File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Irs Forms 1040 Ez

How To File State Taxes Only2011 Tax Forms 1040 EzTaxact 2011 Login Tax Return1040 Ez FilingTax Planning Us 1040ezHow To File A Tax Extension 2011H&r Block Free TaxFile 2007 Tax Return OnlineFree Taxes Online1040ez Tax Forms DownloadsFree State Tax Online FilingFree 1040xIrsfreefileFiling 1040nrezTaxes 1040ezEz Tax Form 2014Federal Tax 1040ezIrs Income Tax Forms 2010Block At Home1040x 20121040 X10 40 Ez Tax Form2012 1040ezFree State Tax ProgramIrs 1040ez Form 20142012 H&r Block Tax SoftwareFilling Out 1040ez2012 Free Tax Software OnlineIrs FormsAmendment For Tax ReturnsHand R Block Free FileH And R Block Free FederalTaxEz Form 2010H&r Block Tax Software140xAmendment For Taxes1040ez Form 20122011 Federal Tax Forms And InstructionsH&r Block Taxes

Irs Forms 1040 Ez

Irs forms 1040 ez 2. Irs forms 1040 ez   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. Irs forms 1040 ez Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Irs forms 1040 ez They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). Irs forms 1040 ez This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Irs forms 1040 ez What is the tax benefit of the American opportunity credit. Irs forms 1040 ez   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. Irs forms 1040 ez   A tax credit reduces the amount of income tax you may have to pay. Irs forms 1040 ez Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Irs forms 1040 ez Forty percent of the American opportunity credit may be refundable. Irs forms 1040 ez This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. Irs forms 1040 ez   Your allowable American opportunity credit may be limited by the amount of your income. Irs forms 1040 ez Also, the nonrefundable part of the credit may be limited by the amount of your tax. Irs forms 1040 ez Overview of the American opportunity credit. Irs forms 1040 ez   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. Irs forms 1040 ez The details are discussed in this chapter. Irs forms 1040 ez Can you claim more than one education credit this year. Irs forms 1040 ez   For each student, you can elect for any year only one of the credits. Irs forms 1040 ez For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. Irs forms 1040 ez   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. Irs forms 1040 ez If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. Irs forms 1040 ez This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Irs forms 1040 ez Differences between the American opportunity and lifetime learning credits. Irs forms 1040 ez   There are several differences between these two credits. Irs forms 1040 ez For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. Irs forms 1040 ez However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Irs forms 1040 ez The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Irs forms 1040 ez If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. Irs forms 1040 ez If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Irs forms 1040 ez Table 2-1. Irs forms 1040 ez Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. Irs forms 1040 ez Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. Irs forms 1040 ez You pay qualified education expenses of higher education. Irs forms 1040 ez You pay the education expenses for an eligible student. Irs forms 1040 ez The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Irs forms 1040 ez Student qualifications. Irs forms 1040 ez   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. Irs forms 1040 ez As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. Irs forms 1040 ez For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. Irs forms 1040 ez Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. Irs forms 1040 ez If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. Irs forms 1040 ez For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. Irs forms 1040 ez The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Irs forms 1040 ez However, the standard may not be lower than any of those established by the U. Irs forms 1040 ez S. Irs forms 1040 ez Department of Education under the Higher Education Act of 1965. Irs forms 1040 ez For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. Irs forms 1040 ez See Prepaid expenses, later. Irs forms 1040 ez As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. Irs forms 1040 ez Example 1. Irs forms 1040 ez Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. Irs forms 1040 ez Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. Irs forms 1040 ez Sharon claimed the American opportunity credit on her 2012 tax return. Irs forms 1040 ez The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. Irs forms 1040 ez Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. Irs forms 1040 ez If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. Irs forms 1040 ez Example 2. Irs forms 1040 ez Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. Irs forms 1040 ez His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. Irs forms 1040 ez No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. Irs forms 1040 ez The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. Irs forms 1040 ez Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. Irs forms 1040 ez If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. Irs forms 1040 ez If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. Irs forms 1040 ez Example 3. Irs forms 1040 ez Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. Irs forms 1040 ez Glenda pays her tuition for the 2014 Spring semester in December 2013. Irs forms 1040 ez Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. Irs forms 1040 ez If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. Irs forms 1040 ez You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Irs