of a terrorist attack and they filed a joint return for an eligible tax year, fill out Worksheet B for each spouse for that year. Free income tax preparation Do this to determine if each spouse qualifies for the minimum relief of $10,000 (discussed later under Minimum Amount of Relief). Free income tax preparation If you are certain that neither spouse's total forgiven tax liability for all eligible years is less than $10,000, skip Worksheet B. Free income tax preparation However, attach a computation of the forgiven tax liability to the final income tax return or amended tax return for each eligible year. Free income tax preparation The forgiven tax liability is the total tax shown on the joint return minus the taxes listed in the instructions for line 4 of Worksheet B. Free income tax preparation Residents of community property states. Free income tax preparation   If the decedent was domiciled in a community property state and the spouse reported half the community income on a separate return, the surviving spouse can get a refund of taxes paid on his or her share of the decedent's income for the eligible years. Free income tax preparation Also, all of the decedent's income taxes paid for the eligible years will be refunded to either the executor or administrator of the estate, or to the surviving spouse if there is no legal representative. Free income tax preparation Worksheet B. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. Free income tax preparation 1       2 Enter the decedent's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 2       3 Enter the decedent's total tax. Free income tax preparation See the instructions. Free income tax preparation 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. Free income tax preparation See the instructions. Free income tax preparation 4       5 Subtract line 4 from line 3. Free income tax preparation 5       6 Enter the surviving spouse's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 6       7 Enter the surviving spouse's total tax. Free income tax preparation See the instructions. Free income tax preparation 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. Free income tax preparation 8       9 Subtract line 8 from line 7. Free income tax preparation 9       10 Add lines 5 and 9. Free income tax preparation 10       11 Enter the total tax from the joint return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 11       12 Add lines 4 and 8. Free income tax preparation 12       13 Subtract line 12 from line 11. Free income tax preparation 13       14 Divide line 5 by line 10. Free income tax preparation Enter the result as a decimal. Free income tax preparation 14       15 Tax to be forgiven. Free income tax preparation Multiply line 13 by line 14 and enter the result. Free income tax preparation 15       Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Worksheet B. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. Free income tax preparation 1       2 Enter the decedent's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 2       3 Enter the decedent's total tax. Free income tax preparation See the instructions. Free income tax preparation 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. Free income tax preparation See the instructions. Free income tax preparation 4       5 Subtract line 4 from line 3. Free income tax preparation 5       6 Enter the surviving spouse's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 6       7 Enter the surviving spouse's total tax. Free income tax preparation See the instructions. Free income tax preparation 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. Free income tax preparation 8       9 Subtract line 8 from line 7. Free income tax preparation 9       10 Add lines 5 and 9. Free income tax preparation 10       11 Enter the total tax from the joint return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 11       12 Add lines 4 and 8. Free income tax preparation 12       13 Subtract line 12 from line 11. Free income tax preparation 13       14 Divide line 5 by line 10. Free income tax preparation Enter the result as a decimal. Free income tax preparation 14       15 Tax to be forgiven. Free income tax preparation Multiply line 13 by line 14 and enter the result. Free income tax preparation 15       Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Instructions for Worksheet B Table 1. Free income tax preparation Total Tax Line on Decedent's Return Note: Use this table to find the total tax line on the decedent's income tax return. Free income tax preparation * Form 1994 1995 1996 2000 2001 1040 Line 53 Line 54 Line 51 Line 57 Line 58 1040A Line 27 Line 28 Line 28 Line 35 File Form 1040 1040EZ Line 9 Line 10 Line 10 Line 10 TeleFile Tax Record ** Line E Line J Line K 1040NR Line 51 Line 52 Line 49 Line 54 Line 54 1040NR–EZ N/A Line 17 Line 17 Line 18 File Form 1040NR * Line numbers for the 2002 forms were not available when this publication went to print. Free income tax preparation ** File Form 4506 to get a transcript of the decedent's account. Free income tax preparation Table 1. Free income tax preparation Total Tax Line on Decedent's Return Note: Use this table to find the total tax line on the decedent's income tax return. Free income tax preparation * Form 1994 1995 1996 2000 2001 1040 Line 53 Line 54 Line 51 Line 57 Line 58 1040A Line 27 Line 28 Line 28 Line 35 File Form 1040 1040EZ Line 9 Line 10 Line 10 Line 10 TeleFile Tax Record ** Line E Line J Line K 1040NR Line 51 Line 52 Line 49 Line 54 Line 54 1040NR–EZ N/A Line 17 Line 17 Line 18 File Form 1040NR * Line numbers for the 2002 forms were not available when this publication went to print. Free income tax preparation ** File Form 4506 to get a transcript of the decedent's account. Free income tax preparation Lines 2 and 6. Free income tax preparation   Allocate income and deductions in the same manner they would have been allocated if the spouses had filed separate returns. Free income tax preparation   Allocate wages and salaries to the spouse who performed the services and received the Form W-2. Free income tax preparation Business and investment income (including capital gains) are generally allocated to the spouse who owned the business or investment that produced the income. Free income tax preparation Income from a jointly owned business or investment should be allocated equally between the spouses unless there is evidence that shows a different allocation is appropriate. Free income tax preparation   Allocate business deductions to the owner of the business. Free income tax preparation Allocate personal deductions (such as itemized deductions for mortgage interest and taxes) equally between the spouses unless there is evidence that shows a different allocation is appropriate. Free income tax preparation Lines 3 and 7. Free income tax preparation   Figure the total tax as if a separate return had been filed. Free income tax preparation The total tax is the tax that would have been entered on the tax return line shown in Table 1 if a separate return had been filed. Free income tax preparation When figuring the tax using the Tax Table or Tax Rate Schedule, use the “Married filing separately” column in the Tax Table or Tax Rate Schedule Y-2. Free income tax preparation   When figuring the total tax, allocate credits and other taxes, if any, in the same manner as they would have been allocated if the spouses had filed separate returns. Free income tax preparation If a credit would not have been allowed on a separate return, allocate the credit shown on the joint return between the spouses. Free income tax preparation Examples of credits generally not allowed on a separate return are the child and dependent care credit, credit for the elderly, adoption credit, education credits, and earned income credit. Free income tax preparation Line 4. Free income tax preparation   Enter the total, if any, of the following taxes. Free income tax preparation Self-employment tax. Free income tax preparation Social security and Medicare tax on tip income not reported to employer. Free income tax preparation Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). Free income tax preparation Tax on excess accumulation in qualified retirement plans. Free income tax preparation Household employment taxes. Free income tax preparation Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. Free income tax preparation Tax on golden parachute payments. Free income tax preparation Minimum Amount of Relief The minimum amount of relief is $10,000. Free income tax preparation If the decedent's total forgiven tax liability for all eligible years is less than $10,000, the difference between $10,000 and the total forgiven tax liability for those years will be treated as a tax payment for the decedent's last tax year. Free income tax preparation The IRS will refund the difference as explained under Refund of Taxes Paid. Free income tax preparation Use Worksheet C to figure the additional tax payment. Free income tax preparation But first complete Worksheet A or B, unless the decedent was not required to file tax returns for the eligible tax years. Free income tax preparation Example 1. Free income tax preparation An individual who died in the September 11 attacks had an income tax liability of $-0- for 2000 and $6,400 for 2001. Free income tax preparation The $6,400 is eligible