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Free tax preparation software Publication 17 - Introductory Material Table of Contents What's New Reminders IntroductionIcons. Free tax preparation software Ordering forms and publications. Free tax preparation software Tax questions. Free tax preparation software All material in this publication may be reprinted freely. Free tax preparation software A citation to Your Federal Income Tax (2013) would be appropriate. Free tax preparation software The explanations and examples in this publication reflect the interpretation by the Internal Revenue Service (IRS) of: Tax laws enacted by Congress, Treasury regulations, and Court decisions. Free tax preparation software However, the information given does not cover every situation and is not intended to replace the law or change its meaning. Free tax preparation software This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Free tax preparation software Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS. Free tax preparation software All taxpayers have important rights when working with the IRS. Free tax preparation software These rights are described in Your Rights as a Taxpayer in the back of this publication. Free tax preparation software What's New This section summarizes important tax changes that took effect in 2013. Free tax preparation software Most of these changes are discussed in more detail throughout this publication. Free tax preparation software Future developments. Free tax preparation software  For the latest information about the tax law topics covered in this publication, including information about any tax legislation, go to www. Free tax preparation software irs. Free tax preparation software gov/pub17. Free tax preparation software Additional Medicare Tax. Free tax preparation software  Beginning in 2013, a 0. Free tax preparation software 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Free tax preparation software See Form 8959 and its instructions. Free tax preparation software Net Investment Income Tax. Free tax preparation software  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). Free tax preparation software The NIIT is 3. Free tax preparation software 8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over: $125,000 if married filing separately, $250,000 if married filing jointly or qualifying widow(er), or $200,000 if any other filing status. Free tax preparation software See Form 8960 and its instructions. Free tax preparation software Change in tax rates. Free tax preparation software  The highest tax rate is 39. Free tax preparation software 6%. Free tax preparation software For more information, see the 2013 Tax Computation Worksheet or the 2013 Tax Rate Schedules near the end of this publication. Free tax preparation software Tax rate on net capital gain and qualified dividends. Free tax preparation software  The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. Free tax preparation software See chapter 16. Free tax preparation software Medical and dental expenses. Free tax preparation software  You can deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (7. Free tax preparation software 5% if either you or your spouse is age 65 or older). Free tax preparation software See chapter 21. Free tax preparation software Personal exemption amount increased for certain taxpayers. Free tax preparation software  Your personal exemption is increased to $3,900. Free tax preparation software But the amount is reduced if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. Free tax preparation software See chapter 3. Free tax preparation software Limit on itemized deductions. Free tax preparation software  You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. Free tax preparation software See chapter 29. Free tax preparation software Same-sex marriages. Free tax preparation software  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Free tax preparation software See chapter 2. Free tax preparation software If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. Free tax preparation software For details on filing amended returns, see chapter 1. Free tax preparation software Health flexible spending arrangements (FSAs). Free tax preparation software  You cannot have more than $2,500 in salary reduction contributions made to a health FSA for plan years beginning after 2012. Free tax preparation software See chapter 5. Free tax preparation software Expiring credits. Free tax preparation software  The plug-in electric vehicle credit and the refundable part of the credit for prior year minimum tax have expired. Free tax preparation software You cannot claim either one on your 2013 return. Free tax preparation software See chapter 37. Free tax preparation software Ponzi-type investment schemes. Free tax preparation software  There are new rules for how to claim a theft loss deduction on Form 4684 due to a Ponzi-type investment scheme. Free tax preparation software See chapter 25. Free tax preparation software Home office deduction simplified method. Free tax preparation software  If you can take a home office deduction, you may be able to use a simplified method to figure it. Free tax preparation software See Publication 587. Free tax preparation software Standard mileage rates. Free tax preparation software  The 2013 rate for business use of your car is increased to 56½ cents a mile. Free tax preparation software See chapter 26. Free tax preparation software The 2013 rate for use of your car to get medical care is increased to 24 cents a mile. Free tax preparation software See chapter 21. Free tax preparation software The 2013 rate for use of your car to move is increased to 24 cents a mile. Free tax preparation software See Publication 521, Moving Expenses. Free tax preparation software Reminders Listed below are important reminders and other items that may help you file your 2013 tax return. Free tax preparation software Many of these items are explained in more detail later in this publication. Free tax preparation software Enter your social security number (SSN). Free tax preparation software  Enter your SSN in the space provided on your tax form. Free tax preparation software If you filed a joint return for 2012 and are filing a joint return for 2013 with the same spouse, enter your names and SSNs in the same order as on your 2012 return. Free tax preparation software See chapter 1. Free tax preparation software Secure your tax records from identity theft. Free tax preparation software  Identity theft occurs when someone uses your personal information, such as your name, SSN, or other identifying information, without your permission, to commit fraud or other crimes. Free tax preparation software An identity thief may use your SSN to get a job or may file a