forms 1040 ez Note. Irs forms 1040 ez Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Irs forms 1040 ez “Qualified education expenses” are defined later under Qualified Education Expenses . Irs forms 1040 ez “Eligible students” are defined later under Who Is an Eligible Student . Irs forms 1040 ez A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Irs forms 1040 ez You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. Irs forms 1040 ez This image is too large to be displayed in the current screen. Irs forms 1040 ez Please click the link to view the image. Irs forms 1040 ez Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. Irs forms 1040 ez Your filing status is married filing separately. Irs forms 1040 ez You are listed as a dependent on another person's tax return (such as your parents'). Irs forms 1040 ez See Who Can Claim a Dependent's Expenses , later. Irs forms 1040 ez Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). Irs forms 1040 ez MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Irs forms 1040 ez You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Irs forms 1040 ez More information on nonresident aliens can be found in Publication 519, U. Irs forms 1040 ez S. Irs forms 1040 ez Tax Guide for Aliens. Irs forms 1040 ez What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Irs forms 1040 ez Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. Irs forms 1040 ez For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. Irs forms 1040 ez Academic period. Irs forms 1040 ez   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Irs forms 1040 ez In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Irs forms 1040 ez Paid with borrowed funds. Irs forms 1040 ez   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Irs forms 1040 ez Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. Irs forms 1040 ez Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Irs forms 1040 ez Student withdraws from class(es). Irs forms 1040 ez   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. Irs forms 1040 ez Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Irs forms 1040 ez Eligible educational institution. Irs forms 1040 ez   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Irs forms 1040 ez S. Irs forms 1040 ez Department of Education. Irs forms 1040 ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs forms 1040 ez The educational institution should be able to tell you if it is an eligible educational institution. Irs forms 1040 ez   Certain educational institutions located outside the United States also participate in the U. Irs forms 1040 ez S. Irs forms 1040 ez Department of Education's Federal Student Aid (FSA) programs. Irs forms 1040 ez Related expenses. Irs forms 1040 ez   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Irs forms 1040 ez   However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. Irs forms 1040 ez Prepaid expenses. Irs forms 1040 ez   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Irs forms 1040 ez See Academic period, earlier. Irs forms 1040 ez For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Irs forms 1040 ez    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Irs forms 1040 ez   In the following examples, assume that each student is an eligible student at an eligible educational institution. Irs forms 1040 ez Example 1. Irs forms 1040 ez Jefferson is a sophomore in University V's degree program in dentistry. Irs forms 1040 ez This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Irs forms 1040 ez Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. Irs forms 1040 ez Example 2. Irs forms 1040 ez Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Irs forms 1040 ez The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Irs forms 1040 ez William bought his books from a friend; Grace bought hers at College W's bookstore. Irs forms 1040 ez Both are qualified education expenses for the American opportunity credit. Irs forms 1040 ez Example 3. Irs forms 1040 ez When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Irs forms 1040 ez This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Irs forms 1040 ez No portion of the fee covers personal expenses. Irs forms 1040 ez Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. Irs forms 1040 ez No Double Benefit Allowed You cannot do any of the following. Irs forms 1040 ez Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. Irs forms 1040 ez Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. Irs forms 1040 ez Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. Irs forms 1040 ez Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. Irs forms 1040 ez See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Irs forms 1040 ez Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Irs forms 1040 ez See Adjustments to Qualified Education Expenses, next. Irs forms 1040 ez Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Irs forms 1040 ez The result is the amount of adjusted qualified education expenses for each student. Irs forms 1040 ez Tax-free educational assistance. Irs forms 1040 ez   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Irs forms 1040 ez See Academic period, earlier. Irs forms 1040 ez   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Irs forms 1040 ez This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Irs forms 1040 ez   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Irs forms 1040 ez If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Irs forms 1040 ez   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Irs forms 1040 ez Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Irs forms 1040 ez Generally, any scholarship or fellowship is treated as tax free. Irs forms 1040 ez However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Irs forms 1040 ez The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs