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Free Prior Tax Years Filing

Free prior tax years filing Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. Free prior tax years filing S. Free prior tax years filing Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. Free prior tax years filing S. Free prior tax years filing Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. Free prior tax years filing S. Free prior tax years filing Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. Free prior tax years filing Employee business expenses. Free prior tax years filing Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Free prior tax years filing You can change your choice for each year's taxes. Free prior tax years filing To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Free prior tax years filing S. Free prior tax years filing tax return. Free prior tax years filing However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Free prior tax years filing See How To Figure the Credit , later. Free prior tax years filing To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Free prior tax years filing Figure your tax both ways—claiming the credit and claiming the deduction. Free prior tax years filing Then fill out your return the way that benefits you more. Free prior tax years filing See Why Choose the Credit, later. Free prior tax years filing Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. Free prior tax years filing If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Free prior tax years filing You cannot deduct any of them. Free prior tax years filing Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Free prior tax years filing You cannot take a credit for any of them. Free prior tax years filing See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Free prior tax years filing There are exceptions to this general rule, which are described next. Free prior tax years filing Exceptions for foreign taxes not allowed as a credit. Free prior tax years filing   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Free prior tax years filing Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Free prior tax years filing S. Free prior tax years filing tax purposes. Free prior tax years filing For more information, see Internal Revenue Code section 901(m). Free prior tax years filing The IRS intends to issue guidance that will explain this provision in greater detail. Free prior tax years filing   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. Free prior tax years filing Foreign taxes that are not income taxes. Free prior tax years filing   In most cases, only foreign income taxes qualify for the foreign tax credit. Free prior tax years filing Other taxes, such as foreign real and personal property taxes, do not qualify. Free prior tax years filing But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Free prior tax years filing   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. Free prior tax years filing However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Free prior tax years filing Carrybacks and carryovers. Free prior tax years filing   There is a limit on the credit you can claim in a tax year. Free prior tax years filing If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. Free prior tax years filing If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Free prior tax years filing That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Free prior tax years filing   For more information on the limit, see How To Figure the Credit , later. Free prior tax years filing For more information on carrybacks and carryovers, see Carryback and Carryover , later. Free prior tax years filing Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. Free prior tax years filing You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Free prior tax years filing Example. Free prior tax years filing You paid foreign taxes for the last 13 years and chose to deduct them on your U. Free prior tax years filing S. Free prior tax years filing income tax returns. Free prior tax years filing You were timely in both filing your returns and paying your U. Free prior tax years filing S. Free prior tax years filing tax liability. Free prior tax years filing In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Free prior tax years filing Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Free prior tax years filing Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Free prior tax years filing Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Free prior tax years filing If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. Free prior tax years filing Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. Free prior tax years filing Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. Free prior tax years filing However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. Free prior tax years filing You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. Free prior tax years filing See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Free prior tax years filing Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. Free prior tax years filing In most cases, if the foreign tax rate is higher than the U. Free prior tax years filing S. Free prior tax years filing rate, there will be no U. Free prior tax years filing S. Free prior tax years filing tax on the foreign income. Free prior tax years filing If the foreign tax rate is lower than the U. Free prior tax years filing S. Free prior tax years filing rate, U. Free prior tax years filing S. Free prior tax years filing tax on the foreign income will be limited to the difference between the rates. Free prior tax years filing The foreign tax credit can only reduce U. Free prior tax years filing S. Free prior tax years filing taxes on foreign source income; it cannot reduce U. Free prior tax years filing S. Free prior tax years filing taxes on U. Free prior tax years filing S. Free prior tax years filing source income. Free prior tax years filing Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. Free prior tax years filing This is because: A credit reduces your actual U. Free prior tax years filing S. Free prior tax years filing income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. Free prior tax years filing You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. Free prior tax years filing (See Limit on credit under How To Figure the Credit, later. Free prior tax years filing ) Example 1. Free prior tax years filing For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Free prior tax years filing None of the dividends are qualified dividends. Free prior tax years filing You file a joint return and can claim two $3,900 exemptions. Free prior tax years filing You had to pay $2,000 in foreign income taxes on the dividend income. Free prior tax years filing If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Free prior tax years filing Your taxable income then is $57,500 and your tax is $7,736. Free prior tax years filing If you take the credit instead, your itemized deductions are only $13,000. Free prior tax years filing Your taxable income then is $59,500 and your tax before the credit is $8,036. Free prior tax years filing After the credit, however, your tax is only $6,036. Free prior tax years filing Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Free prior tax years filing Example 2. Free prior tax years filing In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Free prior tax years filing You report on your U. Free prior tax years filing S. Free prior tax years filing return this income as well as $56,000 of U. Free prior tax years filing S. Free prior tax years filing source wages and an allowable $49,000 partnership loss from a U. Free prior tax years filing S. Free prior tax years filing partnership. Free prior tax years filing Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Free prior tax years filing You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Free prior tax years filing If you deduct the foreign tax on your U. Free prior tax years filing S. Free prior tax years filing return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. Free prior tax years filing If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. Free prior tax years filing You can take a credit of only $113 because of limits discussed later. Free prior tax years filing Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Free prior tax years filing If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Free prior tax years filing When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. Free prior tax years filing Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. Free prior tax years filing “Tax year” refers to the tax year for which your U. Free prior tax years filing S. Free prior tax years filing return is filed, not the tax year for which your foreign return is filed. Free prior tax years filing Accrual method of accounting. Free prior tax years filing   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Free prior tax years filing You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. Free prior tax years filing   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Free prior tax years filing Generally, this occurs on the last day of the tax year for which your foreign return is filed. Free prior tax years filing Contesting your foreign tax liability. Free prior tax years filing   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. Free prior tax years filing However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. Free prior tax years filing Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Free prior tax years filing If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . Free prior tax years filing You may have to post a bond. Free prior tax years filing   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. Free prior tax years filing   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Free prior tax years filing Cash method of accounting. Free prior tax years filing   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. Free prior tax years filing You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. Free prior tax years filing Choosing to take credit in the year taxes accrue. Free prior tax years filing   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Free prior tax years filing You make the choice by checking the box in Part II of Form 1116. Free prior tax years filing Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. Free prior tax years filing   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Free prior tax years filing You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Free prior tax years filing   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. Free prior tax years filing Credit based on taxes paid in earlier year. Free prior tax years filing   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. Free prior tax years filing Example. Free prior tax years filing Last year you took the credit based on taxes paid. Free prior tax years filing This year you chose to take the credit based on taxes accrued. Free prior tax years filing During the year you paid foreign income taxes owed for last year. Free prior tax years filing You also accrued foreign income taxes for this year that you did not pay by the end of the year. Free prior tax years filing You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. Free prior tax years filing Foreign Currency and Exchange Rates U. Free prior tax years filing S. Free prior tax years filing income tax is imposed on income expressed in U. Free prior tax years filing S. Free prior tax years filing dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Free prior tax years filing Therefore, fluctuations in the value of the foreign currency relative to the U. Free prior tax years filing S. Free prior tax years filing dollar may affect the foreign tax credit. Free prior tax years filing Translating foreign currency into U. Free prior tax years filing S. Free prior tax years filing dollars. Free prior tax years filing   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Free prior tax years filing S. Free prior tax years filing dollars. Free prior tax years filing How and when you do this depends on your functional currency. Free prior tax years filing In most cases, your functional currency is the U. Free prior tax years filing S. Free prior tax years filing dollar unless you are required to use the currency of a foreign country. Free prior tax years filing   You must make all federal income tax determinations in your functional currency. Free prior tax years filing The U. Free prior tax years filing S. Free prior tax years filing dollar is the functional currency for all taxpayers except some qualified business units. Free prior tax years filing A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Free prior tax years filing Unless you are self-employed, your functional currency is the U. Free prior tax years filing S. Free prior tax years filing dollar. Free prior tax years filing   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Free prior tax years filing S. Free prior tax years filing dollar if any of the following apply. Free prior tax years filing You conduct the business primarily in dollars. Free prior tax years filing The principal place of business is located in the United States. Free prior tax years filing You choose to or are required to use the dollar as your functional currency. Free prior tax years filing The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Free prior tax years filing   If your functional currency is the U. Free prior tax years filing S. Free prior tax years filing dollar, you must immediately translate into dollars all items of income, expense, etc. Free prior tax years filing , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Free prior tax years filing If there is more than one exchange rate, use the one that most properly reflects your income. Free prior tax years filing In most cases, you can get exchange rates from banks and U. Free prior tax years filing S. Free prior tax years filing Embassies. Free prior tax years filing   If your functional currency is not the U. Free prior tax years filing S. Free prior tax years filing dollar, make all income tax determinations