for forgiveness. Free income tax preparation The IRS will forgive $6,400 and treat the difference between $10,000 and $6,400 ($3,600) as a tax payment for 2001. Free income tax preparation Example 2. Free income tax preparation A child who died in the September 11 attacks had no (-0-) income tax liability for 2000 or 2001. Free income tax preparation The IRS will treat $10,000 as a tax payment for 2001. Free income tax preparation Income received after date of death. Free income tax preparation   Generally, income of the decedent received after the date of death must be reported on Form 1041 if the estate has gross income for the tax year of $600 or more. Free income tax preparation Examples are the final paycheck or dividends on stock owned by the decedent. Free income tax preparation However, this income is exempt from income tax and is not included on Form 1041 if it is received: After the date of the decedent's death, and Before the end of the decedent's tax year (determined without regard to death). Free income tax preparation Nonqualifying income. Free income tax preparation   The following income is not exempt from tax. Free income tax preparation The tax on it is not eligible for forgiveness. Free income tax preparation Deferred compensation that would have been payable if the death had occurred because of an event other than these attacks. Free income tax preparation Amounts that would not have been payable but for an action taken after September 11, 2001. Free income tax preparation The following are examples of nonqualifying income. Free income tax preparation Amounts payable from a qualified retirement plan or IRA to the beneficiary or estate of the decedent. Free income tax preparation Amounts payable only as death or survivor's benefits from pre-existing arrangements that would have been paid if the death had occurred for another reason. Free income tax preparation Income received as a result of adjustments made by the decedent's employer to a plan or arrangement to accelerate the vesting of restricted property or the payment of nonqualified deferred compensation after the date of the attack. Free income tax preparation Interest on savings bonds cashed by the beneficiary of the decedent. Free income tax preparation If you are responsible for the estate of a decedent, see Publication 559. Free income tax preparation Publication 559 discusses how to complete and file federal income tax returns and explains your responsibility to pay any taxes due. Free income tax preparation Instructions for lines 2–9 of Worksheet C. Free income tax preparation   The tax that would have been payable on the exempt income (discussed earlier) must be considered when determining whether a decedent is entitled to the $10,000 minimum relief. Free income tax preparation To figure the tax that would have been payable, you can use lines 2 through 9 of Worksheet C. Free income tax preparation Or, if special requirements are met, you can use the alternative computation instead. Free income tax preparation See Alternative computation, later. Free income tax preparation   You have to use lines 2–9 (or the alternative computation) to figure the tax that would have been payable even if Form 1041 was not required to be filed. Free income tax preparation Use Form 1041 to figure what the taxable income would be without including the exempt income. Free income tax preparation Then enter that taxable income (even if a negative number) on line 2 of Worksheet C (or line 1 of Worksheet D, Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C)). Free income tax preparation Alternative computation. Free income tax preparation   Instead of using lines 2–8 of Worksheet C to figure the tax on exempt income (line 9 of Worksheet C), you may be able to use Worksheet D. Free income tax preparation You can use Worksheet D to figure the tax on the exempt income payable by the estate and its beneficiaries only if both of the following requirements are met. Free income tax preparation The estate claimed an income distribution deduction on line 18 (Form 1041). Free income tax preparation Each beneficiary submits the information necessary to refigure the income tax payable on the exempt income received from the decedent's estate. Free income tax preparation If requirement (2) is met but requirement (1) is not, you can still use Worksheet D if: Form 1041 was not required because exempt income was received, and The estate would have claimed an income distribution deduction if the exempt income were taxable. Free income tax preparation If you use this alternative computation, skip lines 2–8 of Worksheet C and enter the amount from line 8 of Worksheet D on line 9 of Worksheet C. Free income tax preparation Complete the rest of Worksheet C to determine the additional payment allowed. Free income tax preparation Worksheet C. Free income tax preparation Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. Free income tax preparation Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. Free income tax preparation 1 Minimum relief amount. Free income tax preparation Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. Free income tax preparation 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . Free income tax preparation 3       4 Add lines 2 and 3. Free income tax preparation 4       5 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 5       6 Add lines 4 and 5. Free income tax preparation 6       7 Figure the tax on line 6 using Schedule G (Form 1041). Free income tax preparation 7       8 Figure the tax on line 4 using Schedule G (Form 1041). Free income tax preparation 8       9 Tax on exempt income. Free income tax preparation Subtract line 8 from line 7. Free income tax preparation 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. Free income tax preparation If the decedent was not required to file tax returns for the eligible tax years, enter -0-. Free income tax preparation 10       11 Add lines 9 and 10. Free income tax preparation 11   12 Additional payment allowed. Free income tax preparation If line 11 is $10,000 or more, enter -0- and stop here. Free income tax preparation No additional amount is allowed as a tax payment. Free income tax preparation Otherwise, subtract line 11 from line 1 and enter the result. Free income tax preparation 12   Note. Free income tax preparation The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). Free income tax preparation Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. Free income tax preparation If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. Free income tax preparation Write "Sec. Free income tax preparation 692(d)(2) Payment" and the amount to the right of the entry space. Free income tax preparation Also indicate whether a Form 1041 is being filed for the decedent's estate. Free income tax preparation If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). Free income tax preparation Write “Sec. Free income tax preparation 692(d)(2) Payment” on the dotted line to the left of the entry space. Free income tax preparation Worksheet C. Free income tax preparation Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. Free income tax preparation Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. Free income tax preparation 1 Minimum relief amount. Free income tax preparation Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. Free income tax preparation 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . Free income tax preparation 3       4 Add lines 2 and 3. Free income tax preparation 4       5 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 5       6 Add lines 4 and 5. Free income tax preparation 6       7 Figure the tax on line 6 using Schedule G (Form 1041). Free income tax preparation 7       8 Figure the tax on line 4 using Schedule G (Form 1041). Free income tax preparation 8       9 Tax on exempt income. Free income tax preparation Subtract line 8 from line 7. Free income tax preparation 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. Free income tax preparation If the decedent was not required to file tax returns for the eligible tax years, enter -0-. Free income tax preparation 10       11 Add lines 9 and 10. Free income tax preparation 11   12 Additional payment allowed. Free income tax preparation If line 11 is $10,000 or more, enter -0- and stop here. Free income tax preparation No additional amount is allowed as a tax payment. Free income tax preparation Otherwise, subtract line 11 from line 1 and enter the result. Free income tax preparation 12   Note. Free income tax preparation The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). Free income tax preparation Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. Free income tax preparation If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. Free income tax preparation Write "Sec. Free income tax preparation 692(d)(2) Payment" and the amount to the right of the entry space. Free income tax preparation Also indicate whether a Form 1041 is being filed for the decedent's estate. Free income tax preparation If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). Free income tax preparation Write “Sec. Free income tax preparation 692(d)(2) Payment” on the dotted line to the left of the entry space. Free income tax preparation Worksheet D. Free income tax preparation Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C) 1 