forms 1040 ez The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs forms 1040 ez You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Irs forms 1040 ez For examples, see Coordination with Pell grants and other scholarships, later. Irs forms 1040 ez Refunds. Irs forms 1040 ez   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Irs forms 1040 ez Some tax-free educational assistance received after 2013 may be treated as a refund. Irs forms 1040 ez See Tax-free educational assistance, earlier. Irs forms 1040 ez Refunds received in 2013. Irs forms 1040 ez   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Irs forms 1040 ez Refunds received after 2013 but before your income tax return is filed. Irs forms 1040 ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Irs forms 1040 ez Refunds received after 2013 and after your income tax return is filed. Irs forms 1040 ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Irs forms 1040 ez See Credit recapture, next. Irs forms 1040 ez Credit recapture. Irs forms 1040 ez    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Irs forms 1040 ez You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Irs forms 1040 ez You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). Irs forms 1040 ez Include that amount as an additional tax for the year the refund or tax-free assistance was received. Irs forms 1040 ez Example. Irs forms 1040 ez   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. Irs forms 1040 ez You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. Irs forms 1040 ez After you filed your return, you received a refund of $4,000. Irs forms 1040 ez You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. Irs forms 1040 ez The refigured credit is $2,250. Irs forms 1040 ez The increase to your tax liability is also $250. Irs forms 1040 ez Include the difference of $250 as additional tax on your 2014 tax return. Irs forms 1040 ez See the instructions for your 2014 income tax return to determine where to include this tax. Irs forms 1040 ez If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Irs forms 1040 ez Amounts that do not reduce qualified education expenses. Irs forms 1040 ez   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Irs forms 1040 ez   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Irs forms 1040 ez The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs forms 1040 ez The use of the money is not restricted. Irs forms 1040 ez Example 1. Irs forms 1040 ez Joan paid $3,000 for tuition and $5,000 for room and board at University X. Irs forms 1040 ez The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Irs forms 1040 ez To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Irs forms 1040 ez The terms of the scholarship state that it can be used to pay any of Joan's college expenses. Irs forms 1040 ez University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Irs forms 1040 ez Joan does not report any portion of the scholarship as income on her tax return. Irs forms 1040 ez In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Irs forms 1040 ez The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Irs forms 1040 ez Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). Irs forms 1040 ez Example 2. Irs forms 1040 ez The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Irs forms 1040 ez Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Irs forms 1040 ez Joan is treated as having paid $3,000 in qualified education expenses. Irs forms 1040 ez Coordination with Pell grants and other scholarships. Irs forms 1040 ez   In some cases, you may be able to reduce your tax liability by including scholarships in income. Irs forms 1040 ez If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Irs forms 1040 ez The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Irs forms 1040 ez Example 1—No scholarship. Irs forms 1040 ez Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. Irs forms 1040 ez This was his first year of postsecondary education. Irs forms 1040 ez During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. Irs forms 1040 ez He and the college meet all the requirements for the American opportunity credit. Irs forms 1040 ez Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. Irs forms 1040 ez Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. Irs forms 1040 ez His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. Irs forms 1040 ez He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. Irs forms 1040 ez Example 2—Scholarship excluded from income. Irs forms 1040 ez The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Irs forms 1040 ez Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. Irs forms 1040 ez If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. Irs forms 1040 ez His adjusted qualified education expenses will be zero and he will not have an education credit. Irs forms 1040 ez Therefore, Bill's tax after credits would be $2,599. Irs forms 1040 ez Example 3—Scholarship partially included in income. Irs forms 1040 ez The facts are the same as in Example 2—Scholarship excluded from income. Irs forms 1040 ez If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. Irs forms 1040 ez The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. Irs forms 1040 ez Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. Irs forms 1040 ez Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. Irs forms 1040 ez Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Irs forms 1040 ez This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Irs forms 1040 ez Sports, games, hobbies, and noncredit courses. Irs forms 1040 ez   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Irs forms 1040 ez However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Irs forms 1040 ez Comprehensive or bundled fees. Irs forms 1040 ez   Some eligible