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H&r Block 2011 Tax Return

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H&r Block 2011 Tax Return

H&r block 2011 tax return 6. H&r block 2011 tax return   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. H&r block 2011 tax return  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). H&r block 2011 tax return For more information, see the retiree drug subsidy frequently asked questions on IRS. H&r block 2011 tax return gov. H&r block 2011 tax return Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. H&r block 2011 tax return However, you may have to capitalize certain insurance costs under the uniform capitalization rules. H&r block 2011 tax return For more information, see Capitalized Premiums , later. H&r block 2011 tax return Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. H&r block 2011 tax return S. H&r block 2011 tax return Individual Income Tax Return See chapter 12 for information about getting publications and forms. H&r block 2011 tax return Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. H&r block 2011 tax return Insurance that covers fire, storm, theft, accident, or similar losses. H&r block 2011 tax return Credit insurance that covers losses from business bad debts. H&r block 2011 tax return Group hospitalization and medical insurance for employees, including long-term care insurance. H&r block 2011 tax return If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. H&r block 2011 tax return If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. H&r block 2011 tax return See Publication 15-B. H&r block 2011 tax return Liability insurance. H&r block 2011 tax return Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. H&r block 2011 tax return Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. H&r block 2011 tax return If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. H&r block 2011 tax return If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. H&r block 2011 tax return Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. H&r block 2011 tax return Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. H&r block 2011 tax return Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. H&r block 2011 tax return If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. H&r block 2011 tax return If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. H&r block 2011 tax return Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. H&r block 2011 tax return Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. H&r block 2011 tax return Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. H&r block 2011 tax return The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. H&r block 2011 tax return A child includes your son, daughter, stepchild, adopted child, or foster child. H&r block 2011 tax return A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. H&r block 2011 tax return One of the following statements must be true. H&r block 2011 tax return You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. H&r block 2011 tax return You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. H&r block 2011 tax return , box 14, code A. H&r block 2011 tax return You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. H&r block 2011 tax return You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. H&r block 2011 tax return Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. H&r block 2011 tax return The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. H&r block 2011 tax return For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. H&r block 2011 tax return For partners, a policy can be either in the name of the partnership or in the name of the partner. H&r block 2011 tax return You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. H&r block 2011 tax return However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. H&r block 2011 tax return Otherwise, the insurance plan will not be considered to be established under your business. H&r block 2011 tax return For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. H&r block 2011 tax return You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. H&r block 2011 tax return However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. H&r block 2011 tax return Otherwise, the insurance plan will not be considered to be established under your business. H&r block 2011 tax return Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. H&r block 2011 tax return If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. H&r block 2011 tax return For more information, see Form 1040X, Amended U. H&r block 2011 tax return S. H&r block 2011 tax return Individual Income Tax Return. H&r block 2011 tax return Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. H&r block 2011 tax return Take the deduction on Form 1040, line 29. H&r block 2011 tax return Qualified long-term care insurance. H&r block 2011 tax return   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. H&r block 2011 tax return But, for each person covered, you can include only the smaller of the following amounts. H&r block 2011 tax return The amount paid for that person. H&r block 2011 tax return The amount shown below. H&r block 2011 tax return Use the person's age at the end of the tax year. H&r block 2011 tax return Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. H&r block 2011 tax return   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. H&r block 2011 tax return The contract must meet all the following requirements. H&r block 2011 tax return It must be guaranteed renewable. H&r block 2011 tax return It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. H&r block 2011 tax return It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. H&r block 2011 tax return It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. H&r block 2011 tax return Qualified long-term care services. H&r block 2011 tax return   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. H&r block 2011 tax return The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. H&r block 2011 tax return Worksheet 6-A. H&r block 2011 tax return Self-Employed Health Insurance Deduction Worksheet Note. H&r block 2011 tax return Use a separate worksheet for each trade or business under which an insurance plan is established. H&r block 2011 tax