Enter the taxable income from line 22 (Form 1041) 1   2 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 2   3 Add lines 1 and 2 3   4 Figure the tax on line 3 using Schedule G (Form 1041). Free income tax preparation 4   5 Figure the tax on line 1 using Schedule G (Form 1041). Free income tax preparation 5   6 Estate's tax on exempt income. Free income tax preparation Subtract line 5 from line 4 6   7 Beneficiaries' tax on exempt income. Free income tax preparation Figure the total tax that would have been payable by all beneficiaries. Free income tax preparation Do this by including in each beneficiary's gross income the exempt income received from the decedent's estate and refiguring the income tax. Free income tax preparation Add the amounts by which each beneficiary's income tax is increased. Free income tax preparation 7   8 Add lines 6 and 7. Free income tax preparation Enter this amount on line 9 of Worksheet C. Free income tax preparation 8   Worksheet D. Free income tax preparation Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C) 1 Enter the taxable income from line 22 (Form 1041) 1   2 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 2   3 Add lines 1 and 2 3   4 Figure the tax on line 3 using Schedule G (Form 1041). Free income tax preparation 4   5 Figure the tax on line 1 using Schedule G (Form 1041). Free income tax preparation 5   6 Estate's tax on exempt income. Free income tax preparation Subtract line 5 from line 4 6   7 Beneficiaries' tax on exempt income. Free income tax preparation Figure the total tax that would have been payable by all beneficiaries. Free income tax preparation Do this by including in each beneficiary's gross income the exempt income received from the decedent's estate and refiguring the income tax. Free income tax preparation Add the amounts by which each beneficiary's income tax is increased. Free income tax preparation 7   8 Add lines 6 and 7. Free income tax preparation Enter this amount on line 9 of Worksheet C. Free income tax preparation 8   Refund of Taxes Paid The IRS will refund the following forgiven income tax liabilities. Free income tax preparation Income tax liabilities that have been paid. Free income tax preparation Income tax liabilities treated as paid because the total tax liability for all years eligible for tax forgiveness is less than $10,000. Free income tax preparation See Minimum Amount of Relief, earlier. Free income tax preparation Example 1. Free income tax preparation A man who died in the September 11 attacks had an income tax liability of $7,500 for 2000 and $6,500 for 2001. Free income tax preparation The total, $14,000, is eligible for tax forgiveness. Free income tax preparation However, he paid only $13,000 of that amount. Free income tax preparation The IRS will refund the $13,000 paid. Free income tax preparation Example 2. Free income tax preparation A child who died in the September 11 attacks had no income tax liability for 2000 or 2001. Free income tax preparation The child qualifies for the minimum relief of $10,000. Free income tax preparation The $10,000 is treated as a tax payment for 2001 and will be refunded. Free income tax preparation Period for filing a claim for credit or refund. Free income tax preparation   To obtain a tax refund on a previously filed income tax return, file an amended return (Form 1040X or an amended Form 1041) within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later. Free income tax preparation For example, you have until April 15, 2004, to file an amended return on a 2000 Form 1040, 1040A, or 1040EZ that was filed by April 16, 2001, and for which the tax was paid when due. Free income tax preparation To obtain a refund on a return that has not been filed, file the return within 3 years of the original due date of the return. Free income tax preparation Extension of time for victims of Oklahoma City attack. Free income tax preparation   The period described above has been extended for victims of the Oklahoma City attack. Free income tax preparation Survivors and personal representatives of these victims have until January 22, 2003, to file an original or amended return. Free income tax preparation How To Claim Tax Forgiveness Use the following procedures to claim income tax forgiveness. Free income tax preparation Which Form To Use The form you use depends on whether an income tax return for the eligible year was already filed for the decedent. Free income tax preparation Return required but not yet filed. Free income tax preparation   File Form 1040 if the decedent was a U. Free income tax preparation S. Free income tax preparation citizen or resident. Free income tax preparation File Form 1040NR if the decedent was a nonresident alien. Free income tax preparation A nonresident alien is someone who is not a U. Free income tax preparation S. Free income tax preparation citizen or resident. Free income tax preparation Return required and already filed. Free income tax preparation   File a separate Form 1040X for each year you are claiming tax relief. Free income tax preparation Return not required and not filed. Free income tax preparation   File Form 1040 only for the year of death if the decedent was a U. Free income tax preparation S. Free income tax preparation citizen or resident. Free income tax preparation File Form 1040NR if the decedent was a nonresident alien. Free income tax preparation Return not required but already filed. Free income tax preparation   File Form 1040X only for the year of death. Free income tax preparation How to complete the returns. Free income tax preparation   Fill out Form 1040 or 1040NR according to its instructions but do not reduce the decedent's tax liability by any taxes that will be forgiven. Free income tax preparation Attach to each return a computation of the income tax to be forgiven or a copy of Worksheet A or B. Free income tax preparation If filing Form 1040 or Form 1040NR, also attach any Forms W–2. Free income tax preparation If the total forgiven tax liability for all eligible years is less than $10,000, attach to the decedent's final return a computation of the additional tax payment allowed or a copy of Worksheet C. Free income tax preparation Also, please write one of the following across the top of page 1 of each return. Free income tax preparation KITA—Oklahoma City KITA—9/11 KITA—Anthrax “KITA” means “killed in terrorist attack. Free income tax preparation ” Need a copy of a previously filed return?   You will find it easier to prepare Form 1040X if you have a copy of the decedent's previously filed tax return. Free income tax preparation If you need a copy, use Form 4506. Free income tax preparation The IRS will provide a free copy of the tax return if you write “DISASTER” in the top margin of Form 4506. Free income tax preparation Attach Letters Testamentary or other evidence to establish that you are authorized to act for the decedent's estate. Free income tax preparation Send Form 4506 to the address shown in the form instructions. Free income tax preparation Taxpayer identification number. Free income tax preparation   A taxpayer identification number must be furnished on the decedent's returns. Free income tax preparation This is usually the decedent's social security number (SSN). Free income tax preparation However, a nonresident alien who is not eligible to get an SSN should have an individual taxpayer identification number (ITIN). Free income tax preparation If the decedent was a nonresident alien, had neither an SSN nor an ITIN, and was not required to file a U. Free income tax preparation S. Free income tax preparation income tax return for any tax year, do not apply for an ITIN. Free income tax preparation You may claim a refund by filing Form 1040NR without an SSN or ITIN. Free income tax preparation Necessary Documents Please attach the following documents to the return or amended return. Free income tax preparation Proof of death. Free income tax preparation   Attach a copy of the death certificate. Free income tax preparation If the Department of Defense issued DD Form 1300, Report of Casualty, you can attach that form instead of the death certificate. Free income tax preparation Form 1310. Free income tax preparation   You must send Form 1310 with all returns and claims for refund, unless either of the following applies. Free income tax preparation You are a surviving spouse filing an original or amended joint return with the decedent. Free income tax preparation You are a personal representative filing an original Form 1040 or Form 1040NR for the decedent and a court certificate showing your appointment is attached to the return. Free income tax preparation A personal representative is an executor or administrator of a decedent's estate, as certified or appointed by the court. Free income tax preparation A copy of the decedent's will cannot be accepted as evidence that you are the personal representative. Free income tax preparation      If you have proof of death but do not have enough tax information to file a timely claim for a refund, file Form 1040X with Form 1310. Free income tax preparation Include a statement saying an amended return will be filed as soon as the necessary tax information is available. Free income tax preparation Where To File The IRS has set up a special office for processing returns and claims for tax forgiveness. Free