educational institutions combine all of their fees for an academic period into one amount. Irs forms 1040 ez If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. Irs forms 1040 ez The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. Irs forms 1040 ez See Figuring the Credit , later, for more information about Form 1098-T. Irs forms 1040 ez Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. Irs forms 1040 ez This is a student who meets all of the following requirements. Irs forms 1040 ez The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. Irs forms 1040 ez This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. Irs forms 1040 ez The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. Irs forms 1040 ez For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Irs forms 1040 ez The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. Irs forms 1040 ez These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. Irs forms 1040 ez Completion of first 4 years. Irs forms 1040 ez   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. Irs forms 1040 ez This student generally would not be an eligible student for purposes of the American opportunity credit. Irs forms 1040 ez Exception. Irs forms 1040 ez   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. Irs forms 1040 ez Enrolled at least half-time. Irs forms 1040 ez   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Irs forms 1040 ez   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Irs forms 1040 ez However, the standard may not be lower than any of those established by the U. Irs forms 1040 ez S. Irs forms 1040 ez Department of Education under the Higher Education Act of 1965. Irs forms 1040 ez Please click here for the text description of the image. Irs forms 1040 ez Figure 2-2 Example 1. Irs forms 1040 ez Mack graduated from high school in June 2012. Irs forms 1040 ez In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. Irs forms 1040 ez For the 2013 fall semester, Mack was enrolled less than half-time. Irs forms 1040 ez Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). Irs forms 1040 ez Example 2. Irs forms 1040 ez After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. Irs forms 1040 ez College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. Irs forms 1040 ez Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. Irs forms 1040 ez Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. Irs forms 1040 ez Example 3. Irs forms 1040 ez During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. Irs forms 1040 ez Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. Irs forms 1040 ez Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. Irs forms 1040 ez Example 4. Irs forms 1040 ez The facts are the same as in Example 3. Irs forms 1040 ez During the 2013 spring semester, Larry again attended College X but not as part of a degree program. Irs forms 1040 ez Larry graduated from high school in June 2013. Irs forms 1040 ez For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. Irs forms 1040 ez Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. Irs forms 1040 ez Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. Irs forms 1040 ez Example 5. Irs forms 1040 ez Dee graduated from high school in June 2012. Irs forms 1040 ez In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. Irs forms 1040 ez Dee completed the program in December 2013, and was awarded a certificate. Irs forms 1040 ez In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. Irs forms 1040 ez Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. Irs forms 1040 ez Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year. Irs forms 1040 ez For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. Irs forms 1040 ez You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Irs forms 1040 ez IF you. Irs forms 1040 ez . Irs forms 1040 ez . Irs forms 1040 ez THEN only. Irs forms 1040 ez . Irs forms 1040 ez . Irs forms 1040 ez claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. Irs forms 1040 ez The dependent cannot claim the credit. Irs forms 1040 ez do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. Irs forms 1040 ez You cannot claim the credit based on this dependent's expenses. Irs forms 1040 ez Expenses paid by dependent. Irs forms 1040 ez   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Irs forms 1040 ez Include these expenses when figuring the amount of your American opportunity credit. Irs forms 1040 ez    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Irs forms 1040 ez Expenses paid by you. Irs forms 1040 ez   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. Irs forms 1040 ez If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. Irs forms 1040 ez Expenses paid by others. Irs forms 1040 ez   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Irs forms 1040 ez In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Irs forms 1040 ez If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Irs forms 1040 ez Example. Irs forms 1040 ez In 2013, Ms. Irs forms 1040 ez Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Irs forms 1040 ez For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Irs forms 1040 ez Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. Irs forms 1040 ez If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. Irs forms 1040 ez If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. Irs forms 1040 ez Tuition reduction. Irs forms 1040 ez    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Irs forms 1040 ez If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Irs forms 1040 ez For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs forms 1040 ez Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. Irs forms 1040 ez The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. Irs forms 1040 ez You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. Irs