return 1. H&r block 2011 tax return Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. H&r block 2011 tax return Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. H&r block 2011 tax return But do not include the following. H&r block 2011 tax return   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. H&r block 2011 tax return Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. H&r block 2011 tax return Any amounts you included on Form 8885, line 4. H&r block 2011 tax return Any qualified health insurance premiums you paid to “U. H&r block 2011 tax return S. H&r block 2011 tax return Treasury-HCTC. H&r block 2011 tax return ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. H&r block 2011 tax return Any payments for qualified long-term care insurance (see line 2) 1. H&r block 2011 tax return   2. H&r block 2011 tax return For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. H&r block 2011 tax return       a) Total payments made for that person during the year. H&r block 2011 tax return       b) The amount shown below. H&r block 2011 tax return Use the person's age at the end of the tax year. H&r block 2011 tax return         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. H&r block 2011 tax return If more than one person is covered, figure separately the amount to enter for each person. H&r block 2011 tax return Then enter the total of those amounts 2. H&r block 2011 tax return   3. H&r block 2011 tax return Add lines 1 and 2 3. H&r block 2011 tax return   4. H&r block 2011 tax return Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. H&r block 2011 tax return Do not include Conservation Reserve Program payments exempt from self-employment tax. H&r block 2011 tax return If the business is an S corporation, skip to line 11 4. H&r block 2011 tax return   5. H&r block 2011 tax return Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. H&r block 2011 tax return Do not include Conservation Reserve Program payments exempt from self-employment tax. H&r block 2011 tax return See the Instructions for Schedule SE (Form 1040). H&r block 2011 tax return Do not include any net losses shown on these schedules. H&r block 2011 tax return 5. H&r block 2011 tax return   6. H&r block 2011 tax return Divide line 4 by line 5 6. H&r block 2011 tax return   7. H&r block 2011 tax return Multiply Form 1040, line 27, by the percentage on line 6 7. H&r block 2011 tax return   8. H&r block 2011 tax return Subtract line 7 from line 4 8. H&r block 2011 tax return   9. H&r block 2011 tax return Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. H&r block 2011 tax return   10. H&r block 2011 tax return Subtract line 9 from line 8 10. H&r block 2011 tax return   11. H&r block 2011 tax return Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. H&r block 2011 tax return   12. H&r block 2011 tax return Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. H&r block 2011 tax return   13. H&r block 2011 tax return Subtract line 12 from line 10 or 11, whichever applies 13. H&r block 2011 tax return   14. H&r block 2011 tax return Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. H&r block 2011 tax return Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). H&r block 2011 tax return 14. H&r block 2011 tax return   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. H&r block 2011 tax return Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. H&r block 2011 tax return * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. H&r block 2011 tax return However, it does not include capital gain income. H&r block 2011 tax return Chronically ill individual. H&r block 2011 tax return   A chronically ill individual is a person who has been certified as one of the following. H&r block 2011 tax return An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. H&r block 2011 tax return Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. H&r block 2011 tax return An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. H&r block 2011 tax return The certification must have been made by a licensed health care practitioner within the previous 12 months. H&r block 2011 tax return Benefits received. H&r block 2011 tax return   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. H&r block 2011 tax return Other coverage. H&r block 2011 tax return   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. H&r block 2011 tax return In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. H&r block 2011 tax return   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. H&r block 2011 tax return However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. H&r block 2011 tax return Effect on itemized deductions. H&r block 2011 tax return   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. H&r block 2011 tax return Effect on self-employment tax. H&r block 2011 tax return   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. H&r block 2011 tax return For more information, see Schedule SE (Form 1040). H&r block 2011 tax return How to figure the deduction. H&r block 2011 tax return   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. H&r block 2011 tax return However, if any of the following apply, you must use Worksheet 6-A in this chapter. H&r block 2011 tax return You had more than one source of income subject to self-employment tax. H&r block 2011 tax return You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. H&r block 2011 tax return You are using amounts paid for qualified long-term care insurance to figure the deduction. H&r block 2011 tax return If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. H&r block 2011 tax return Health coverage tax credit. H&r block 2011 tax return   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. H&r block 2011 tax return Use Form 8885 to figure the amount, if any, of this credit. H&r block 2011 tax return   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. H&r block 2011 tax return Any amounts you included on Form 8885, line 4. H&r block 2011 tax return Any qualified health insurance premiums you paid to “U. H&r block 2011 tax return S. H&r block 2011 tax return Treasury-HCTC. H&r block 2011 tax return ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. H&r block 2011 tax return More than one health plan and business. H&r block 2011 tax return   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. H&r