in your functional currency. Free prior tax years filing At the end of the year, translate the results, such as income or loss, into U. Free prior tax years filing S. Free prior tax years filing dollars to report on your income tax return. Free prior tax years filing    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Free prior tax years filing   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. Free prior tax years filing If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Free prior tax years filing If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. Free prior tax years filing   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). Free prior tax years filing Exception. Free prior tax years filing   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. Free prior tax years filing This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Free prior tax years filing The foreign taxes are paid on or after the first day of the tax year to which they relate. Free prior tax years filing The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Free prior tax years filing The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Free prior tax years filing (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Free prior tax years filing )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Free prior tax years filing Election to use exchange rate on date paid. Free prior tax years filing   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. Free prior tax years filing If any of the accrued taxes are unpaid, you must translate them into U. Free prior tax years filing S. Free prior tax years filing dollars using the exchange rate on the last day of the U. Free prior tax years filing S. Free prior tax years filing tax year to which those taxes relate. Free prior tax years filing You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. Free prior tax years filing S. Free prior tax years filing dollar functional currency. Free prior tax years filing Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Free prior tax years filing The election is available for tax years beginning after 2004. Free prior tax years filing It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. Free prior tax years filing Make the election by attaching a statement to the applicable tax return. Free prior tax years filing The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. Free prior tax years filing S. Free prior tax years filing dollar functional currency. Free prior tax years filing Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Free prior tax years filing S. Free prior tax years filing foreign tax credit claimed. Free prior tax years filing The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. Free prior tax years filing If a foreign tax redetermination occurs, a redetermination of your U. Free prior tax years filing S. Free prior tax years filing tax liability is required if any of the following conditions apply. Free prior tax years filing The accrued taxes when paid differ from the amounts claimed as a credit. Free prior tax years filing The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. Free prior tax years filing If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Free prior tax years filing You will not be allowed a credit for the unpaid taxes until you pay them. Free prior tax years filing When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Free prior tax years filing S. Free prior tax years filing dollars using the exchange rate as of the date they were paid. Free prior tax years filing The foreign tax credit is allowed for the year to which the foreign tax relates. Free prior tax years filing See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Free prior tax years filing The foreign taxes you paid are refunded in whole or in part. Free prior tax years filing For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. Free prior tax years filing However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. Free prior tax years filing S. Free prior tax years filing tax year. Free prior tax years filing In this case, you must adjust your U. Free prior tax years filing S. Free prior tax years filing tax in the tax year in which the accrued foreign taxes are paid. Free prior tax years filing Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. Free prior tax years filing S. Free prior tax years filing tax liability for each tax year affected by the redetermination. Free prior tax years filing In most cases, you must file Form 1040X, Amended U. Free prior tax years filing S. Free prior tax years filing Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Free prior tax years filing S. Free prior tax years filing tax liability for the year or years affected. Free prior tax years filing See Contents of statement , later. Free prior tax years filing You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. Free prior tax years filing There are other exceptions to this requirement. Free prior tax years filing They are discussed later under Due date of notification to IRS . Free prior tax years filing Contents of statement. Free prior tax years filing   The statement must include all of the following. Free prior tax years filing Your name, address, and taxpayer identification number. Free prior tax years filing The tax year or years that are affected by the foreign tax redetermination. Free prior tax years filing The date or dates the foreign taxes were accrued, if applicable. Free prior tax years filing The date or dates the foreign taxes were paid. Free prior tax years filing The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Free prior tax years filing Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. Free prior tax years filing   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. Free prior tax years filing   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). Free prior tax years filing Due date of notification to IRS. Free prior tax years filing   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. Free prior tax years filing There is no limit on the time the IRS has to redetermine and assess the correct U. Free prior tax years filing S. Free prior tax years filing tax due. Free prior tax years filing If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. Free prior tax years filing S. Free prior tax years filing taxes. Free prior tax years filing See Time Limit on Refund Claims , later. Free prior tax years filing   Exceptions to this due date are explained in the next two paragraphs. Free prior tax years filing Multiple redeterminations of U. Free prior tax years filing S. Free prior tax years filing tax liability for same tax year. Free prior tax years filing   Where more than one foreign tax redetermination requires a redetermination of U. Free prior tax years filing S. Free prior tax years filing tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. Free prior tax years filing If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. Free prior tax years filing However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Free prior tax years filing S. Free prior tax years filing tax liability is required may occur after the due date for providing that notification. Free prior tax years filing In this situation, you may have to file more than one Form 1040X for that tax year. Free prior tax years filing Additional U. Free prior tax years filing S. Free prior tax years filing tax due eliminated by foreign tax credit carryback or carryover. Free prior tax years filing   If a foreign tax redetermination requires a redetermination of U. Free prior tax years filing S. Free prior tax years filing tax liability that would otherwise result in an additional amount of U. Free prior tax years filing S. Free prior tax years filing tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. Free prior tax years filing Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. Free prior tax years filing You must file the statement by the due date (with extensions) of that return. Free prior tax years filing The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. Free prior tax years filing S. Free prior tax years filing tax liability is required). Free prior tax years filing Failure-to-notify penalty. Free prior tax years filing   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. Free prior tax years filing   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. Free prior tax years filing S. Free prior tax years filing tax. Free prior tax years filing This penalty cannot be more than 25% of the tax due. Free prior tax years filing Foreign tax refund. Free prior tax years filing   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. Free prior tax years filing S. Free prior tax years filing tax for the time before the date of the refund. Free prior tax years filing   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. Free prior tax years filing The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. Free prior tax years filing Interest also is owed from the time you receive a refund until you pay the additional tax due. Free prior tax years filing Foreign tax imposed on foreign refund. Free prior tax years filing   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Free prior tax years filing However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. Free prior tax years filing Example. Free prior tax years filing You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. Free prior tax years filing When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Free prior tax years filing Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Free prior tax years filing S. Free prior tax years filing tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Free prior tax years filing The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. Free prior tax years filing You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Free prior tax years filing The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). Free prior tax years filing The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Free prior tax years filing See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Free prior tax years filing Who Can Take the Credit? U. Free prior tax years filing S. Free prior tax years filing citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Free prior tax years filing S. Free prior tax years filing tax on foreign source income may be able to take a foreign tax credit. Free prior tax years filing U. Free prior tax years filing S. Free prior tax years filing Citizens If you are a U. Free prior tax years filing S. Free prior tax years filing citizen, you are taxed by the United States on your worldwide income wherever you live. Free prior tax years filing You are normally entitled to take a credit for foreign taxes you pay or accrue. Free prior tax years filing Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. Free prior tax years filing S. Free prior tax years filing citizens. Free prior tax years filing If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Free prior tax years filing Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. Free prior tax years filing For information on alien status, see Publication 519. Free prior tax years filing Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Free prior tax years filing However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. Free prior tax years filing S. Free prior tax years filing possession on income from foreign sources that is effectively connected with a trade or business in the United States. Free prior tax years filing But if you must pay tax to a foreign country or U. Free prior tax years filing S. Free prior tax years filing possession on income from U. Free prior tax years filing S. Free prior tax years filing sources only because you are a citizen or a resident of that country or U. Free prior tax years filing S. Free prior tax years filing possession, do not use that tax in figuring the amount of your credit. Free prior tax years filing For information on alien status and effectively connected income, see Publication 519. Free prior tax years filing What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. Free prior tax years filing The tax must be imposed on you. Free prior tax years filing You must have paid or accrued the tax. Free prior tax years filing The tax must be the legal and actual foreign tax liability. Free prior tax years filing The tax must be an income tax (or a tax in lieu of an income tax). Free prior tax years filing Certain foreign taxes do not qualify for the credit even if the four tests are met. Free prior tax years filing See Foreign Taxes for Which You Cannot Take a Credit, later. Free prior tax years filing Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. Free prior tax years filing S. Free prior tax years filing possession. Free prior tax years filing For example, a tax that is deducted from your wages is considered to be imposed on you. Free prior tax years filing You cannot shift the right to claim the credit by contract or other means. Free prior tax years filing Foreign country. Free prior tax years filing   A foreign country includes any foreign state and its political subdivisions. Free prior tax years filing Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Free prior tax years filing U. Free prior tax years filing S. Free prior tax years filing possessions. Free prior tax years filing   For foreign tax credit purposes, all qualified taxes paid to U. Free prior tax years filing S. Free prior tax years filing possessions are considered foreign taxes. Free prior tax years filing For this purpose, U. Free prior tax years filing S. Free prior tax years filing possessions include Puerto Rico and American Samoa. Free prior tax years filing   When the term “foreign country” is used in this publication, it includes U. Free prior tax years filing S. Free prior tax years filing possessions unless otherwise stated. Free prior tax years filing You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. Free prior tax years filing S. Free prior tax years filing possession. Free prior tax years filing However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. Free prior tax years filing Joint return. Free prior tax years filing   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. Free