forms 1040 ez However, the credit may be reduced based on your MAGI. Irs forms 1040 ez See Effect of the Amount of Your Income on the Amount of Your Credit , later. Irs forms 1040 ez Example. Irs forms 1040 ez Jack and Kay Ford are married and file a joint tax return. Irs forms 1040 ez For 2013, they claim an exemption for their dependent daughter on their tax return. Irs forms 1040 ez Their MAGI is $70,000. Irs forms 1040 ez Their daughter is in her junior (third) year of studies at the local university. Irs forms 1040 ez Jack and Kay paid qualified education expenses of $4,300 in 2013. Irs forms 1040 ez Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. Irs forms 1040 ez Jack and Kay can claim a $2,500 American opportunity credit in 2013. Irs forms 1040 ez This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. Irs forms 1040 ez Form 1098-T. Irs forms 1040 ez   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. Irs forms 1040 ez Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Irs forms 1040 ez An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Irs forms 1040 ez However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. Irs forms 1040 ez When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Irs forms 1040 ez   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Irs forms 1040 ez    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. Irs forms 1040 ez Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Irs forms 1040 ez You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). Irs forms 1040 ez Modified adjusted gross income (MAGI). Irs forms 1040 ez   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Irs forms 1040 ez MAGI when using Form 1040A. Irs forms 1040 ez   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Irs forms 1040 ez MAGI when using Form 1040. Irs forms 1040 ez   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Irs forms 1040 ez You can use Worksheet 2-1, next, to figure your MAGI. Irs forms 1040 ez    Worksheet 2-1. Irs forms 1040 ez MAGI for the American Opportunity Credit 1. Irs forms 1040 ez Enter your adjusted gross income  (Form 1040, line 38)   1. Irs forms 1040 ez   2. Irs forms 1040 ez Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Irs forms 1040 ez       3. Irs forms 1040 ez Enter your foreign housing deduction (Form 2555, line 50)   3. Irs forms 1040 ez       4. Irs forms 1040 ez Enter the amount of income from Puerto Rico you are excluding   4. Irs forms 1040 ez       5. Irs forms 1040 ez Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Irs forms 1040 ez       6. Irs forms 1040 ez Add the amounts on lines 2, 3, 4, and 5   6. Irs forms 1040 ez   7. Irs forms 1040 ez Add the amounts on lines 1 and 6. Irs forms 1040 ez  This is your modified adjusted  gross income. Irs forms 1040 ez Enter here and  on Form 8863, line 3   7. Irs forms 1040 ez   Phaseout. Irs forms 1040 ez   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. Irs forms 1040 ez The same method is shown in the following example. Irs forms 1040 ez Example. Irs forms 1040 ez You are filing a joint return and your MAGI is $165,000. Irs forms 1040 ez In 2013, you paid $5,000 of qualified education expenses. Irs forms 1040 ez You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). Irs forms 1040 ez Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. Irs forms 1040 ez The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. Irs forms 1040 ez The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). Irs forms 1040 ez The result is the amount of your phased out (reduced) American opportunity credit ($1,875). Irs forms 1040 ez      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. Irs forms 1040 ez However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Irs forms 1040 ez Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. Irs forms 1040 ez You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. Irs forms 1040 ez You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). Irs forms 1040 ez At least one of your parents was alive at the end of 2013. Irs forms 1040 ez You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. Irs forms 1040 ez Earned income. Irs forms 1040 ez   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Irs forms 1040 ez Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. Irs forms 1040 ez Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Irs forms 1040 ez   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). Irs forms 1040 ez However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. Irs forms 1040 ez Support. Irs forms 1040 ez   Your support includes food, shelter, clothing, medical and dental care, education, and the like. Irs forms 1040 ez Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. Irs forms 1040 ez If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. Irs forms 1040 ez However, a scholarship received by you is not considered support if you are a full-time student. Irs forms 1040 ez See Publication 501 for details. Irs forms 1040 ez Full-time student. Irs forms 1040 ez   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. Irs forms 1040 ez Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Irs forms 1040 ez Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. Irs forms 1040 ez Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. Irs forms 1040 ez A filled-in Form 8863 is shown at the end of this publication. Irs forms 1040 ez Note. Irs forms 1040 ez In Appendix A. Irs forms 1040 ez at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Irs forms 1040 ez Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding your CP12A Notice

We made changes to correct the Earned Income Credit (EIC) claimed on your tax return.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Review the notice, and compare our changes to the information on your tax return.