income tax preparation Use one of the addresses shown below. Free income tax preparation Where you file the returns or claims depends on whether you use the U. Free income tax preparation S. Free income tax preparation Postal Service or a private delivery service. Free income tax preparation Please do not send these returns or claims to any of the addresses shown in the tax form instructions. Free income tax preparation U. Free income tax preparation S. Free income tax preparation Postal Service. Free income tax preparation   If you use the U. Free income tax preparation S. Free income tax preparation Postal Service, file these returns and claims at the following address. Free income tax preparation Internal Revenue Service P. Free income tax preparation O. Free income tax preparation Box 4053 Woburn, MA 01888 Private delivery service. Free income tax preparation   Private delivery services cannot deliver items to P. Free income tax preparation O. Free income tax preparation boxes. Free income tax preparation If you use a private delivery service, file these returns and claims at the following address. Free income tax preparation Internal Revenue Service Stop 661 310 Lowell St. Free income tax preparation Andover, MA 01810 Designated private delivery services. Free income tax preparation   You can use the following private delivery services to file these returns and claims. Free income tax preparation Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, and Second Day Service. Free income tax preparation DHL Worldwide Express (DHL): DHL “Same Day” Service, and DHL USA Overnight. Free income tax preparation Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, and FedEx 2Day. Free income tax preparation United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Free income tax preparation M. Free income tax preparation , UPS Worldwide Express Plus, and UPS Worldwide Express. Free income tax preparation The private delivery service can tell you how to get written proof of the mailing date. Free income tax preparation Payments to Survivors The following section discusses the tax treatment of certain amounts received by survivors. Free income tax preparation September 11th Victim Compensation Fund of 2001 Payments from the September 11th Victim Compensation Fund of 2001 are not included in income. Free income tax preparation Qualified Disaster Relief Payments Qualified disaster relief payments are not included in income. Free income tax preparation These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Free income tax preparation No withholding applies to these payments. Free income tax preparation Qualified disaster relief payments include payments you receive (regardless of the source) after September 10, 2001, for the following expenses. Free income tax preparation Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a terrorist attack. Free income tax preparation Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a terrorist attack. Free income tax preparation (A personal residence can be a rented residence or one you own. Free income tax preparation ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a terrorist attack. Free income tax preparation Qualified disaster relief payments also include the following. Free income tax preparation Payments made by common carriers (for example, American Airlines and United Airlines regarding the September 11 attacks) because of death or physical injury incurred as a result of a terrorist attack. Free income tax preparation Amounts paid by a federal, state, or local government in connection with a terrorist attack to those affected by the attack. Free income tax preparation Qualified disaster relief payments do not include: Insurance or other reimbursements for expenses, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. Free income tax preparation Disability Payments For tax years ending after September 10, 2001, disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies), whether outside or within the United States, are not included in income. Free income tax preparation Death Benefits Payments received by an individual or the estate of a decedent from the employer of an employee who died as a result of the Oklahoma City or September 11 terrorist attacks, or as a result of the anthrax attacks, are not included in income. Free income tax preparation Only the amount that exceeds the benefits that would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack is excludable. Free income tax preparation However, the exclusion does apply to incidental death benefits paid under a qualified retirement plan even if these amounts would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack. Free income tax preparation If you included death benefits in income on a previously filed return and they are now excludable under the above rule, file Form 1040X to amend that return. Free income tax preparation For information on the period for filing Form 1040X, see Period for filing claim for credit or refund earlier under Refund of Taxes Paid. Free income tax preparation If that period has expired, you are granted an extension. Free income tax preparation You have until January 22, 2003, to file Form 1040X to exclude the death benefits. Free income tax preparation On top of page 1 of Form 1040X, write “Extension of Limitations Under PL 107–134, sec. Free income tax preparation 102(b)(2). Free income tax preparation ” Canceled Debt Canceled debt is not included in your income (or the income of the estate) if: You (or the estate) were liable, or became liable, for the debt of a decedent, and The debt was canceled after September 10, 2001, and before January 1, 2002, because the decedent died as a result of the September 11 attacks or anthrax attacks. Free income tax preparation The lender is not required to report the canceled debt on Form 1099–C, Cancellation of Debt. Free income tax preparation Payments to Survivors of Public Safety Officers If you are a survivor of a public safety officer who died in the line of duty, certain amounts you receive are not included in income. Free income tax preparation Bureau of Justice Assistance payments. Free income tax preparation   If you are a surviving dependent of a public safety officer (law enforcement officer or firefighter) who died in the line of duty, do not include in your income the death benefit paid to you by the Bureau of Justice Assistance. Free income tax preparation Government plan annuity. Free income tax preparation   If you receive a survivor annuity as the child or spouse (or former spouse) of a public safety officer who was killed in the line of duty, you generally do not have to include it in income. Free income tax preparation This exclusion applies to the amount of the annuity based on the officer's service as a public safety officer. Free income tax preparation For this purpose, the term public safety officer includes police and law enforcement officers, firefighters, and rescue squad and ambulance crews. Free income tax preparation More information. Free income tax preparation   For more information, see Publication 559. Free income tax preparation Postponed Tax Deadlines The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a terrorist attack. Free income tax preparation The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Free income tax preparation If any tax deadline is postponed, the IRS will publicize the postponement in the affected area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Free income tax preparation Affected taxpayers. Free income tax preparation   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Free income tax preparation Any individual whose main home is located in a covered area (defined later). Free income tax preparation Any business entity or sole proprietor whose principal place of business is located in a covered area. Free income tax preparation Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained in a covered area. Free income tax preparation The main home or principal place of business does not have to be located in the covered area. Free income tax preparation Any estate or trust whose tax records necessary to meet a postponed tax deadline are maintained in a covered area. Free income tax preparation Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered area. Free income tax preparation The spouse on a joint return with a taxpayer who is eligible for postponements. Free income tax preparation Any other person determined by the IRS to be affected by a terrorist attack. Free income tax preparation Covered area. Free income tax preparation   This is an area in which a terrorist attack took place and in which the IRS has decided to postpone tax deadlines for up to 1 year. Free income tax preparation Abatement of interest. Free income tax preparation   The IRS may abate (forgive) the interest on any underpaid income tax for the length of any postponement. Free income tax preparation Disaster Area Losses If your property was damaged or destroyed as a result of the September 11 attacks, you can choose to deduct your disaster loss on your 2000 return (or amended return) rather than on your 2001 return. Free income tax preparation You must make this choice to deduct your loss on your 2000 return by the later of the following dates. Free income tax preparation The due date (without extensions) for filing your 