prior tax years filing Combined income. Free prior tax years filing   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. Free prior tax years filing 901-2(f)(3)(iii). Free prior tax years filing Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. Free prior tax years filing   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Free prior tax years filing However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. Free prior tax years filing For more details, see paragraphs (f) and (h) of Regulations section 1. Free prior tax years filing 901-2. Free prior tax years filing For similar rules applicable to prior tax years, see Regulations section 1. Free prior tax years filing 901-2 (revised as of April 1, 2011). Free prior tax years filing Example. Free prior tax years filing You and your spouse reside in Country X, which imposes income tax on your combined incomes. Free prior tax years filing Both of you use the “u” as your functional currency. Free prior tax years filing Country X apportions tax based on income. Free prior tax years filing You had income of 30,000u and your spouse had income of 20,000u. Free prior tax years filing Your filing status on your U. Free prior tax years filing S. Free prior tax years filing income tax return is married filing separately. Free prior tax years filing You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Free prior tax years filing S income tax return. Free prior tax years filing Your spouse can claim only 40% (20,000u/50,000u). Free prior tax years filing Partner or S corporation shareholder. Free prior tax years filing   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. Free prior tax years filing These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Free prior tax years filing However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. Free prior tax years filing Beneficiary. Free prior tax years filing   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. Free prior tax years filing This amount will be shown on the Schedule K-1 you receive from the estate or trust. Free prior tax years filing However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Free prior tax years filing Mutual fund shareholder. Free prior tax years filing   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. Free prior tax years filing You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. Free prior tax years filing If you do not receive this information, you will need to contact the fund. Free prior tax years filing Controlled foreign corporation shareholder. Free prior tax years filing   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. Free prior tax years filing If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Free prior tax years filing Controlled foreign corporation. Free prior tax years filing   A controlled foreign corporation is a foreign corporation in which U. Free prior tax years filing S. Free prior tax years filing shareholders own more than 50% of the voting power or value of the stock. Free prior tax years filing You are considered a U. Free prior tax years filing S. Free prior tax years filing shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Free prior tax years filing See Internal Revenue Code sections 951(b) and 958(b) for more information. Free prior tax years filing Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Free prior tax years filing Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Free prior tax years filing Foreign tax refund. Free prior tax years filing   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. Free prior tax years filing   For example, the United States has tax treaties with many countries allowing U. Free prior tax years filing S. Free prior tax years filing citizens and residents reductions in the rates of tax of those foreign countries. Free prior tax years filing However, some treaty countries require U. Free prior tax years filing S. Free prior tax years filing citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. Free prior tax years filing The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. Free prior tax years filing Subsidy received. Free prior tax years filing   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Free prior tax years filing This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. Free prior tax years filing A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. Free prior tax years filing   The term “subsidy” includes any type of benefit. Free prior tax years filing Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Free prior tax years filing Shareholder receiving refund for corporate tax in integrated system. Free prior tax years filing   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Free prior tax years filing You may be able to claim a refund of these taxes from the foreign government. Free prior tax years filing You must include the refund (including any amount withheld) in your income in the year received. Free prior tax years filing Any tax withheld from the refund is a qualified foreign tax. Free prior tax years filing Example. Free prior tax years filing You are a shareholder of a French corporation. Free prior tax years filing You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Free prior tax years filing The French government imposes a 15% withholding tax ($15) on the refund you received. Free prior tax years filing You receive a check for $85. Free prior tax years filing You include $100 in your income. Free prior tax years filing The $15 of tax withheld is a qualified foreign tax. Free prior tax years filing Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. Free prior tax years filing Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Free prior tax years filing Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. Free prior tax years filing See Taxes in Lieu of Income Taxes , later. Free prior tax years filing Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. Free prior tax years filing A foreign levy is an income tax only if it meets both of the following requirements. Free prior tax years filing It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Free prior tax years filing The predominant character of the tax is that of an income tax in the U. Free prior tax years filing S. Free prior tax years filing sense. Free prior tax years filing A foreign levy may meet these requirements even if the foreign tax law differs from U. Free prior tax years filing S. Free prior tax years filing tax law. Free prior tax years filing The foreign law may include in income items that U. Free prior tax years filing S. Free prior tax years filing law does not include, or it may allow certain exclusions or deductions that U. Free prior tax years filing S. Free prior tax years filing law does not allow. Free prior tax years filing Specific economic benefit. Free prior tax years filing   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. Free prior tax years filing   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. Free prior tax years filing   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Free prior tax years filing Economic benefits. Free prior tax years filing   Economic benefits include the following. Free prior tax years filing Goods. Free prior tax years filing Services. Free prior tax years filing Fees or other payments. Free prior tax years filing Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Free prior tax years filing Discharges of contractual obligations. Free prior tax years filing   In most cases, the right or privilege merely to engage in business is not an economic benefit. Free prior tax years filing Dual-capacity taxpayers. Free prior tax years filing   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. Free prior tax years filing ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. Free prior tax years filing    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. Free prior tax years filing   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. Free prior tax years filing    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. Free prior tax years filing For more information about these agreements, see Publication 54. Free prior tax years filing Soak-up taxes. Free prior tax years filing   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Free prior tax years filing A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. Free prior tax years filing This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Free prior tax years filing Penalties and interest. Free prior tax years filing   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. Free prior tax years filing Taxes not based on income. Free prior tax years filing   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. Free prior tax years filing Taxes based on assets, such as property taxes, do not qualify for the credit. Free prior tax years filing Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. Free prior tax years filing A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. Free prior tax years filing A tax in lieu of an income tax does not have to be based on realized net income. Free prior tax years filing A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Free prior tax years filing In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Free prior tax years filing However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. Free prior tax years filing The soak-up tax. Free prior tax years filing The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. Free prior tax years filing Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Free prior tax years filing These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. Free prior tax years filing S. Free prior tax years filing persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Free prior tax years filing Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Free prior tax years filing S. Free prior tax years filing gross income. Free prior tax years filing Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. Free prior tax years filing S. Free prior tax years filing income under the foreign earned income exclusion or the foreign housing exclusion. Free prior tax years filing See Publication 54 for more information on the foreign earned income and housing exclusions. Free prior tax years filing Wages completely excluded. Free prior tax years filing   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Free prior tax years filing Wages partly excluded. Free prior tax years filing   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Free prior tax years filing You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. Free prior tax years filing   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. Free prior tax years filing Deductible expenses do not include the foreign housing deduction. Free prior tax years filing   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Free prior tax years filing If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Free prior tax years filing S. Free prior tax years filing sources or a type of income not subject to U. Free prior tax years filing S. Free prior tax years filing tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. Free prior tax years filing Example. Free prior tax years filing You are a U. Free prior tax years filing S. Free prior tax years filing citizen and a cash basis taxpayer, employed by Company X and living in Country A. Free prior tax years filing Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. Free prior tax years filing To find that part, do the following. Free prior tax years filing First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Free prior tax years filing To do this, multiply the otherwise deductible expenses by a fraction. Free prior tax years filing That fraction is the excluded wages over your foreign earned income. Free prior tax years filing   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Free prior tax years filing To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Free prior tax years filing The result is $81,984. Free prior tax years filing Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). Free prior tax years filing Finally, multiply the foreign tax you paid by the resulting fraction. Free prior tax years filing   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Free prior tax years filing Taxes on Income From Puerto Rico Exempt From U. Free prior tax years filing S. Free prior tax years filing Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. Free prior tax years filing For information on figuring the reduction, see Publication 570. Free prior tax years filing Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. Free prior tax years filing For more information on this exclusion, see Publication 570. Free prior tax years filing Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Free prior tax years filing However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Free prior tax years filing Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. Free prior tax years filing However, you can claim an itemized deduction for these taxes. Free prior tax years filing See Choosing To Take Credit or Deduction , earlier. Free prior tax years filing Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Free prior tax years filing The following countries meet this description for 2013. Free prior tax years filing Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Free prior tax years filing Cuba. Free prior tax years filing Iran. Free prior tax years filing Libya (but see Note later). Free prior tax years filing North Korea. Free prior tax years filing Sudan. Free prior tax years filing Syria. Free prior tax years filing Waiver of denial of the credit. Free prior tax years filing   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. Free prior tax years filing S. Free prior tax years filing companies in the sanctioned country. Free prior tax years filing The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. Free prior tax years filing Note. Free prior tax years filing Effective December 10, 2004, the President granted a waiver to Libya. Free prior tax years filing Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Free prior tax years filing Limit on credit. Free prior tax years filing   