block 2011 tax return Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). H&r block 2011 tax return For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. H&r block 2011 tax return Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. H&r block 2011 tax return Self-insurance reserve funds. H&r block 2011 tax return You cannot deduct amounts credited to a reserve set up for self-insurance. H&r block 2011 tax return This applies even if you cannot get business insurance coverage for certain business risks. H&r block 2011 tax return However, your actual losses may be deductible. H&r block 2011 tax return See Publication 547. H&r block 2011 tax return Loss of earnings. H&r block 2011 tax return You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. H&r block 2011 tax return However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. H&r block 2011 tax return Certain life insurance and annuities. H&r block 2011 tax return For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. H&r block 2011 tax return You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. H&r block 2011 tax return A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. H&r block 2011 tax return For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. H&r block 2011 tax return The disallowance applies without regard to whom the policy covers. H&r block 2011 tax return Partners. H&r block 2011 tax return If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. H&r block 2011 tax return You cannot deduct the insurance premiums. H&r block 2011 tax return Insurance to secure a loan. H&r block 2011 tax return If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. H&r block 2011 tax return Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. H&r block 2011 tax return In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. H&r block 2011 tax return Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. H&r block 2011 tax return Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. H&r block 2011 tax return You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. H&r block 2011 tax return Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. H&r block 2011 tax return Uniform capitalization rules. H&r block 2011 tax return   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. H&r block 2011 tax return Produce real property or tangible personal property. H&r block 2011 tax return For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. H&r block 2011 tax return Acquire property for resale. H&r block 2011 tax return However, these rules do not apply to the following property. H&r block 2011 tax return Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. H&r block 2011 tax return Property you produce if you meet either of the following conditions. H&r block 2011 tax return Your indirect costs of producing the property are $200,000 or less. H&r block 2011 tax return You use the cash method of accounting and do not account for inventories. H&r block 2011 tax return More information. H&r block 2011 tax return   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. H&r block 2011 tax return When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. H&r block 2011 tax return Cash method. H&r block 2011 tax return   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. H&r block 2011 tax return However, see Prepayment , later. H&r block 2011 tax return Accrual method. H&r block 2011 tax return   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. H&r block 2011 tax return In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). H&r block 2011 tax return For more information about the accrual method of accounting, see chapter 1. H&r block 2011 tax return For information about the exception for recurring items, see Publication 538. H&r block 2011 tax return Prepayment. H&r block 2011 tax return   You cannot deduct expenses in advance, even if you pay them in advance. H&r block 2011 tax return This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. H&r block 2011 tax return   Expenses such as insurance are generally allocable to a period of time. H&r block 2011 tax return You can deduct insurance expenses for the year to which they are allocable. H&r block 2011 tax return Example. H&r block 2011 tax return In 2013, you signed a 3-year insurance contract. H&r block 2011 tax return Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. H&r block 2011 tax return You can deduct in 2014 and 2015 the premium allocable to those years. H&r block 2011 tax return Dividends received. H&r block 2011 tax return   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. H&r block 2011 tax return For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. H&r block 2011 tax return Prev  Up  Next   Home   More Online Publications
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The H&r Block 2011 Tax Return

H&r block 2011 tax return 2. H&r block 2011 tax return   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. H&r block 2011 tax return Amount realized on a nonrecourse debt. H&r block 2011 tax return If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. H&r block 2011 tax return The foreclosure or repossession is treated as a sale from which you may realize gain or loss. H&r block 2011 tax return This is true even if you voluntarily return the property to the lender. H&r block 2011 tax return If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. H&r block 2011 tax return You must report this income on your return unless certain exceptions or exclusions apply. H&r block 2011 tax return See chapter 1 for more details. H&r block 2011 tax return Borrower's gain or loss. H&r block 2011 tax return    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. H&r block 2011 tax return The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). H&r block 2011 tax return The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). H&r block 2011 tax return For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. H&r block 2011 tax return You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. H&r block 2011 tax return Amount realized and ordinary income on a recourse debt. H&r block 2011 tax return    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. H&r block 2011 tax return The amount realized also includes any proceeds you received from the foreclosure sale. H&r