tax return using your SSN to receive a refund. Free tax preparation software For more information about identity theft and how to reduce your risk from it, see chapter 1. Free tax preparation software Taxpayer identification numbers. Free tax preparation software  You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. Free tax preparation software This applies even if the person was born in 2013. Free tax preparation software Generally, this number is the person's social security number (SSN). Free tax preparation software See chapter 1. Free tax preparation software Foreign source income. Free tax preparation software  If you are a U. Free tax preparation software S. Free tax preparation software citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U. Free tax preparation software S. Free tax preparation software law. Free tax preparation software This is true whether you live inside or outside the United States and whether or not you receive a Form W-2 or Form 1099 from the foreign payer. Free tax preparation software This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties). Free tax preparation software If you live outside the United States, you may be able to exclude part or all of your foreign source earned income. Free tax preparation software For details, see Publication 54, Tax Guide for U. Free tax preparation software S. Free tax preparation software Citizens and Resident Aliens Abroad. Free tax preparation software Foreign financial assets. Free tax preparation software  If you had foreign financial assets in 2013, you may have to file Form 8938 with your return. Free tax preparation software Check www. Free tax preparation software IRS. Free tax preparation software gov/form8938 for details. Free tax preparation software Automatic 6-month extension to file tax return. Free tax preparation software  You can use Form 4868, Application for Automatic Extension of Time To File U. Free tax preparation software S. Free tax preparation software Individual Income Tax Return, to obtain an automatic 6-month extension of time to file your tax return. Free tax preparation software See chapter 1. Free tax preparation software Include your phone number on your return. Free tax preparation software  To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Free tax preparation software Please enter your daytime telephone number on your tax form next to your signature and occupation. Free tax preparation software If you are filing a joint return, you can enter either your or your spouse's daytime phone number. Free tax preparation software Payment of taxes. Free tax preparation software   You can pay your taxes online, by phone, or by check or money order. Free tax preparation software You can make a direct transfer from your bank account or use a credit or debit card. Free tax preparation software If you e-file, you can schedule an electronic payment. Free tax preparation software See chapter 1. Free tax preparation software Faster ways to file your return. Free tax preparation software  The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. Free tax preparation software You can use IRS e-file (electronic filing). Free tax preparation software See chapter 1. Free tax preparation software Free electronic filing. Free tax preparation software  You may be able to file your 2013 taxes online for free. Free tax preparation software See chapter 1. Free tax preparation software Change of address. Free tax preparation software  If you change your address, you should notify the IRS. Free tax preparation software See Change of Address in chapter 1. Free tax preparation software Refund on a late filed return. Free tax preparation software  If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund. Free tax preparation software See chapter 1. Free tax preparation software Frivolous tax returns. Free tax preparation software  The IRS has published a list of positions that are identified as frivolous. Free tax preparation software The penalty for filing a frivolous tax return is $5,000. Free tax preparation software See chapter 1. Free tax preparation software Filing erroneous claim for refund or credit. Free tax preparation software  You may have to pay a penalty if you file an erroneous claim for refund or credit. Free tax preparation software See chapter 1. Free tax preparation software Privacy Act and paperwork reduction information. Free tax preparation software   The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. Free tax preparation software A complete statement on this subject can be found in your tax form instructions. Free tax preparation software Customer service for taxpayers. Free tax preparation software  You can set up a personal appointment at the most convenient Taxpayer Assistance Center, on the most convenient business day. Free tax preparation software See How To Get Tax Help in the back of this publication. Free tax preparation software Preparer e-file mandate. Free tax preparation software  Most paid preparers must e-file returns they prepare and file. Free tax preparation software Your preparer may make you aware of this requirement and the options available to you. Free tax preparation software Treasury Inspector General for Tax Administration. Free tax preparation software   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (call 1-800-877-8339 if you are deaf, hard of hearing, or have a speech disability, and are using TTY/TDD equipment). Free tax preparation software You can remain anonymous. Free tax preparation software Photographs of missing children. Free tax preparation software  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Free tax preparation software Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free tax preparation software You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free tax preparation software Introduction This publication covers the general rules for filing a federal income tax return. Free tax preparation software It supplements the information contained in your tax form instructions. Free tax preparation software It explains the tax law to make sure you pay only the tax you owe and no more. Free tax preparation software How this publication is arranged. Free tax preparation software   This publication closely follows Form 1040, U. Free tax preparation software S. Free tax preparation software Individual Income Tax Return. Free tax preparation software It is divided into six parts which cover different sections of Form 1040. Free tax preparation software Each part is further divided into chapters which generally discuss one line of the form. Free tax preparation software Do not worry if you file Form 1040A or Form 1040EZ. Free tax preparation software Anything included on a line of either of these forms is also included on Form 1040. Free tax