  • If you agree with the changes we made, do nothing; you should receive a refund check in 4-6 weeks, as long as you don't owe other tax or debts we're required to collect.
  • If you don't agree, call 1-800-829-8374 to review your account or contact us by mail. Include any correspondence or documentation.

You may want to...


Answers to Common Questions

How can I find out what caused my tax return to change?
Please contact us at the toll free number listed on the top right corner of your notice for specific information concerning your tax return.

What should I do if I disagree with the changes you made?
If you disagree, contact us at the toll free number listed on the top right corner of your notice.

If you contact us in writing within 60 days of the date of this notice, we'll reverse the changes we made to your account. However, if you're unable to provide us with additional information that justifies the reversal and we believe the reversal is in error, we'll forward your case to examination for audit. This step gives you formal appeal rights, including the right to appeal our decision in court. After we forward your case, the audit staff will contact you within five to six weeks to fully explain the audit process and your rights. If you don't contact us within the 60 day period, you'll lose your right to appeal our decision before payment of tax.

My child is turning 18 this year. Can I still get the Additional Child Tax Credit?
No. Your child must be under the age of 17 at the end of 2010 to qualify for both the Child Tax Credit and the Additional Child Tax Credit.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 19-Feb-2014

The Irs Forms 1040 Ez

Irs forms 1040 ez 8. Irs forms 1040 ez   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. Irs forms 1040 ez Cash method. Irs forms 1040 ez Car and Truck ExpensesOffice in the home. Irs forms 1040 ez Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. Irs forms 1040 ez InsuranceHow to figure the deduction. Irs forms 1040 ez Interest Legal and Professional FeesTax preparation fees. Irs forms 1040 ez Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. Irs forms 1040 ez Taxi, commuter bus, and limousine. Irs forms 1040 ez Baggage and shipping. Irs forms 1040 ez Car or truck. Irs forms 1040 ez Meals and lodging. Irs forms 1040 ez Cleaning. Irs forms 1040 ez Telephone. Irs forms 1040 ez Tips. Irs forms 1040 ez More information. Irs forms 1040 ez Business Use of Your HomeExceptions to exclusive use. Irs forms 1040 ez Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. Irs forms 1040 ez These costs are known as business expenses. Irs forms 1040 ez These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. Irs forms 1040 ez To be deductible, a business expense must be both ordinary and necessary. Irs forms 1040 ez An ordinary expense is one that is common and accepted in your field of business. Irs forms 1040 ez A necessary expense is one that is helpful and appropriate for your business. Irs forms 1040 ez An expense does not have to be indispensable to be considered necessary. Irs forms 1040 ez For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. Irs forms 1040 ez If you have an expense that is partly for business and partly personal, separate the personal part from the business part. Irs forms 1040 ez The personal part is not deductible. Irs forms 1040 ez Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. Irs forms 1040 ez Bad Debts If someone owes you money you cannot collect, you have a bad debt. Irs forms 1040 ez There are two kinds of bad debts, business bad debts and nonbusiness bad debts. Irs forms 1040 ez A business bad debt is generally one that comes from operating your trade or business. Irs forms 1040 ez You may be able to deduct business bad debts as an expense on your business tax return. Irs forms 1040 ez Business bad debt. Irs forms 1040 ez   A business bad debt is a loss from the worthlessness of a debt that was either of the following. Irs forms 1040 ez Created or acquired in your business. Irs forms 1040 ez Closely related to your business when it became partly or totally worthless. Irs forms 1040 ez A debt is closely related to your business if your primary motive for incurring the debt is a business reason. Irs forms 1040 ez   Business bad debts are mainly the result of credit sales