2001 income tax return (April 15, 2002, if you are a calendar year taxpayer). Free income tax preparation The due date (with extensions) for the 2000 return. Free income tax preparation For more information about disaster area losses, see Publication 547. Free income tax preparation Estate Tax Reduction The federal estate tax is reduced for taxable estates of individuals who died as a result of the Oklahoma City attack, the September 11 attacks, and the anthrax attacks. Free income tax preparation The estate tax is computed using a new rate schedule on page 25 of the November 2001 revision of the instructions for Form 706. Free income tax preparation The estate tax is reduced by credits against the estate tax, including the unified credit and the state death tax credit. Free income tax preparation These credits may reduce or eliminate the estate tax due. Free income tax preparation A special rule extends until January 22, 2003, the period of time allowed to file a claim for a refund of estate taxes that have been paid. Free income tax preparation Recovery from the September 11th Victim Compensation Fund. Free income tax preparation   The value of claims for a decedent's pain and suffering is normally included in the gross estate. Free income tax preparation However, if the estate chooses to seek recovery from this fund, the IRS has determined that, in view of the unique circumstances of this situation and the high likelihood that such claims will be valued at a nominal or zero amount, the claims will be valued at zero for estate tax purposes. Free income tax preparation Thus, there are no federal estate tax consequences if an estate or beneficiary receives a recovery from this fund. Free income tax preparation Which estates must file a return. Free income tax preparation   For decedents dying in 2001, Form 706 must be filed by the executor for the estate of every U. Free income tax preparation S. Free income tax preparation citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $675,000. Free income tax preparation Form 706 must be filed within 9 months after the date of decedent's death unless you receive an extension of time to file. Free income tax preparation Use Form 4768, Application for Extension of Time To File a Return and/or Pay U. Free income tax preparation S. Free income tax preparation Estate (and Generation-Skipping Transfer) Taxes, to apply for an extension. Free income tax preparation Where to file. Free income tax preparation   Returns on which the new rate schedule is used should be sent to the following address, which was not available when Form 706 went to print. Free income tax preparation Internal Revenue Service E & G Department/Stop 824T 201 W. Free income tax preparation Rivercenter Blvd. Free income tax preparation Covington, KY 41011 More information. Free income tax preparation   For more information on the federal estate tax, see the instructions for Form 706. Free income tax preparation Structured Settlement Factoring Transactions A person who acquires payment rights in a structured settlement arrangement after February 21, 2002, may be subject to a 40% excise tax unless the transfer of the payment rights was approved in advance in a qualified order. Free income tax preparation The excise tax is figured on the excess of the undiscounted amount of the payments being acquired over the total amount actually paid to acquire them. Free income tax preparation However, this tax will not apply to transactions entered into from February 22, 2002, to July 1, 2002, if certain requirements are met. Free income tax preparation For information about these requirements, see Internal Revenue Code section 5891. Free income tax preparation Worksheet B Illustrated. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. Free income tax preparation 1 2000 2001   2 Enter the decedent's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 2 $17,259 $14,295   3 Enter the decedent's total tax. Free income tax preparation See the instructions. Free income tax preparation 3 6,123 5,250   4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. Free income tax preparation See the instructions. Free income tax preparation 4 3,532 3,109   5 Subtract line 4 from line 3. Free income tax preparation 5 2,591 2,141   6 Enter the surviving spouse's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions for line 2. Free income tax preparation 6 29,025 29,850   7 Enter the surviving spouse's total tax. Free income tax preparation See the instructions. Free income tax preparation 7 5,277 5,391   8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. Free income tax preparation 8 0 0   9 Subtract line 8 from line 7. Free income tax preparation 9 5,277 5,391   10 Add lines 5 and 9. Free income tax preparation 10 7,868 7,532   11 Enter the total tax from the joint return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 11 10,789 9,728   12 Add lines 4 and 8. Free income tax preparation 12 3,532 3,109   13 Subtract line 12 from line 11. Free income tax preparation 13 7,257 6,619   14 Divide line 5 by line 10. Free income tax preparation Enter the result as a decimal. Free income tax preparation 14 . Free income tax preparation 329 . Free income tax preparation 284   15 Tax to be forgiven. Free income tax preparation Multiply line 13 by line 14 and enter the result. Free income tax preparation 15 $2,388 $1,880   Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Worksheet B Illustrated. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. Free income tax preparation 1 2000 2001   2 Enter the decedent's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 2 $17,259 $14,295   3 Enter the decedent's total tax. Free income tax preparation See the instructions. Free income tax preparation 3 6,123 5,250   4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. Free income tax preparation See the instructions. Free income tax preparation 4 3,532 3,109   5 Subtract line 4 from line 3. Free income tax preparation 5 2,591 2,141   6 Enter the surviving spouse's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions for line 2. Free income tax preparation 6 29,025 29,850   7 Enter the surviving spouse's total tax. Free income tax preparation See the instructions. Free income tax preparation 7 5,277 5,391   8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. Free income tax preparation 8 0 0   9 Subtract line 8 from line 7. Free income tax preparation 9 5,277 5,391   10 Add lines 5 and 9. Free income tax preparation 10 7,868 7,532   11 Enter the total tax from the joint return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 11 10,789 9,728   12 Add lines 4 and 8. Free income tax preparation 12 3,532 3,109   13 Subtract line 12 from line 11. Free income tax preparation 13 7,257 6,619   14 Divide line 5 by line 10. Free income tax preparation Enter the result as a decimal. Free income tax preparation 14 . Free income tax preparation 329 . Free income tax preparation 284   15 Tax to be forgiven. Free income tax preparation Multiply line 13 by line 14 and enter the result. Free income tax preparation 15 $2,388 $1,880   Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Illustrated Worksheets B and C A wife lost her husband in the September 11 attack on the World Trade Center. Free income tax preparation They filed a joint return for 2000 and the wife chose to file a joint return as a surviving spouse for 2001. Free income tax preparation The returns for 2000 and 2001 showed the following income, deductions, and tax liabilities. Free income tax preparation After the husband died, his estate received income of $4,000. Free income tax preparation Of that amount, $1,000 is net profit from Schedule C received before the end of 2001. Free income tax preparation This net profit is exempt from income tax as explained earlier under Income received after date of death. Free income tax preparation The wife files Form 1041 because the gross income of the estate for the tax year ($3,000) is $600 or more. Free income tax preparation To determine how much of the husband's tax liability for 2000 and 2001 is to be forgiven, the wife completes Worksheet B. Free income tax preparation She also completes Worksheet C because the forgiven tax liabilities for 2000 and 2001 (line 15 of Worksheet B) total less than $10,000. Free income tax preparation To claim tax relief for 2000, the wife files Form 1040X and attaches a copy of Worksheet B. Free income tax preparation To claim tax relief for 2001, she files Form 1040 and attaches copies of Worksheets B and C. Free income tax preparation   2000 2001 Wages (wife) $35,000 $36,000 Net profit from Schedule C, Profit or Loss From Business (husband) 25,000 22,000 Interest income (joint account) 1,000 1,100 Deduction for ½ of self-employment tax (husband) (1,766) (1,555) Standard deduction (7,350) (7,600) Personal exemptions (2) (5,600) (5,800) Taxable income $46,284 $44,145 Joint income tax liability $7,257 $6,619 Plus: Self-employment tax (husband) 3,532 3,109 Total tax liability $10,789 $9,728   2000 2001 Wages (wife) $35,000 $36,000 Net profit from Schedule C, Profit or Loss From Business (husband) 25,000 22,000 Interest income (joint account) 1,000 1,100 Deduction for ½ of self-employment tax (husband) (1,766) (1,555) Standard deduction (7,350) (7,600) Personal exemptions (2) (5,600) (5,800) Taxable income $46,284 $44,145 Joint income