preparation software   The table of contents inside the front cover and the index in the back of the publication are useful tools to help you find the information you need. Free tax preparation software What is in this publication. Free tax preparation software   The publication begins with the rules for filing a tax return. Free tax preparation software It explains: Who must file a return, Which tax form to use, When the return is due, How to e-file your return, and Other general information. Free tax preparation software It will help you identify which filing status you qualify for, whether you can claim any dependents, and whether the income you receive is taxable. Free tax preparation software The publication goes on to explain the standard deduction, the kinds of expenses you may be able to deduct, and the various kinds of credits you may be able to take to reduce your tax. Free tax preparation software   Throughout the publication are examples showing how the tax law applies in typical situations. Free tax preparation software Also throughout the publication are flowcharts and tables that present tax information in an easy-to-understand manner. Free tax preparation software   Many of the subjects discussed in this publication are discussed in greater detail in other IRS publications. Free tax preparation software References to those other publications are provided for your information. Free tax preparation software Icons. Free tax preparation software   Small graphic symbols, or icons, are used to draw your attention to special information. Free tax preparation software See Table 1 later for an explanation of each icon used in this publication. Free tax preparation software What is not covered in this publication. Free tax preparation software   Some material that you may find helpful is not included in this publication but can be found in your tax form instruction booklet. Free tax preparation software This includes lists of: Where to report certain items shown on information documents, and Recorded tax information topics (TeleTax). Free tax preparation software   If you operate your own business or have other self-employment income, such as from babysitting or selling crafts, see the following publications for more information. Free tax preparation software Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ). Free tax preparation software Publication 535, Business Expenses. Free tax preparation software Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Free tax preparation software Help from the IRS. Free tax preparation software   There are many ways you can get help from the IRS. Free tax preparation software These are explained under How To Get Tax Help in the back of this publication. Free tax preparation software Comments and suggestions. Free tax preparation software   We welcome your comments about this publication and your suggestions for future editions. Free tax preparation software   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free tax preparation software NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free tax preparation software Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free tax preparation software   You can send your comments from www. Free tax preparation software irs. Free tax preparation software gov/formspubs/. Free tax preparation software Click on “More Information” and then on “Comment on Tax Forms and Publications”. Free tax preparation software   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free tax preparation software Ordering forms and publications. Free tax preparation software   Visit www. Free tax preparation software irs. Free tax preparation software gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free tax preparation software Internal Revenue Service 1201 N. Free tax preparation software Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free tax preparation software   If you have a tax question, check the information available on IRS. Free tax preparation software gov or call 1-800-829-1040. Free tax preparation software We cannot answer tax questions sent to either of the above addresses. Free tax preparation software IRS mission. Free tax preparation software   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Free tax preparation software Table 1. Free tax preparation software Legend of Icons Icon Explanation Items that may cause you particular problems, or an alert about pending legislation that may be enacted after this publication goes to print. Free tax preparation software An Internet site or an email address. Free tax preparation software An address you may need. Free tax preparation software Items you should keep in your personal records. Free tax preparation software Items you may need to figure or a worksheet you may need to complete and keep for your records. Free tax preparation software An important phone number. Free tax preparation software Helpful information you may need. 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Free tax preparation software 31. Free tax preparation software   Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. Free tax preparation software Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Free tax preparation software Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Free tax preparation software Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. Free tax preparation software . Free tax preparation software  For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). Free tax preparation software NIIT is a 3. Free tax preparation software 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. Free tax preparation software Use Form 8960, Net Investment Income Tax, to figure this tax. Free tax preparation software For more information on NIIT, go to www. Free tax preparation software irs. Free tax preparation software gov and enter “Net Investment Income Tax” in the search box. Free tax preparation software Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. Free tax preparation software If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. Free tax preparation software (See Parent's Election To Report Child's Interest and Dividends , later. Free tax preparation software ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Free tax preparation software (See Tax for Certain Children Who Have Unearned Income , later. Free tax preparation software ) For these rules, the term “child” includes a legally adopted child and a stepchild. Free tax preparation software These rules apply whether or not the child is a dependent. Free tax preparation software Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. Free tax preparation software The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . Free tax preparation software Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Free