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. Free prior tax years filing You must fill out a separate Form 1116 for this income. Free prior tax years filing This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Free prior tax years filing Example. Free prior tax years filing You lived and worked in Iran until August, when you were transferred to Italy. Free prior tax years filing You paid taxes to each country on the income earned in that country. Free prior tax years filing You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Free prior tax years filing Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Free prior tax years filing You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Free prior tax years filing Figuring the credit when a sanction ends. Free prior tax years filing    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Free prior tax years filing For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. Free prior tax years filing Example. Free prior tax years filing The sanctions against Country X ended on July 31. Free prior tax years filing On August 19, you receive a distribution from a mutual fund of Country X income. Free prior tax years filing The fund paid Country X income tax for you on the distribution. Free prior tax years filing Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. Free prior tax years filing Amounts for the nonsanctioned period. Free prior tax years filing   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. Free prior tax years filing Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Free prior tax years filing   Number of nonsanctioned days in year  Number of days in year Example. Free prior tax years filing You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. Free prior tax years filing Sanctions against Country X ended on July 11, 2013. Free prior tax years filing You are unable to determine how much of the income or tax is for the nonsanctioned period. Free prior tax years filing Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. Free prior tax years filing You would compute the income for the nonsanctioned period as follows. Free prior tax years filing 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Free prior tax years filing 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. Free prior tax years filing Further information. Free prior tax years filing   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. Free prior tax years filing This Cumulative Bulletin can be found in many libraries and IRS offices. Free prior tax years filing Table 1. Free prior tax years filing Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. Free prior tax years filing Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. Free prior tax years filing The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). Free prior tax years filing The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. Free prior tax years filing If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Free prior tax years filing When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Free prior tax years filing Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. Free prior tax years filing Withholding tax. Free prior tax years filing   For this purpose, withholding tax includes any tax determined on a gross basis. Free prior tax years filing It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Free prior tax years filing Ex-dividend date. Free prior tax years filing   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. Free prior tax years filing Example 1. Free prior tax years filing You bought common stock from a foreign corporation on November 3. Free prior tax years filing You sold the stock on November 19. Free prior tax years filing You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Free prior tax years filing To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). Free prior tax years filing Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Free prior tax years filing Example 2. Free prior tax years filing The facts are the same as in Example 1 except that you sold the stock on November 14. Free prior tax years filing You held the stock for only 11 days. Free prior tax years filing You are not entitled to the credit. Free prior tax years filing Exception. Free prior tax years filing   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. Free prior tax years filing See section 901(k)(4) of the Internal Revenue Code for more information. Free prior tax years filing Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. Free prior tax years filing When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Free prior tax years filing Withholding tax. Free prior tax years filing   For this purpose, withholding tax includes any tax determined on a gross basis. Free prior tax years filing It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Free prior tax years filing Exception for dealers. Free prior tax years filing   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. Free prior tax years filing See section 901(I)(2) of the Internal Revenue Code for more information. Free prior tax years filing Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. Free prior tax years filing A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Free prior tax years filing S. Free prior tax years filing tax purposes but not for foreign tax purposes. Free prior tax years filing For more information, see Internal Revenue Code section 901(m). Free prior tax years filing The IRS intends to issue guidance that will explain this provision in greater detail. Free prior tax years filing Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. Free prior tax years filing Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. Free prior tax years filing For details, see Regulations section 1. Free prior tax years filing 901-3. Free prior tax years filing Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. Free prior tax years filing See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Free prior tax years filing In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. Free prior tax years filing List of boycotting countries. Free prior tax years filing   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Free prior tax years filing As of November 2013, the following countries are listed. Free prior tax years filing Iraq. Free prior tax years filing Kuwait. Free prior tax years filing Lebanon. Free prior tax years filing Libya. Free prior tax years filing Qatar. Free prior tax years filing Saudi Arabia. Free prior tax years filing Syria. Free prior tax years filing United Arab Emirates. Free prior tax years filing Yemen. Free prior tax years filing    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. Free prior tax years filing   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. Free prior tax years filing The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Free prior tax years filing Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Free prior tax years filing Public inspection. Free prior tax years filing   A determination and any related background file is open to public inspection. Free prior tax years filing However, your identity and certain other information will remain confidential. Free prior tax years filing Reporting requirements. Free prior tax years filing   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. Free prior tax years filing A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. Free prior tax years filing A partnership in which you are a partner. Free prior tax years filing A trust you are treated as owning. Free prior tax years filing Form 5713 required. Free prior tax years filing   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Free prior tax years filing See the Instructions for Form 5713 for information on when and where to file the form. Free prior tax years filing Penalty for failure to file. Free prior tax years filing   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. Free prior tax years filing Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. Free prior tax years filing The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. Free prior tax years filing S. Free prior tax years filing tax liability (Form 1040, line 44) divided by your worldwide taxable income. Free prior tax years filing You may be entitled to carry over to other years taxes reduced under this rule. Free prior tax years filing See Internal Revenue Code section 907(f). Free prior tax years filing Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Free prior tax years filing Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Free prior tax years filing Taxes of U. Free prior tax years filing S. Free prior tax years filing Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. Free prior tax years filing If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. Free prior tax years filing See Penalty for not filing Form 5471 or Form 8865 , later. Free prior tax years filing U. Free prior tax years filing S. Free prior tax years filing persons controlling foreign corporations. Free prior tax years filing   If you are a U. Free prior tax years filing S. Free prior tax years filing citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. Free prior tax years filing S. Free prior tax years filing Persons With Respect To Certain Foreign Corporations. Free prior tax years filing Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. Free prior tax years filing U. Free prior tax years filing S. Free prior tax years filing persons controlling foreign partnerships. Free prior tax years filing   If you are a U. Free prior tax years filing S. Free prior tax years filing citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
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Credits & Deductions For Businesses

Alternative Motor Vehicle Credit
The Alternative Fuel Motor Vehicle Credit was enacted by the Energy Policy Act of 2005 and includes separate credits for four distinct categories of vehicles: Hybrid vehicles, Fuel Cell vehicles, Qualified Alternative Fuel Motor vehicles (QAFMV) and Advanced Lean Burn Technology vehicles. The amount of the potential credit varies by type of vehicle and which of the four credits applies.

Manufacturers' Energy Efficient Appliance Credit
Act Section 305 - Modifications of Energy Efficient Appliance Credit for Appliances Produced After 2007

Plug-In Electric Drive Vehicle Credit (IRC 30D)
Plug-In Electric Drive Vehicle Credit (IRC 30D) - Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks.

Research Credit
Guidelines and audit technique guide are provided for field examiners on the examination of Research Credit cases.

Deducting Business Expenses
Find out what qualifies as a deductible business expense, including depreciation.

Abusive Tax Shelters and Transactions
The Internal Revenue Service has a comprehensive strategy in place to combat abusive tax shelters and transactions. This strategy includes guidance on abusive transactions, regulations governing tax shelters, a hotline for taxpayers to use to report abusive technical transactions, and enforcement activity against abusive tax shelter promoters and investors.

Page Last Reviewed or Updated: 18-Feb-2014

The Free Prior Tax Years Filing

Free prior tax years filing 17. Free prior tax years filing   Individual Retirement Arrangements (IRAs) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? What's New Traditional IRA contribution and deduction limit. Free prior tax years filing  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Free prior tax years filing If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Free prior tax years filing For more information, see How Much Can Be Contributed? later. Free prior tax years filing Roth IRA contribution limit. Free prior tax years filing  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Free prior tax years filing If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Free prior tax years filing However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Free prior tax years filing For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later. Free prior tax years filing Modified AGI limit for traditional IRA contributions increased. Free prior tax years filing  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Free prior tax years filing If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Free prior tax years filing If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Free prior tax years filing See How Much Can You Deduct , later. Free prior tax years filing Modified AGI limit for Roth IRA contributions increased. Free prior tax years filing  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Free prior tax years filing Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Free prior tax years filing You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Free prior tax years filing Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Free prior tax years filing You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Free prior tax years filing Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Free prior tax years filing You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Free prior tax years filing See Can You Contribute to a Roth IRA , later. Free prior tax years filing Net Investment Income Tax. Free prior tax years filing   For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan including IRAs (for example; 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Free prior tax years filing However, these distributions are taken into account when determining the modified adjusted gross income threshold. Free prior tax years filing Distributions from a nonqualified retirement plan are included in net investment income. Free prior tax years filing See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Free prior tax years filing Name change. Free prior tax years filing  All spousal IRAs have been renamed Kay Bailey Hutchison Spousal IRAs. Free prior tax years filing There are no changes to the rules regarding these IRAs. Free prior tax years filing See Kay Bailey Hutchison Spousal IRA Limit , later, for more information. Free prior tax years filing Reminders 2014 limits. Free prior tax years filing   You can find information about the 2014 contribution and AGI limits in Publication 590. Free prior