tax liability $7,257 $6,619 Plus: Self-employment tax (husband) 3,532 3,109 Total tax liability $10,789 $9,728 Worksheet C Illustrated. Free income tax preparation Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. Free income tax preparation Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. Free income tax preparation 1 Minimum relief amount. Free income tax preparation Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. Free income tax preparation 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2 2,400     3 Enter the distribution deduction from line 18 (Form 1041) . Free income tax preparation 3 0     4 Add lines 2 and 3. Free income tax preparation 4 2,400     5 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 5 1,000     6 Add lines 4 and 5. Free income tax preparation 6 3,400     7 Figure the tax on line 6 using Schedule G (Form 1041). Free income tax preparation 7 710     8 Figure the tax on line 4 using Schedule G (Form 1041). Free income tax preparation 8 435     9 Tax on exempt income. Free income tax preparation Subtract line 8 from line 7. Free income tax preparation 9 275     10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. Free income tax preparation If the decedent was not required to file tax returns for the eligible tax years, enter -0-. Free income tax preparation 10 4,268     11 Add lines 9 and 10. Free income tax preparation 11 $4,543 12 Additional payment allowed. Free income tax preparation If line 11 is $10,000 or more, enter -0- and stop here. Free income tax preparation No additional amount is allowed as a tax payment. Free income tax preparation Otherwise, subtract line 11 from line 1 and enter the result. Free income tax preparation 12 $5,457 Note. Free income tax preparation The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). Free income tax preparation Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. Free income tax preparation If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. Free income tax preparation Write "Sec. Free income tax preparation 692(d)(2) Payment" and the amount to the right of the entry space. Free income tax preparation Also indicate whether a Form 1041 is being filed for the decedent's estate. Free income tax preparation If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). Free income tax preparation Write “Sec. Free income tax preparation 692(d)(2) Payment” on the dotted line to the left of the entry space. Free income tax preparation Worksheet C Illustrated. Free income tax preparation Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. Free income tax preparation Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. Free income tax preparation 1 Minimum relief amount. Free income tax preparation Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. Free income tax preparation 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2 2,400     3 Enter the distribution deduction from line 18 (Form 1041) . Free income tax preparation 3 0     4 Add lines 2 and 3. Free income tax preparation 4 2,400     5 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 5 1,000     6 Add lines 4 and 5. Free income tax preparation 6 3,400     7 Figure the tax on line 6 using Schedule G (Form 1041). Free income tax preparation 7 710     8 Figure the tax on line 4 using Schedule G (Form 1041). Free income tax preparation 8 435     9 Tax on exempt income. Free income tax preparation Subtract line 8 from line 7. Free income tax preparation 9 275     10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. Free income tax preparation If the decedent was not required to file tax returns for the eligible tax years, enter -0-. Free income tax preparation 10 4,268     11 Add lines 9 and 10. Free income tax preparation 11 $4,543 12 Additional payment allowed. Free income tax preparation If line 11 is $10,000 or more, enter -0- and stop here. Free income tax preparation No additional amount is allowed as a tax payment. Free income tax preparation Otherwise, subtract line 11 from line 1 and enter the result. Free income tax preparation 12 $5,457 Note. Free income tax preparation The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). Free income tax preparation Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. Free income tax preparation If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. Free income tax preparation Write "Sec. Free income tax preparation 692(d)(2) Payment" and the amount to the right of the entry space. Free income tax preparation Also indicate whether a Form 1041 is being filed for the decedent's estate. Free income tax preparation If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). Free income tax preparation Write “Sec. Free income tax preparation 692(d)(2) Payment” on the dotted line to the left of the entry space. Free income tax preparation Additional Worksheets The following additional worksheets are provided for your convenience. Free income tax preparation Worksheet A. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. Free income tax preparation 1       2 Enter the total tax from the decedent's income tax return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. Free income tax preparation (These taxes are not eligible for forgiveness. Free income tax preparation )           a Self-employment tax. Free income tax preparation 3a         b Social security and Medicare tax on tip income not reported to employer. Free income tax preparation 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). Free income tax preparation 3c         d Tax on excess accumulation in qualified retirement plans. Free income tax preparation 3d         e Household employment taxes. Free income tax preparation 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. Free income tax preparation 3f         g Tax on golden parachute payments. Free income tax preparation 3g       4 Add lines 3a through 3g. Free income tax preparation 4       5 Tax to be forgiven. Free income tax preparation Subtract line 4 from line 2. Free income tax preparation 5       Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Worksheet A. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. Free income tax preparation 1       2 Enter the total tax from the decedent's income tax return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. Free income tax preparation (These taxes are not eligible for forgiveness. Free income tax preparation )           a Self-employment tax. Free income tax preparation 3a         b Social security and Medicare tax on tip income not reported to employer. Free income tax preparation 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). Free income tax preparation 3c         d Tax on excess accumulation in qualified retirement plans. Free income tax preparation 3d         e Household employment taxes. Free income tax preparation 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. Free income tax preparation 3f         g Tax on golden parachute payments. Free income tax preparation 3g       4 Add lines 3a through 3g. Free income tax preparation 4       5 Tax to be forgiven. Free income tax preparation Subtract line 4 from line 2. Free income tax preparation 5       Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Worksheet B. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. Free income tax preparation 1       2 Enter the decedent's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 2       3 Enter the decedent's total tax. Free income tax preparation See the instructions. Free income tax preparation 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. Free income tax preparation See the instructions. Free income tax preparation 4       5 Subtract line 4 from line 3. Free income tax preparation 5       6 Enter the surviving spouse's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 6       7 Enter the surviving spouse's total tax. Free income tax preparation See the instructions. Free income tax preparation 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. Free income tax preparation 8       9 Subtract line 8 from line 7. Free income tax preparation 9       10 Add lines 5 and 9. Free income tax preparation 10       11 Enter the total tax from the joint return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 11       12 Add lines 4 and 8. Free income tax preparation 12       13 Subtract line 12 from line 11. Free income tax preparation 13       14 Divide line 5 by line 10. Free income tax preparation Enter the result as a decimal. Free income tax preparation 14       15 Tax to be forgiven. Free income tax preparation Multiply line 13 by line 14 and enter the result. Free income tax preparation 15       Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Worksheet B. Free income tax preparation Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. Free income tax preparation 1       2 Enter the decedent's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 2       3 Enter the decedent's total tax. Free income tax preparation See the instructions. Free income tax preparation 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. Free income tax preparation See the instructions. Free income tax preparation 4       5 Subtract line 4 from line 3. Free income tax preparation 5       6 Enter the surviving spouse's taxable income. Free income tax preparation Figure taxable income as if a separate return had been filed. Free income