tax preparation software Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . Free tax preparation software Parents are married. Free tax preparation software   If the child's parents file separate returns, use the return of the parent with the greater taxable income. Free tax preparation software Parents not living together. Free tax preparation software   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. Free tax preparation software If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. Free tax preparation software   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. Free tax preparation software Parents are divorced. Free tax preparation software   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. Free tax preparation software Custodial parent remarried. Free tax preparation software   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Free tax preparation software Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Free tax preparation software Do not use the return of the noncustodial parent. Free tax preparation software   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. Free tax preparation software If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Free tax preparation software Parents never married. Free tax preparation software   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. Free tax preparation software If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. Free tax preparation software Widowed parent remarried. Free tax preparation software   If a widow or widower remarries, the new spouse is treated as the child's other parent. Free tax preparation software The rules explained earlier under Custodial parent remarried apply. Free tax preparation software Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. Free tax preparation software If you do, your child will not have to file a return. Free tax preparation software You can make this election only if all the following conditions are met. Free tax preparation software Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. Free tax preparation software Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Free tax preparation software The child's gross income was less than $10,000. Free tax preparation software The child is required to file a return unless you make this election. Free tax preparation software The child does not file a joint return for the year. Free tax preparation software No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. Free tax preparation software No federal income tax was taken out of your child's income under the backup withholding rules. Free tax preparation software You are the parent whose return must be used when applying the special tax rules for children. Free tax preparation software (See Which Parent's Return To Use , earlier. Free tax preparation software ) These conditions are also shown in Figure 31-A. Free tax preparation software Certain January 1 birthdays. Free tax preparation software   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. Free tax preparation software You cannot make this election for such a child unless the child was a full-time student. Free tax preparation software   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. Free tax preparation software You cannot make this election for such a child. Free tax preparation software Full-time student. Free tax preparation software   A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. Free tax preparation software A school includes a technical, trade, or mechanical school. Free tax preparation software It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Free tax preparation software How to make the election. Free tax preparation software   Make the election by attaching Form 8814 to your Form 1040. Free tax preparation software (If you make this election, you cannot file Form 1040A or Form 1040EZ. Free tax preparation software ) Attach a separate Form 8814 for each child for whom you make the election. Free tax preparation software You can make the election for one or more children and not for others. Free tax preparation software Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Free tax preparation software Rate may be higher. Free tax preparation software   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. Free tax preparation software This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. Free tax preparation software However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. Free tax preparation software Deductions you cannot take. Free tax preparation software   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. Free tax preparation software The additional standard deduction if the child is blind. Free tax preparation software The deduction for a penalty on an early withdrawal of your child's savings. Free tax preparation software Itemized deductions (such as your child's investment expenses or charitable contributions). Free tax preparation software Reduced deductions or credits. Free tax preparation software   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. Free tax preparation software Deduction for contributions to a traditional individual retirement arrangement (IRA). Free tax preparation software Deduction for student loan interest. Free tax preparation software Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. Free tax preparation software Credit for child and dependent care expenses. Free tax preparation software Child tax credit. Free tax preparation software Education tax credits. Free tax preparation software Earned income credit. Free tax preparation software Penalty for underpayment of estimated tax. Free tax preparation software   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. Free tax preparation software If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Free tax preparation software See chapter 4 for more information. Free tax preparation software Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Free tax preparation software Only the amount over $2,000 is added to your income. Free tax preparation software The amount over $2,000 is shown on Form 8814, line 6. Free tax preparation software Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Free tax preparation software Include the amount from Form 8814, line 12, on Form 1040, line 21. Free tax preparation software Enter “Form 8814” on the dotted line next to line 21. Free tax preparation software If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. Free tax preparation software Capital gain distributions and qualified dividends. Free tax preparation software   If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. Free tax preparation software If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. Free tax preparation software Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. Free