tax years filing Contributions to both traditional and Roth IRAs. Free prior tax years filing   For information on your combined contribution limit if you contribute to both traditional and Roth IRAs, see Roth IRAs and traditional IRAs under How Much Can Be Contributed? in Roth IRAs, later. Free prior tax years filing Statement of required minimum distribution. Free prior tax years filing  If a minimum distribution from your IRA is required, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. Free prior tax years filing The report or offer must include the date by which the amount must be distributed. Free prior tax years filing The report is due January 31 of the year in which the minimum distribution is required. Free prior tax years filing It can be provided with the year-end fair market value statement that you normally get each year. Free prior tax years filing No report is required for IRAs of owners who have died. Free prior tax years filing IRA interest. Free prior tax years filing  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Free prior tax years filing Tax on your traditional IRA is generally deferred until you take a distribution. Free prior tax years filing Do not report this interest on your tax return as tax-exempt interest. Free prior tax years filing Form 8606. Free prior tax years filing   To designate contributions as nondeductible, you must file Form 8606, Nondeductible IRAs. Free prior tax years filing The term “50 or older” is used several times in this chapter. Free prior tax years filing It refers to an IRA owner who is age 50 or older by the end of the tax year. Free prior tax years filing Introduction An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement. Free prior tax years filing This chapter discusses the following topics. Free prior tax years filing The rules for a traditional IRA (any IRA that is not a Roth or SIMPLE IRA). Free prior tax years filing The Roth IRA, which features nondeductible contributions and tax-free distributions. Free prior tax years filing Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. Free prior tax years filing For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590. Free prior tax years filing For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions, see Publication 590. Free prior tax years filing Useful Items - You may want to see: Publication 560 Retirement Plans for Small Business 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts 8606 Nondeductible IRAs Traditional IRAs In this chapter, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Free prior tax years filing ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Free prior tax years filing Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Free prior tax years filing Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. Free prior tax years filing What is compensation?   Generally, compensation is what you earn from working. Free prior tax years filing Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services. Free prior tax years filing The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Free prior tax years filing   Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. Free prior tax years filing   Compensation also includes commissions and taxable alimony and separate maintenance payments. Free prior tax years filing Self-employment income. Free prior tax years filing   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deductible part of your self-employment tax. Free prior tax years filing   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Free prior tax years filing Nontaxable combat pay. Free prior tax years filing   For IRA purposes, if you were a member of the U. Free prior tax years filing S. Free prior tax years filing Armed Forces, your compensation includes any nontaxable combat pay you receive. Free prior tax years filing What is not compensation?   Compensation does not include any of the following items. Free prior tax years filing Earnings and profits from property, such as rental income, interest income, and dividend income. Free prior tax years filing Pension or annuity income. Free prior tax years filing Deferred compensation received (compensation payments postponed from a past year). Free prior tax years filing Income from a partnership for which you do not provide services that are a material income-producing factor. Free prior tax years filing Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Free prior tax years filing Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Free prior tax years filing When and How Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Free prior tax years filing However, the time for making contributions for any year is limited. Free prior tax years filing See When Can Contributions Be Made , later. Free prior tax years filing You can open different kinds of IRAs with a variety of organizations. Free prior tax years filing You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Free prior tax years filing You can also open an IRA through your stockbroker. Free prior tax years filing Any IRA must meet Internal Revenue Code requirements. Free prior tax years filing Kinds of traditional IRAs. Free prior tax years filing   Your traditional IRA can be an individual retirement account or annuity. Free prior tax years filing It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Free prior tax years filing How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Free prior tax years filing These limits and other rules are explained below. Free prior tax years filing Community property laws. Free prior tax years filing   Except as discussed later under Kay Bailey Hutchison Spousal IRA limit , each spouse figures his or her limit separately, using his or her own compensation. Free prior tax years filing This is the rule even in states with community property laws. Free prior tax years filing Brokers' commissions. Free prior tax years filing   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Free prior tax years filing Trustees' fees. Free prior tax years filing   Trustees' administrative fees are not subject to the contribution limit. Free prior tax years filing Qualified reservist repayments. Free prior tax years filing   If you are (or were) a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions you received. Free prior tax years filing You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Free prior tax years filing To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or similar arrangement. Free prior tax years filing   For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 of Publication 590. Free prior tax years filing Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Free prior tax years filing (See Roth IRAs, later. Free prior tax years filing ) General limit. Free prior tax years filing   For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts. Free prior tax years filing $5,500 ($6,500 if you are 50 or older). Free prior tax years filing Your taxable compensation (defined earlier) for the year. Free prior tax years filing This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Free prior tax years filing (See Nondeductible Contributions , later. Free prior tax years filing ) Qualified reservist repayments do not affect this limit. Free prior tax years filing Example 1. Free prior tax years filing Betty, who is 34 years old and single, earned $24,000 in 2013. Free prior tax years filing Her IRA contributions for 2013 are limited to $5,500. Free prior tax years filing Example 2. Free prior tax years filing John, an unmarried college student working part time, earned $3,500 in 2013. Free prior tax years filing His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Free prior tax years filing Kay Bailey Hutchison Spousal IRA limit. Free prior tax years filing   For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following amounts. Free prior tax years filing $5,500 ($6,500 if you are 50 or older). Free prior tax years filing The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Free prior tax years filing Your spouse's IRA contribution for the year to a traditional IRA. Free prior tax years filing Any contribution for the year to a Roth IRA on behalf of your spouse. Free prior tax years filing This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is 50 or older, or $13,000 if both of you are 50 or older). Free prior tax years filing When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Free prior tax years filing Contributions must be in the form of money (cash, check, or money order). Free prior tax years filing Property cannot be contributed. Free prior tax years filing Contributions must be made by due date. Free prior tax years filing   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Free prior tax years filing Age 70½ rule. Free prior tax years filing   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Free prior tax years filing   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Free prior tax years filing If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Free prior tax years filing Designating year for which contribution is made. Free prior tax years filing   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Free prior tax years filing If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Free prior tax years filing Filing before a contribution is made. Free prior tax years filing   You can file your return claiming a traditional IRA contribution before the contribution is actually made. Free prior tax years filing Generally, the contribution must be made by the due date of your return, not including extensions. Free prior tax years filing Contributions not required. Free prior tax years filing   You do not have to contribute to your traditional IRA for every tax year, even if you can. Free prior tax years filing How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if it applies). Free prior tax years filing However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Free prior tax years filing See Limit If Covered by Employer Plan , later. Free prior tax years filing You may be able to claim a credit for contributions to your traditional IRA. Free prior tax years filing For more information, see chapter 37. Free prior tax years filing Trustees' fees. Free prior tax years filing   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Free prior tax years filing However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Free prior tax years filing See chapter 28. Free prior tax years filing Brokers' commissions. Free prior tax years filing   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Free prior tax years filing Full deduction. Free prior tax years filing   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older in 2013). Free prior tax years filing 100% of your compensation. Free prior tax years filing This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Free prior tax years filing Kay Bailey Hutchison Spousal IRA. Free prior tax years filing   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of the following amounts. Free prior tax years filing $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older in 2013). Free prior tax years filing The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Free prior tax years filing The IRA deduction for the year of the spouse with the greater compensation. Free prior tax years filing Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Free prior tax years filing Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Free prior tax years filing This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation. Free prior tax years filing Note. Free prior tax years filing If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Free prior tax years filing After a divorce or legal separation, you can deduct only contributions to your own IRA. Free prior tax years filing Your deductions are subject to the rules for single individuals. Free prior tax years filing Covered by an employer retirement plan. Free prior tax years filing   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Free prior tax years filing This is discussed later under Limit If Covered by Employer Plan . Free prior tax years filing Limits on the amount you can deduct do not affect the amount that can be contributed. Free prior tax years filing See Nondeductible Contributions , later. Free prior tax years filing Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Free prior tax years filing The “Retirement plan” box should be checked if you were covered. Free prior tax years filing Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered by an Employer Plan , later. Free prior tax years filing If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Free prior tax years filing Federal judges. Free prior tax years filing   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan. Free prior tax years filing For Which Year(s) Are You Covered by an Employer Plan? Special rules apply to determine the tax years for which you are covered by an employer plan. Free prior tax years filing These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Free prior tax years filing Tax year. Free prior tax years filing   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Free prior tax years filing For almost all people, the tax year is the calendar year. Free prior tax years filing Defined contribution plan. Free prior tax years filing   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Free prior tax years filing   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Free prior tax years filing Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Free prior tax years filing Defined benefit plan. Free prior tax years filing   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Free prior tax years filing This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Free prior tax years filing   A defined benefit plan is any plan that is not a defined contribution plan. Free prior tax years filing Defined benefit plans include pension plans and annuity plans. Free prior tax years filing No vested interest. Free prior tax years filing   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Free prior tax years filing Situations in Which You Are Not Covered by an Employer Plan Unless you are covered under another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Free