tax preparation See the instructions. Free income tax preparation 6       7 Enter the surviving spouse's total tax. Free income tax preparation See the instructions. Free income tax preparation 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. Free income tax preparation 8       9 Subtract line 8 from line 7. Free income tax preparation 9       10 Add lines 5 and 9. Free income tax preparation 10       11 Enter the total tax from the joint return. Free income tax preparation See Table 1 on page 5 for the line number for years before 2002. Free income tax preparation 11       12 Add lines 4 and 8. Free income tax preparation 12       13 Subtract line 12 from line 11. Free income tax preparation 13       14 Divide line 5 by line 10. Free income tax preparation Enter the result as a decimal. Free income tax preparation 14       15 Tax to be forgiven. Free income tax preparation Multiply line 13 by line 14 and enter the result. Free income tax preparation 15       Note. Free income tax preparation If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. Free income tax preparation Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. Free income tax preparation If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. Free income tax preparation The IRS will determine the amount to be refunded. Free income tax preparation Worksheet C. Free income tax preparation Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum tax forgiveness of $10,000. Free income tax preparation Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. Free income tax preparation 1 Minimum tax forgiveness. Free income tax preparation Note. Free income tax preparation Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. Free income tax preparation 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . Free income tax preparation 3       4 Add lines 2 and 3. Free income tax preparation 4       5 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 5       6 Add lines 4 and 5. Free income tax preparation 6       7 Figure the tax on line 6 using Schedule G (Form 1041). Free income tax preparation 7       8 Figure the tax on line 4 using Schedule G (Form 1041). Free income tax preparation 8       9 Tax on exempt income. Free income tax preparation Subtract line 8 from line 7. Free income tax preparation 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. Free income tax preparation If the decedent was not required to file tax returns for the eligible tax years, enter -0-. Free income tax preparation 10       11 Add lines 9 and 10. Free income tax preparation 11   12 Additional payment allowed. Free income tax preparation If line 11 is $10,000 or more, enter -0- and stop here. Free income tax preparation No additional amount is allowed as a tax payment. Free income tax preparation Otherwise, subtract line 11 from line 1 and enter the result. Free income tax preparation 12   Note. Free income tax preparation The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). Free income tax preparation Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. Free income tax preparation If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. Free income tax preparation Write "Sec. Free income tax preparation 692(d)(2) Payment" and the amount to the right of the entry space. Free income tax preparation Also indicate whether a Form 1041 is being filed for the decedent's estate. Free income tax preparation If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). Free income tax preparation Write “Sec. Free income tax preparation 692(d)(2) Payment” on the dotted line to the left of the entry space. Free income tax preparation Worksheet C. Free income tax preparation Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum tax forgiveness of $10,000. Free income tax preparation Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. Free income tax preparation 1 Minimum tax forgiveness. Free income tax preparation Note. Free income tax preparation Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. Free income tax preparation 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . Free income tax preparation 3       4 Add lines 2 and 3. Free income tax preparation 4       5 Enter exempt income received after death minus expenses allocable to exempt income. Free income tax preparation (See Income received after date of death on page 5. Free income tax preparation ) 5       6 Add lines 4 and 5. Free income tax preparation 6       7 Figure the tax on line 6 using Schedule G (Form 1041). Free income tax preparation 7       8 Figure the tax on line 4 using Schedule G (Form 1041). Free income tax preparation 8       9 Tax on exempt income. Free income tax preparation Subtract line 8 from line 7. Free income tax preparation 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. Free income tax preparation If the decedent was not required to file tax returns for the eligible tax years, enter -0-. Free income tax preparation 10       11 Add lines 9 and 10. Free income tax preparation 11   12 Additional payment allowed. Free income tax preparation If line 11 is $10,000 or more, enter -0- and stop here. Free income tax preparation No additional amount is allowed as a tax payment. Free income tax preparation Otherwise, subtract line 11 from line 1 and enter the result. Free income tax preparation 12   Note. Free income tax preparation The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). Free income tax preparation Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. Free income tax preparation If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. Free income tax preparation Write "Sec. Free income tax preparation 692(d)(2) Payment" and the amount to the right of the entry space. Free income tax preparation Also indicate whether a Form 1041 is being filed for the decedent's estate. Free income tax preparation If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). Free income tax preparation Write “Sec. Free income tax preparation 692(d)(2) Payment” on the dotted line to the left of the entry space. Free income tax preparation How To Get Tax Help Special IRS assistance. Free income tax preparation   The IRS is providing special help for those affected by the terrorist attacks, as well as survivors and personal representatives of the victims. Free income tax preparation We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by the terrorist attacks, or who have other tax issues related to the attacks. Free income tax preparation Call 1–866–562–5227 Monday through Friday In English–7 a. Free income tax preparation m. Free income tax preparation to 10 p. Free income tax preparation m. Free income tax preparation local time In Spanish–8 a. Free income tax preparation m. Free income tax preparation to 9:30 p. Free income tax preparation m. Free income tax preparation local time   The IRS web site at www. Free income tax preparation irs. Free income tax preparation gov has notices and other tax relief information. Free income tax preparation Check it periodically for any new guidance or to see if Congress has enacted new legislation. Free income tax preparation   Business taxpayers affected by the attacks can e-mail their questions to corp. Free income tax preparation disaster. Free income tax preparation relief@irs. Free income tax preparation gov. Free income tax preparation   For current information on Presidentially declared disaster areas, check the Federal Emergency Management Agency Web site at www. Free income tax preparation fema. Free income tax preparation gov. Free income tax preparation Other help from the IRS. Free income tax preparation   You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Free income tax preparation By selecting the method that is best for you, you will have quick and easy access to tax help. Free income tax preparation Contacting your Taxpayer Advocate. Free income tax preparation   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. Free income tax preparation   The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. Free income tax preparation While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. Free income tax preparation   To contact your Taxpayer Advocate: Call the Taxpayer Advocate at 1–877–777–4778. Free income tax preparation Call the IRS at 1–800–829–1040. Free income tax preparation Call, write, or fax the Taxpayer Advocate office in your area. Free income tax preparation Call 1–800–829–4059 if you are a TTY/TDD user. Free income tax preparation   For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS. Free income tax preparation Free tax services. Free income tax preparation   To find out what services are available, get Publication 910, Guide to Free Tax Services. Free income tax preparation It contains a list of free tax publications and an index of tax topics. Free income tax preparation It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Free income tax preparation Personal computer. Free income tax preparation With your personal computer and modem, you can access the IRS on the Internet at www. Free income tax preparation irs. Free income tax preparation gov. Free income tax preparation While visiting our web site, you can: Find answers to questions you may have. Free income tax preparation Download forms and publications or search for forms and pub
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Top 10 Tax Time Tips from the IRS