tax preparation software This tax is added to the tax figured on your income. Free tax preparation software This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. Free tax preparation software Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. Free tax preparation software Check box a on Form 1040, line 44. Free tax preparation software Figure 31-A. Free tax preparation software Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. Free tax preparation software Figure 31–A. Free tax preparation software Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Free tax preparation software If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Free tax preparation software Attach the completed form to the child's Form 1040 or Form 1040A. Free tax preparation software When Form 8615 must be filed. Free tax preparation software   Form 8615 must be filed for a child if all of the following statements are true. Free tax preparation software The child's investment income was more than $2,000. Free tax preparation software The child is required to file a return for 2013. Free tax preparation software The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. Free tax preparation software At least one of the child's parents was alive at the end of 2013. Free tax preparation software The child does not file a joint return for 2013. Free tax preparation software These conditions are also shown in  Figure 31-B. Free tax preparation software Earned income. Free tax preparation software   Earned income includes salaries, wages, tips, and other payments received for personal services performed. Free tax preparation software It does not include unearned income as defined later in this chapter. Free tax preparation software Support. Free tax preparation software   Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Free tax preparation software To figure your child's support, count support provided by you, your child, and others. Free tax preparation software However, a scholarship received by your child is not considered support if your child is a full-time student. Free tax preparation software See chapter 3 for details about support. Free tax preparation software Certain January 1 birthdays. Free tax preparation software   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. Free tax preparation software Figure 31-B. Free tax preparation software Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. Free tax preparation software Figure 31-B. Free tax preparation software Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. Free tax preparation software . Free tax preparation software . Free tax preparation software THEN, at the end of 2013, the child is considered to be. Free tax preparation software . Free tax preparation software . Free tax preparation software January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. Free tax preparation software The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. Free tax preparation software  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. Free tax preparation software  ***Do not use Form 8615 for this child. Free tax preparation software Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. Free tax preparation software (If the parents filed a joint return, enter the name and social security number listed first on the joint return. Free tax preparation software ) On line C, check the box for the parent's filing status. Free tax preparation software See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. Free tax preparation software Parent with different tax year. Free tax preparation software   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. Free tax preparation software Parent's return information not known timely. Free tax preparation software   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. Free tax preparation software   You can use any reasonable estimate. Free tax preparation software This includes using information from last year's return. Free tax preparation software If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. Free tax preparation software    When you get the correct information, file an amended return on Form 1040X, Amended U. Free tax preparation software S. Free tax preparation software Individual Income Tax Return. Free tax preparation software   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. Free tax preparation software S. Free tax preparation software Individual Income Tax Return. Free tax preparation software Extensions are discussed in chapter 1. Free tax preparation software Step 1. Free tax preparation software Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. Free tax preparation software To do that, use Form 8615, Part I. Free tax preparation software Line 1 (unearned income). Free tax preparation software   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Free tax preparation software Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. Free tax preparation software Form 1040EZ cannot be used if Form 8615 must be filed. Free tax preparation software   If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. Free tax preparation software   However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. Free tax preparation software Unearned income defined. Free tax preparation software   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. Free tax preparation software It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. Free tax preparation software Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). Free tax preparation software Nontaxable income. Free tax preparation software   For this purpose, unearned income includes only amounts the child must include in total income. Free tax preparation software Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Free tax preparation software Income from property received as a gift. Free tax preparation software   A child's unearned income includes all income produced by property belonging to the child. Free tax preparation software This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. Free tax preparation software   A child's unearned income includes income produced by property given as a gift to the child. Free tax preparation software This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Free tax preparation software Example. Free tax preparation software Amanda Black, age 13, received the following income. Free tax preparation software Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. Free tax preparation software Amanda's unearned income is $2,100. Free tax preparation software This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). Free tax preparation software Her wages are earned (not unearned) income because they are received for work actually done. Free tax preparation software Her tax-exempt