block 2011 tax return If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. H&r block 2011 tax return You must report this income on your return unless certain exceptions or exclusions apply. H&r block 2011 tax return See chapter 1 for more details. H&r block 2011 tax return       Example 1. H&r block 2011 tax return Tara bought a new car for $15,000. H&r block 2011 tax return She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. H&r block 2011 tax return Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. H&r block 2011 tax return On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. H&r block 2011 tax return The balance due after taking into account the payments Tara made was $10,000. H&r block 2011 tax return The FMV of the car when it was repossessed was $9,000. H&r block 2011 tax return On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. H&r block 2011 tax return In this case, the amount Tara realizes is $9,000. H&r block 2011 tax return This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. H&r block 2011 tax return Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. H&r block 2011 tax return She has a $6,000 nondeductible loss. H&r block 2011 tax return After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). H&r block 2011 tax return Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. H&r block 2011 tax return Example 2. H&r block 2011 tax return Lili paid $200,000 for her home. H&r block 2011 tax return She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. H&r block 2011 tax return Lili is personally liable for the mortgage loan and the house secures the loan. H&r block 2011 tax return In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. H&r block 2011 tax return When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. H&r block 2011 tax return At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). H&r block 2011 tax return She remained personally liable for the $8,000 balance. H&r block 2011 tax return In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. H&r block 2011 tax return The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). H&r block 2011 tax return She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. H&r block 2011 tax return Lili must also determine her gain or loss from the foreclosure. H&r block 2011 tax return In this case, the amount that she realizes is $170,000. H&r block 2011 tax return This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. H&r block 2011 tax return Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. H&r block 2011 tax return She has a $5,000 nondeductible loss. H&r block 2011 tax return Table 1-1. H&r block 2011 tax return Worksheet for Foreclosures and Repossessions Part 1. H&r block 2011 tax return Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). H&r block 2011 tax return Otherwise, go to Part 2. H&r block 2011 tax return 1. H&r block 2011 tax return Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property   2. H&r block 2011 tax return Enter the fair market value of the transferred property   3. H&r block 2011 tax return Ordinary income from the cancellation of debt upon foreclosure or repossession. H&r block 2011 tax return * Subtract line 2 from line 1. H&r block 2011 tax return If less than zero, enter zero. H&r block 2011 tax return Next, go to Part 2   Part 2. H&r block 2011 tax return Gain or loss from foreclosure or repossession. H&r block 2011 tax return   4. H&r block 2011 tax return Enter the smaller of line 1 or line 2. H&r block 2011 tax return If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. H&r block 2011 tax return Enter any proceeds you received from the foreclosure sale   6. H&r block 2011 tax return Add line 4 and line 5   7. H&r block 2011 tax return Enter the adjusted basis of the transferred property   8. H&r block 2011 tax return Gain or loss from foreclosure or repossession. H&r block 2011 tax return Subtract line 7 from line 6   * The income may not be taxable. H&r block 2011 tax return See chapter 1 for more details. H&r block 2011 tax return Amount realized on a nonrecourse debt. H&r block 2011 tax return    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. H&r block 2011 tax return This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. H&r block 2011 tax return Example 1. H&r block 2011 tax return Tara bought a new car for $15,000. H&r block 2011 tax return She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. H&r block 2011 tax return Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. H&r block 2011 tax return On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. H&r block 2011 tax return The balance due after taking into account the payments Tara made was $10,000. H&r block 2011 tax return The FMV of the car when it was repossessed was $9,000. H&r block 2011 tax return The amount Tara realized on the repossession is $10,000. H&r block 2011 tax return That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. H&r block 2011 tax return Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. H&r block 2011 tax return Tara has a $5,000 nondeductible loss. H&r block 2011 tax return Example 2. H&r block 2011 tax return Lili paid $200,000 for her home. H&r block 2011 tax return She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. H&r block 2011 tax return She is not personally liable for the loan, but grants the bank a mortgage. H&r block 2011 tax return The bank foreclosed on the mortgage because Lili stopped making payments. H&r block 2011 tax return When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. H&r block 2011 tax return The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. H&r block 2011 tax return She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. H&r block 2011 tax return Lili has a $5,000 realized gain. H&r block 2011 tax return See Publication 523 to figure and report any taxable amount. H&r block 2011 tax return Forms 1099-A and 1099-C. H&r block 2011 tax return    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. H&r block 2011 tax return However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. H&r block 2011 tax return The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. H&r block 2011 tax return For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. H&r block 2011 tax return Prev  Up  Next   Home   More Online Publications