prior tax years filing Social security or railroad retirement. Free prior tax years filing   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Free prior tax years filing Benefits from a previous employer's plan. Free prior tax years filing   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Free prior tax years filing Reservists. Free prior tax years filing   If the only reason you participate in a plan is because you are a member of a reserve unit of the armed forces, you may not be covered by the plan. Free prior tax years filing You are not covered by the plan if both of the following conditions are met. Free prior tax years filing The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Free prior tax years filing You did not serve more than 90 days on active duty during the year (not counting duty for training). Free prior tax years filing Volunteer firefighters. Free prior tax years filing   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Free prior tax years filing You are not covered by the plan if both of the following conditions are met. Free prior tax years filing The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Free prior tax years filing Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Free prior tax years filing Limit If Covered by Employer Plan If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Free prior tax years filing Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Free prior tax years filing These amounts vary depending on your filing status. Free prior tax years filing To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. Free prior tax years filing See Filing status and Modified adjusted gross income (AGI) , later. Free prior tax years filing Then use Table 17-1 or 17-2 to determine if the phaseout applies. Free prior tax years filing Social security recipients. Free prior tax years filing   Instead of using Table 17-1 or Table 17-2, use the worksheets in Appendix B of Publication 590 if, for the year, all of the following apply. Free prior tax years filing You received social security benefits. Free prior tax years filing You received taxable compensation. Free prior tax years filing Contributions were made to your traditional IRA. Free prior tax years filing You or your spouse was covered by an employer retirement plan. Free prior tax years filing Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Free prior tax years filing Deduction phaseout. Free prior tax years filing   If you were covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI as shown in Table 17-1. Free prior tax years filing Table 17-1. Free prior tax years filing Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Free prior tax years filing IF your filing status is. Free prior tax years filing . Free prior tax years filing . Free prior tax years filing   AND your modified AGI is. Free prior tax years filing . Free prior tax years filing . Free prior tax years filing   THEN you can take. Free prior tax years filing . Free prior tax years filing . Free prior tax years filing single   or  head of household   $59,000 or less   a full deduction. Free prior tax years filing   more than $59,000 but less than $69,000   a partial deduction. Free prior tax years filing   $69,000 or more   no deduction. Free prior tax years filing married filing jointly   or  qualifying widow(er)   $95,000 or less   a full deduction. Free prior tax years filing   more than $95,000 but less than $115,000   a partial deduction. Free prior tax years filing   $115,000 or more   no deduction. Free prior tax years filing married filing separately2   less than $10,000   a partial deduction. Free prior tax years filing   $10,000 or more   no deduction. Free prior tax years filing 1Modified AGI (adjusted gross income). Free prior tax years filing See Modified adjusted gross income (AGI) . Free prior tax years filing 2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” column). Free prior tax years filing If your spouse is covered. Free prior tax years filing   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 17-2. Free prior tax years filing Filing status. Free prior tax years filing   Your filing status depends primarily on your marital status. Free prior tax years filing For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Free prior tax years filing If you need more information on filing status, see chapter 2. Free prior tax years filing Lived apart from spouse. Free prior tax years filing   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Free prior tax years filing Table 17-2. Free prior tax years filing Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Free prior tax years filing IF your filing status is. Free prior tax years filing . Free prior tax years filing . Free prior tax years filing   AND your modified AGI is. Free prior tax years filing . Free prior tax years filing . Free prior tax years filing   THEN you can take. Free prior tax years filing . Free prior tax years filing . Free prior tax years filing single, head of household, or qualifying widow(er)   any amount   a full deduction. Free prior tax years filing married filing jointly or separately with a spouse who is not covered by a plan at work   any amount   a full deduction. Free prior tax years filing married filing jointly with a spouse who is covered by a plan at work   $178,000 or less   a full deduction. Free prior tax years filing   more than $178,000 but less than $188,000   a partial deduction. Free prior tax years filing   $188,000 or more   no deduction. Free prior tax years filing married filing separately with a spouse who is covered by a plan at work2   less than $10,000   a partial deduction. Free prior tax years filing   $10,000 or more   no deduction. Free prior tax years filing 1Modified AGI (adjusted gross income). Free prior tax years filing See Modified adjusted gross income (AGI) . Free prior tax years filing 2You are entitled to the full deduction if you did not live with your spouse at any time during the year. Free prior tax years filing Modified adjusted gross income (AGI). Free prior tax years filing   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. Free prior tax years filing If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Publication 590. Free prior tax years filing You may be able to use Worksheet 17-1 to figure your modified AGI. Free prior tax years filing    Do not assume that your modified AGI is the same as your compensation. Free prior tax years filing Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions. Free prior tax years filing Form 1040. Free prior tax years filing   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following eight amounts. Free prior tax years filing IRA deduction. Free prior tax years filing Student loan interest deduction. Free prior tax years filing Tuition and fees deduction. Free prior tax years filing Domestic production activities deduction. Free prior tax years filing Foreign earned income exclusion. Free prior tax years filing Foreign housing exclusion or deduction. Free prior tax years filing Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U. Free prior tax years filing S. Free prior tax years filing Savings Bonds Issued After 1989. Free prior tax years filing Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses. Free prior tax years filing This is your modified AGI. Free prior tax years filing Form 1040A. Free prior tax years filing   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Free prior tax years filing IRA deduction. Free prior tax years filing Student loan interest deduction. Free prior tax years filing Tuition and fees deduction. Free prior tax years filing Exclusion of qualified savings bond interest shown on Form 8815. Free prior tax years filing This is your modified AGI. Free prior tax years filing Both contributions for 2013 and distributions in 2013. Free prior tax years filing   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Free prior tax years filing You received distributions in 2013 from one or more traditional IRAs. Free prior tax years filing You made contributions to a traditional IRA for 2013. Free prior tax years filing Some of those contributions may be nondeductible contributions. Free prior tax years filing If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Free prior tax years filing To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590. Free prior tax years filing   If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1, later. Free prior tax years filing    How to figure your reduced IRA deduction. Free prior tax years filing   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. Free prior tax years filing Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead. Free prior tax years filing Worksheet 17-1. Free prior tax years filing Figuring Your Modified AGI Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes. Free prior tax years filing 1. Free prior tax years filing Enter your adjusted gross income (AGI) from Form 1040, line 38, or Form 1040A, line 22, figured without taking into account the amount from Form 1040, line 32, or Form 1040A, line 17 1. Free prior tax years filing   2. Free prior tax years filing Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18 2. Free prior tax years filing   3. Free prior tax years filing Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Free prior tax years filing   4. Free prior tax years filing Enter any domestic production activities deduction from Form 1040, line 35 4. Free prior tax years filing   5. Free prior tax years filing Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Free prior tax years filing   6. Free prior tax years filing Enter any foreign housing deduction from Form 2555, line 50 6. Free prior tax years filing   7. Free prior tax years filing Enter any excludable savings bond interest from Form 8815, line 14 7. Free prior tax years filing   8. Free prior tax years filing Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Free prior tax years filing   9. Free prior tax years filing Add lines 1 through 8. Free prior tax years filing This is your Modified AGI for traditional IRA purposes 9. Free prior tax years filing   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Free prior tax years filing If you file Form 1040A, enter your IRA deduction on line 17. Free prior tax years filing You cannot deduct IRA contributions on Form 1040EZ. Free prior tax years filing Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Free prior tax years filing The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Free prior tax years filing Example. Free prior tax years filing Mike is 28 years old and single. Free prior tax years filing In 2013, he was covered by a retirement plan at work. Free prior tax years filing His salary was $57,312. Free prior tax years filing His modified AGI was $70,000. Free prior tax years filing Mike made a $5,500 IRA contribution for 2013. Free prior tax years filing Because he was covered by a retirement plan and his modified AGI was over $69,000, he cannot deduct his $5,500 IRA contribution. Free prior tax years filing He must designate this contribution as a nondeductible contribution by reporting it on Form 8606, as explained next. Free prior tax years filing Form 8606. Free prior tax years filing   To designate contributions as nondeductible, you must file Form 8606. Free prior tax years filing   You do not have to designate a contribution as nondeductible until you file your tax return. Free prior tax years filing When you file, you can even designate otherwise deductible contributions as nondeductible. Free prior tax years filing   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Free prior tax years filing A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Free prior tax years filing In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Free prior tax years filing See Form 8606 under Distributions Fully or Partly Taxable, later. Free prior tax years filing Failure to report nondeductible contributions. Free prior tax years filing   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions when withdrawn. Free prior tax years filing All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Free prior tax years filing Penalty for overstatement. Free prior tax years filing   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Free prior tax years filing Penalty for failure to file Form 8606. Free prior tax years filing   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Free prior tax years filing    Tax on earnings on nondeductible contributions. Free prior tax years filing   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Free prior tax years filing See When Can You Withdraw or Use IRA Assets , later. Free prior tax years filing Cost basis. Free prior tax years filing   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Free prior tax years filing Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Free prior tax years filing Inherited IRAs If you inherit a traditional IRA, you are called a beneficiary. Free prior tax years filing A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Free prior tax years filing Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Free prior tax years filing Inherited from spouse. Free prior tax years filing   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Free prior tax years filing You can: Treat it as your own IRA by designating yourself as the account owner. Free prior tax years filing Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (section 403(b) plan), or Deferred compensation plan of a state or local government (section 457 plan). Free prior tax years filing Treat yourself as the beneficiary rather than treating the IRA as your own. Free prior tax years filing Treating it as your own. Free prior tax years filing   You will be considered to have chosen to treat the IRA as your own if: Contributions (including rollover contributions) are made to the inherited IRA, or You do not take the required minimum distribution for a year as a beneficiary of the IRA. Free prior tax years filing You will only be considered to have chosen to treat the IRA as your own if: You are the sole beneficiary of the IRA, and You have an unlimited right to withdraw amounts from it. Free prior tax years filing   