interest is not included because it is nontaxable. Free tax preparation software Trust income. Free tax preparation software   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. Free tax preparation software   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. Free tax preparation software Line 2 (deductions). Free tax preparation software   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. Free tax preparation software   If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. Free tax preparation software Directly connected. Free tax preparation software   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. Free tax preparation software These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. Free tax preparation software   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Free tax preparation software Only the amount greater than 2% of the child's adjusted gross income can be deducted. Free tax preparation software See chapter 28 for more information. Free tax preparation software Example 1. Free tax preparation software Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. Free tax preparation software His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Free tax preparation software Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. Free tax preparation software Example 2. Free tax preparation software Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. Free tax preparation software She has no other income. Free tax preparation software She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. Free tax preparation software Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). Free tax preparation software The amount on line 2 is $2,050. Free tax preparation software This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. Free tax preparation software Line 3. Free tax preparation software   Subtract line 2 from line 1 and enter the result on this line. Free tax preparation software If zero or less, do not complete the rest of the form. Free tax preparation software However, you must still attach Form 8615 to the child's tax return. Free tax preparation software Figure the tax on the child's taxable income in the normal manner. Free tax preparation software Line 4 (child's taxable income). Free tax preparation software   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. Free tax preparation software   However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. Free tax preparation software 929. Free tax preparation software Line 5 (net unearned income). Free tax preparation software   A child's net unearned income cannot be more than his or her taxable income. Free tax preparation software Enter on Form 8615, line 5, the smaller of line 3 or line 4. Free tax preparation software This is the child's net unearned income. Free tax preparation software   If zero or less, do not complete the rest of the form. Free tax preparation software However, you must still attach Form 8615 to the child's tax return. Free tax preparation software Figure the tax on the child's taxable income in the normal manner. Free tax preparation software Step 2. Free tax preparation software Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. Free tax preparation software The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. Free tax preparation software When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. Free tax preparation software For example, do not refigure the medical expense deduction. Free tax preparation software Figure the tentative tax on Form 8615, lines 6 through 13. Free tax preparation software Note. Free tax preparation software If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. Free tax preparation software Line 6 (parent's taxable income). Free tax preparation software   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. Free tax preparation software   If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. Free tax preparation software Line 7 (net unearned income of other children). Free tax preparation software   If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Free tax preparation software Do not include the amount from line 5 of the Form 8615 being completed. Free tax preparation software Example. Free tax preparation software Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. Free tax preparation software The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. Free tax preparation software Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). Free tax preparation software Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). Free tax preparation software Other children's information not available. Free tax preparation software   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Free tax preparation software See Parent's return information not known timely , earlier. Free tax preparation software Line 11 (tentative tax). Free tax preparation software   Subtract line 10 from line 9 and enter the result on this line. Free tax preparation software This is the tentative tax. Free tax preparation software   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. Free tax preparation software Also skip the discussion for lines 12a and 12b that follows. Free tax preparation software Lines 12a and 12b (dividing the tentative tax). Free tax preparation software   If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net unearned income. Free tax preparation software This is done on lines 12a, 12b, and 13. Free tax preparation software Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Free tax preparation software Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. Free tax preparation software Example. Free tax preparation software In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. Free tax preparation software The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). Free tax preparation software The decimal on line 12b is  . Free tax preparation software 333, figured as follows and rounded to three places. Free tax preparation software   $800 = . Free tax preparation software 333     $2,400   Step 3. Free tax preparation software Figuring the Child's Tax (Form 8615, Part III) The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. Free tax preparation software This is the child's tax. Free tax preparation software It is figured on Form 8615, lines 14 through 18. Free tax preparation software Alternative minimum tax. Free tax preparation software   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. Free tax preparation software See Alternative Minimum Tax (AMT) in chapter 30. Free tax preparation software    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. Free tax preparation software For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. Free tax preparation software Prev  Up  Next   Home   More Online Publications