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IRS Tax Tip 2014-40, March 25, 2014                                                  

The tax filing season is almost over. You can make tax time easier if you don’t wait until the last minute. Here are 10 important tax time tips:

  1. Gather your records.  Collect all tax records you need to file your taxes. This includes receipts, canceled checks and records that support income, deductions or tax credits that you claim on your tax return. Store them in a safe place.

  2. Report all your income.  You will need to report your income from all of your Forms W-2, Wage and Tax Statements, and Form 1099 income statements when you file your tax return.

  3. Get answers.  Use the Interactive Tax Assistant tool on the IRS website to get answers to many of your questions about tax credits, deductions and many more topics.

  4. Use Free File.  You can prepare and e-file a tax return for free using IRS Free File, available exclusively on IRS.gov. If your income was $58,000 or less, you qualify to use free tax software. If your income was higher, or if you’re comfortable doing your own tax return, you can use Free File Fillable Forms, the electronic version of IRS paper forms. Visit IRS.gov/freefile to check your options.

  5. Try IRS e-file.  Electronic filing is the best way to file a tax return. It’s accurate, safe and easy. Last year, more than 122 million taxpayers used IRS e-file. If you owe taxes, you have the option to file early and pay by April 15.

  6. Weigh your filing options.  You have several options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free, face-to-face help at a Volunteer Income Tax Assistance or Tax Counseling for the Elderly site. Weigh your options and choose the one that works best for you.

  7. Use direct deposit.  Combining e-file with direct deposit is the fastest and safest way to get your tax refund.

  8. Visit the IRS website 24/7.  IRS.gov is a great place to get everything you need to file your tax return. Visit ‘1040 Central’ for online tools, filing tips, answers to frequently asked questions and IRS forms and publications. Get them all anytime, day or night.

  9. Check out number 17.  IRS Publication 17, Your Federal Income Tax, is a complete tax resource. It contains helpful information such as whether you need to file a tax return and how to choose your filing status.

  10. Review your return.  Mistakes slow down the receipt of your tax refund. Be sure to check all Social Security numbers and math calculations on your return, as these are the most common errors. If you run into a problem, remember the IRS is here to help. Start with IRS.gov.

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Page Last Reviewed or Updated: 27-Mar-2014

The Free Income Tax Preparation

Free income tax preparation 10. Free income tax preparation   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. Free income tax preparation Eligible educational institution. Free income tax preparation Dependent for whom you claim an exemption. Free income tax preparation MAGI when using Form 1040A. Free income tax preparation MAGI when using Form 1040. Free income tax preparation Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. Free income tax preparation S. Free income tax preparation savings bonds. Free income tax preparation If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. Free income tax preparation However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. Free income tax preparation Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. Free income tax preparation S. Free income tax preparation savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. Free income tax preparation You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. Free income tax preparation Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. Free income tax preparation Your filing status is not married filing separately. Free income tax preparation Qualified U. Free income tax preparation S. Free income tax preparation savings bonds. Free income tax preparation   A qualified U. Free income tax preparation S. Free income tax preparation savings bond is a series EE bond issued after 1989 or a series I bond. Free income tax preparation The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). Free income tax preparation   The owner must be at least 24 years old before the bond's issue date. Free income tax preparation The issue date is printed on the front of the savings bond. Free income tax preparation    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). Free income tax preparation Qualified education expenses. Free income tax preparation   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. Free income tax preparation Tuition and fees required to enroll at or attend an eligible educational institution. Free income tax preparation Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free income tax preparation Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). Free income tax preparation Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). Free income tax preparation Adjusted qualified education expenses. Free income tax preparation   You must reduce your qualified education expenses by all of the following tax-free benefits. Free income tax preparation Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Free income tax preparation Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). Free income tax preparation Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). Free income tax preparation Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). Free income tax preparation Any expenses used in figuring the American opportunity and lifetime learning credits. Free income tax preparation See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. Free income tax preparation Eligible educational institution. Free income tax preparation   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Free income tax preparation S. Free income tax preparation Department of Education. Free income tax preparation It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free income tax preparation The educational institution should be able to tell you if it is an eligible educational institution. Free income tax preparation   Certain educational institutions located outside the United States also participate in the U. Free income tax preparation S. Free income tax preparation Department of Education's Federal Student Aid (FSA) programs. Free income tax preparation Dependent for whom you claim an exemption. Free income tax preparation   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. Free income tax preparation Modified adjusted gross income (MAGI). Free income tax preparation   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. Free income tax preparation However, as discussed below, there may be other modifications. Free income tax preparation MAGI when using Form 1040A. Free income tax preparation   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Free income tax preparation MAGI when using Form 1040. Free income tax preparation   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Free income tax preparation    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. Free income tax preparation If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. Free income tax preparation Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. Free income tax preparation Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). Free income tax preparation    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. Free income tax preparation Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. Free income tax preparation See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. Free income tax preparation Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. Free income tax preparation However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. Free income tax preparation To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. Free income tax preparation The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. Free income tax preparation The denominator (bottom part) of the fraction is the total proceeds you received during the year. Free income tax preparation Example. Free income tax preparation In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. Free income tax preparation S. Free income tax preparation savings bond. Free income tax preparation They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. Free income tax preparation In 2013, they paid $7,650 of their daughter's college tuition. Free income tax preparation They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. Free income tax preparation Their MAGI for 2013 was $80,000. Free income tax preparation   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. Free income tax preparation They must pay tax on the remaining $450 ($3,000 − $2,550) interest. Free income tax preparation Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. Free income tax preparation Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. Free income tax preparation Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Free income tax preparation Attach Form 8815 to your tax return. Free income tax preparation Prev  Up  Next   Home   More Online Publications