However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. Free prior tax years filing Inherited from someone other than spouse. Free prior tax years filing   If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. Free prior tax years filing This means that you cannot make any contributions to the IRA. Free prior tax years filing It also means you cannot roll over any amounts into or out of the inherited IRA. Free prior tax years filing However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. Free prior tax years filing For more information, see the discussion of inherited IRAs under Rollover From One IRA Into Another, later. Free prior tax years filing Can You Move Retirement Plan Assets? You can transfer, tax free, assets (money or property) from other retirement plans (including traditional IRAs) to a traditional IRA. Free prior tax years filing You can make the following kinds of transfers. Free prior tax years filing Transfers from one trustee to another. Free prior tax years filing Rollovers. Free prior tax years filing Transfers incident to a divorce. Free prior tax years filing Transfers to Roth IRAs. Free prior tax years filing   Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. Free prior tax years filing You can also move assets from a qualified retirement plan to a Roth IRA. Free prior tax years filing See Can You Move Amounts Into a Roth IRA? under Roth IRAs, later. Free prior tax years filing Trustee-to-Trustee Transfer A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Free prior tax years filing Because there is no distribution to you, the transfer is tax free. Free prior tax years filing Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers, discussed later under Rollover From One IRA Into Another . Free prior tax years filing For information about direct transfers to IRAs from retirement plans other than IRAs, see Can You Move Retirement Plan Assets? in chapter 1 and Can You Move Amounts Into a Roth IRA? in chapter 2 of Publication 590. Free prior tax years filing Rollovers Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute (roll over) to another retirement plan. Free prior tax years filing The contribution to the second retirement plan is called a “rollover contribution. Free prior tax years filing ” Note. Free prior tax years filing An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan. Free prior tax years filing Kinds of rollovers to a traditional IRA. Free prior tax years filing   You can roll over amounts from the following plans into a traditional IRA: A traditional IRA, An employer's qualified retirement plan for its employees, A deferred compensation plan of a state or local government (section 457 plan), or A tax-sheltered annuity plan (section 403(b) plan). Free prior tax years filing Treatment of rollovers. Free prior tax years filing   You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and under Reporting rollovers from employer plans . Free prior tax years filing Kinds of rollovers from a traditional IRA. Free prior tax years filing   You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. Free prior tax years filing These plans include the federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). Free prior tax years filing The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Free prior tax years filing Qualified plans may, but are not required to, accept such rollovers. Free prior tax years filing Time limit for making a rollover contribution. Free prior tax years filing   You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. Free prior tax years filing The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. Free prior tax years filing For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free prior tax years filing Extension of rollover period. Free prior tax years filing   If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, special rules extend the rollover period. Free prior tax years filing For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free prior tax years filing More information. Free prior tax years filing   For more information on rollovers, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free prior tax years filing Rollover From One IRA Into Another You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Free prior tax years filing Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA. Free prior tax years filing Waiting period between rollovers. Free prior tax years filing   Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. Free prior tax years filing You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. Free prior tax years filing   The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Free prior tax years filing Example. Free prior tax years filing You have two traditional IRAs, IRA-1 and IRA-2. Free prior tax years filing You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Free prior tax years filing You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. Free prior tax years filing However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. Free prior tax years filing This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2. Free prior tax years filing Exception. Free prior tax years filing   For an exception for distributions from failed financial institutions, see Rollover From One IRA Into Another under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free prior tax years filing Partial rollovers. Free prior tax years filing   If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. Free prior tax years filing The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). Free prior tax years filing The amount you keep may be subject to the 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes? . Free prior tax years filing Required distributions. Free prior tax years filing   Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. Free prior tax years filing Inherited IRAs. Free prior tax years filing   If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own. Free prior tax years filing See Treating it as your own , earlier. Free prior tax years filing Not inherited from spouse. Free prior tax years filing   If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. Free prior tax years filing You must withdraw the IRA assets within a certain period. Free prior tax years filing For more information, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Free prior tax years filing Reporting rollovers from IRAs. Free prior tax years filing   Report any rollover from one traditional IRA to the same or another traditional IRA on lines 15a and 15b, Form 1040, or lines 11a and 11b, Form 1040A, as follows. Free prior tax years filing   Enter the total amount of the distribution on Form 1040, line 15a, or Form 1040A, line 11a. Free prior tax years filing If the total amount on Form 1040, line 15a, or Form 1040A, line 11a, was rolled over, enter zero on Form 1040, line 15b, or Form 1040A, line 11b. Free prior tax years filing If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b, or Form 1040A, line 11b. Free prior tax years filing Put “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b. Free prior tax years filing See your tax return instructions. Free prior tax years filing   If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2014, attach a statement explaining what you did. Free prior tax years filing Rollover From Employer's Plan Into an IRA You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan; Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Free prior tax years filing A qualified plan is one that meets the requirements of the Internal Revenue Code. Free prior tax years filing Eligible rollover distribution. Free prior tax years filing   Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following. Free prior tax years filing A required minimum distribution (explained later under When Must You Withdraw IRA Assets? (Required Minimum Distributions) ). Free prior tax years filing A hardship distribution. Free prior tax years filing Any of a series of substantially equal periodic distributions paid at least once a year over: Your lifetime or life expectancy, The lifetimes or life expectancies of you and your beneficiary, or A period of 10 years or more. Free prior tax years filing Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains. Free prior tax years filing A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan. Free prior tax years filing Dividends on employer securities. Free prior tax years filing The cost of life insurance coverage. Free prior tax years filing Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Free prior tax years filing To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Free prior tax years filing See Form 8606 under Distributions Fully or Partly Taxable, later. Free prior tax years filing Rollover by nonspouse beneficiary. Free prior tax years filing   A direct transfer from a deceased employee's qualified pension, profit-sharing, or stock bonus plan; annuity plan; tax-sheltered annuity (section 403(b)) plan; or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. Free prior tax years filing The IRA is treated as an inherited IRA. Free prior tax years filing For more information about inherited IRAs, see Inherited IRAs , earlier. Free prior tax years filing Reporting rollovers from employer plans. Free prior tax years filing    Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a, or Form 1040A, line 12a. Free prior tax years filing This amount should be shown in box 1 of Form 1099-R. Free prior tax years filing From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Free prior tax years filing From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Free prior tax years filing Enter the remaining amount, even if zero, on Form 1040, line 16b, or Form 1040A, line 12b. Free prior tax years filing Also, enter "Rollover" next to Form 1040, line 16b, or Form 1040A, line 12b. Free prior tax years filing Transfers Incident to Divorce If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. Free prior tax years filing The transfer is tax free. Free prior tax years filing For detailed information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free prior tax years filing Converting From Any Traditional IRA to a Roth IRA Allowable conversions. Free prior tax years filing   You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. Free prior tax years filing The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. Free prior tax years filing If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. Free prior tax years filing However, a part or all of the conversion contribution from your traditional IRA is included in your gross income. Free prior tax years filing Required distributions. Free prior tax years filing   You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70½) under the required distribution rules (discussed later). Free prior tax years filing Income. Free prior tax years filing   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Free prior tax years filing These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Free prior tax years filing   You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed later. Free prior tax years filing   You must file Form 8606 to report 2013 conversions from traditional, SEP, or SIMPLE IRAs to a Roth IRA in 2013 (unless you recharacterized the entire amount) and to figure the amount to include in income. Free prior tax years filing   If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Free prior tax years filing See chapter 4. Free prior tax years filing Recharacterizations You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. Free prior tax years filing This is called recharacterizing the contribution. Free prior tax years filing See Can You Move Retirement Plan Assets? in chapter 1 of Publication 590 for more detailed information. Free prior tax years filing How to recharacterize a contribution. Free prior tax years filing   To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. Free prior tax years filing If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. Free prior tax years filing If you recharacterize your contribution, you must do all three of the following. Free prior tax years filing Include in the transfer any net income allocable to the contribution. Free prior tax years filing If there was a loss, the net income you must transfer may be a negative amount. Free prior tax years filing Report the recharacterization on your tax return for the year during which the contribution was made. Free prior tax years filing Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. Free prior tax years filing No deduction allowed. Free prior tax years filing   You cannot deduct the contribution to the first IRA. Free prior tax years filing Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. Free prior tax years filing Required notifications. Free prior tax years filing   To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. Free prior tax years filing You must make the notifications by the date of the transfer. Free prior tax years filing Only one notification is required if both IRAs are maintained by the same trustee. Free prior tax years filing The notification(s) must include all of the following information. Free prior tax years filing The type and amount of the contribution to the first IRA that is to be recharacterized. Free prior tax years filing The date on which the contribution was made to the first IRA and the year for which it was made. Free prior tax years filing A direction to the trustee of the first IRA to transfer in a trustee-to-trustee transfer the amount of the contribution and any net income (or loss) allocable to the contribution to the trustee of the second IRA. Free prior tax years filing The name of the trustee of the first IRA and the name of the trustee of the second IRA. Free prior tax years filing Any additional information needed to make the transfer. Free prior tax years filing Reporting a recharacterization. Free prior tax years filing   If you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. Free prior tax years filing You must treat the contribution as having been made to the second IRA. Free prior tax years filing When Can You Withdraw or Use IRA Assets? There are rules limiting use of your IRA assets and distributions from it. Free prior tax years filing Violation of the rules generally results in additional taxes in the year of violation. Free prior tax years filing See What Acts Result in Penalties or Additional Taxes , later. Free prior tax years filing Contributions returned before the due date of return. Free prior tax years filing   If you made IRA contributions in 2013, you can withdraw them tax free by the due date of your return. Free prior tax years filing If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. Free prior tax years filing You can do this if, for each contribution you withdraw, both of the following conditions apply. Free prior tax years filing You did not take a deduction for the contribution. Free prior tax years filing You withdraw any interest or other income earned on the contribution. Free prior tax years filing You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Free prior tax years filing If there was a loss, the net income earned on the contribution may be a negative amount. Free prior tax years filing Note. Free prior tax years filing To calculate the amount you must withdraw, see Worksheet 1-4 under When Can You Withdraw or Use Assets? in chapter 1 of Publication 590. Free prior tax years filing Earnings includible in income. Free prior tax years filing   You must include in income any earnings on the contributions you withdraw. Free prior tax years filing Include the earnings in income for the year in which you made the contributions, not in the year in which you withdraw them. Free prior tax years filing Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. Free prior tax years filing Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes?, later. Free prior tax years filing    Early distributions tax. Free prior tax years filing   The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. Free prior tax years filing However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. Free prior tax years filing When Must You Withdraw IRA Assets? (Required Minimum Distributions) You cannot keep funds in a traditional IRA indefinitely. Free prior tax years filing Eventually they must be distributed. Free prior tax years filing If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. Free prior tax years filing See Excess Accumulations (Insufficient Distributions) , later. Free prior tax years filing The requirements for distributing IRA funds differ depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. Free prior tax years filing Required minimum distribution. Free prior tax years filing   The amount that must be distributed each year is referred to as the required minimum distribution. Free prior tax years filing Required distributions not eligible for rollover. Free prior tax years filing   Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment. Free prior tax years filing IRA owners. Free prior tax years filing   If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Free prior tax years filing April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date. Free prior tax years filing Distributions by the required beginning date. Free prior tax years filing   You must receive at least a minimum amount for each year starting with the year you reach age 70½ (your 70½ year). Free prior tax years filing If you do not (or did not) receive that minimum amount in your 70½ year, then you must receive distributions for your 70½ year by April 1 of the next year. Free prior tax years filing   If an IRA owner dies after reaching age 70½, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. Free prior tax years filing Even if you begin receiving distributions before you attain age 70½, you must begin calculating and receiving required minimum distributions by your required beginning date. Free prior tax years filing Distributions after the required beginning date. Free prior tax years filing   The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year. Free prior tax years filing    Beneficiaries. Free prior tax years filing   If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA generally depend on whether the IRA owner died before or after the required beginning date for distributions. Free prior tax years filing More information. Free prior tax years filing   For more information, including how to figure your minimum required distribution each year and how to figure your required distribution if you are a beneficiary of a decedent's IRA, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Free prior tax years filing Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. Free prior tax years filing Exceptions. Free prior tax years filing   Exceptions to distributions from traditional IRAs being taxable in the year you receive them are: Rollovers, Qualified charitable distributions (QCD), discussed later, Tax-free withdrawals of contributions, discussed earlier, and The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable . Free prior tax years filing    Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it is not an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. Free prior tax years filing Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained in Converting From Any Traditional IRA Into a Roth IRA under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free prior tax years filing Qualified charitable distributions (QCD). Free prior tax years filing   A QCD is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. Free prior tax years filing Special rules apply if you made a qualified charitable distribution in January 2013 that you elected to treat as made in 2012. Free prior tax years filing See Qualified Charitable Distributions in Publication 590 for more information. Free prior tax years filing Ordinary income. Free prior tax years filing   Distributions from traditional IRAs that you include in income are taxed as ordinary income. Free prior tax years filing No special treatment. Free prior tax years filing   In figuring your tax, you cannot use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans. Free prior tax years filing Distributions Fully or Partly Taxable Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions. Free prior tax years filing Fully taxable. Free prior tax years filing   If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Free prior tax years filing Because you have no basis in your IRA, any distributions are fully taxable when received. Free prior tax years filing See Reporting taxable distributions on your return , later. Free prior tax years filing Partly taxable. Free prior tax years filing    If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. Free prior tax years filing These nondeductible contributions are not taxed when they are distributed to you. Free prior tax years filing They are a return of your investment in your IRA. Free prior tax years filing   Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. Free prior tax years filing If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Free prior tax years filing Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. Free prior tax years filing Form 8606. Free prior tax years filing   You must complete Form 8606 and attach it to your return if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. Free prior tax years filing Using the form, you will figure the nontaxable distributions for 2013 and your total IRA basis for 2013 and earlier years. Free prior tax years filing Note. Free prior tax years filing If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. Free prior tax years filing Send it to the IRS at the time and place you would otherwise file an income tax return. Free prior tax years filing Distributions reported on Form 1099-R. Free prior tax years filing   If you receive a distribution from your traditional IRA, you will receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free prior tax years filing , or a similar statement. Free prior tax years filing IRA distributions are shown in boxes 1 and 2a of Form 1099-R. Free prior tax years filing A number or letter code in box 7 tells you what type of distribution you received from your IRA. Free prior tax years filing Withholding. Free prior tax years filing   Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. Free prior tax years filing See chapter 4. Free prior tax years filing IRA distributions delivered outside the United States. Free prior tax years filing   In general, if you are a U. Free prior tax years filing S. Free prior tax years filing citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA. Free prior tax years filing Reporting taxable distributions on your return. Free prior tax years filing    Report fully taxable distributions, including early distributions on Form 1040, line 15b, or Form 1040A, line 11b (no entry is required on Form 1040, line 15a, or Form 1040A, line 11a). Free prior tax years filing If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a, or Form 1040A, line 11a, and the taxable part on Form 1040, line 15b, or Form 1040A, line 11b. Free prior tax years filing You cannot report distributions on Form 1040EZ. Free prior tax years filing What Acts Result in Penalties or Additional Taxes? The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. Free prior tax years filing There are additions to the regular tax for using your IRA funds in prohibited transactions. Free prior tax years filing There are also additional taxes for the following activities. Free prior tax years filing Investing in collectibles. Free prior tax years filing Making excess contributions. Free prior tax years filing Taking early distributions. Free prior tax years filing Allowing excess amounts to accumulate (failing to take required distributions). Free prior tax years filing There are penalties for overstating the amount of nondeductible contributions and for failure to file a Form 8606, if required. Free prior tax years filing Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA by you, your beneficiary, or any disqualified person. Free prior tax years filing Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendent, and any spouse of a lineal descendent). Free prior tax years filing The following are examples of prohibited transactions with a traditional IRA. Free prior tax years filing Borrowing money from it. Free prior tax years filing Selling property to it. Free prior tax years filing Receiving unreasonable compensation for managing it. Free prior tax years filing Using it as security for a loan. Free prior tax years filing Buying property for personal use (present or future) with IRA funds. Free prior tax years filing Effect on an IRA account. Free prior tax years filing   Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Free prior tax years filing Effect on you or your beneficiary. Free prior tax years filing   If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. Free prior tax years filing If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. Free prior tax years filing For information on figuring your gain and reporting it in income, see Are Distributions Taxable , earlier. Free prior tax years filing The distribution may be subject to additional taxes or penalties. Free prior tax years filing Taxes on prohibited transactions. Free prior tax years filing   If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. Free prior tax years filing In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction is not corrected. Free prior tax years filing More information. Free prior tax years filing   For more information on prohibited transactions, see What Acts Result in Penalties or Additional Taxes? in chapter 1 of Publication 590. Free prior tax years filing Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. Free prior tax years filing You may have to pay the 10% additional tax on early distributions, discussed later. Free prior tax years filing Collectibles. Free prior tax years filing   These include: Artworks, Rugs, Antiques, Metals, Gems, Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property. Free prior tax years filing Exception. Free prior tax years filing    Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U. Free prior tax years filing S. Free prior tax years filing gold coins, or one-ounce silver coins minted by the Treasury Department. Free prior tax years filing It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Free prior tax years filing Excess Contributions Generally, an excess contribution is the amount contributed to your traditional IRA(s) for the year that is more than the smaller of: The maximum deductible amount for the year. Free prior tax years filing For 2013, this is $5,500 ($6,500 if you are 50 or older), or Your taxable compensation for the year. Free prior tax years filing Tax on excess contributions. Free prior tax years filing   In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. Free prior tax years filing You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. Free prior tax years filing The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. Free prior tax years filing Excess contributions withdrawn by due date of return. Free prior tax years filing   You will not have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution. Free prior tax years filing You must complete your withdrawal by the date your tax return for that year is due, including extensions. Free prior tax years filing How to treat withdrawn contributions. Free prior tax years filing   Do not include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both the following conditions are met. Free prior tax years filing No deduction was allowed for the excess contribution. Free prior tax years filing You withdraw the interest or other income earned on the excess contribution. Free prior tax years filing You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Free prior tax years filing If there was a loss, the net income you must withdraw may be a negative amount. Free prior tax years filing How to treat withdrawn interest or other income. Free prior tax years filing   You must include in your gross income the interest or other income that was earned on the excess contribution. Free prior tax years filing Report it on your return for the year in which the excess contribution was made. Free prior tax years filing Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions, discus