to customers. Irs forms 1040 ez They can also be the result of loans to suppliers, clients, employees, or distributors. Irs forms 1040 ez Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. Irs forms 1040 ez If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. Irs forms 1040 ez    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. Irs forms 1040 ez Accrual method. Irs forms 1040 ez   If you use an accrual method of accounting, you normally report income as you earn it. Irs forms 1040 ez You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. Irs forms 1040 ez Cash method. Irs forms 1040 ez   If you use the cash method of accounting, you normally report income when you receive payment. Irs forms 1040 ez You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. Irs forms 1040 ez More information. Irs forms 1040 ez   For more information about business bad debts, see chapter 10 in Publication 535. Irs forms 1040 ez Nonbusiness bad debts. Irs forms 1040 ez   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). Irs forms 1040 ez For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. Irs forms 1040 ez Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. Irs forms 1040 ez You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. Irs forms 1040 ez You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. Irs forms 1040 ez See Form 8936 and Form 8910 for more information. Irs forms 1040 ez Local transportation expenses. Irs forms 1040 ez   Local transportation expenses include the ordinary and necessary costs of all the following. Irs forms 1040 ez Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Irs forms 1040 ez Tax home is defined later. Irs forms 1040 ez Visiting clients or customers. Irs forms 1040 ez Going to a business meeting away from your regular workplace. Irs forms 1040 ez Getting from your home to a temporary workplace when you have one or more regular places of work. Irs forms 1040 ez These temporary workplaces can be either within the area of your tax home or outside that area. Irs forms 1040 ez Local business transportation does not include expenses you have while traveling away from home overnight. Irs forms 1040 ez Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. Irs forms 1040 ez However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Irs forms 1040 ez   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Irs forms 1040 ez It includes the entire city or general area in which your business or work is located. Irs forms 1040 ez Example. Irs forms 1040 ez You operate a printing business out of rented office space. Irs forms 1040 ez You use your van to deliver completed jobs to your customers. Irs forms 1040 ez You can deduct the cost of round-trip transportation between your customers and your print shop. Irs forms 1040 ez    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. Irs forms 1040 ez These costs are personal commuting expenses. Irs forms 1040 ez Office in the home. Irs forms 1040 ez   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. Irs forms 1040 ez For more information, see Business Use of Your Home, later. Irs forms 1040 ez Example. Irs forms 1040 ez You are a graphics designer. Irs forms 1040 ez You operate your business out of your home. Irs forms 1040 ez Your home qualifies as your principal place of business. Irs forms 1040 ez You occasionally have to drive to your clients to deliver your completed work. Irs forms 1040 ez You can deduct the cost of the round-trip transportation between your home and your clients. Irs forms 1040 ez Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. Irs forms 1040 ez Standard mileage rate. Irs forms 1040 ez Actual expenses. Irs forms 1040 ez Standard mileage rate. Irs forms 1040 ez   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Irs forms 1040 ez For 2013, the standard mileage rate is 56. Irs forms 1040 ez 5 cents per mile. Irs forms 1040 ez    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. Irs forms 1040 ez Choosing the standard mileage rate. Irs forms 1040 ez   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. Irs forms 1040 ez In later years, you can choose to use either the standard mileage rate or actual expenses. Irs forms 1040 ez   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Irs forms 1040 ez Standard mileage rate not allowed. Irs forms 1040 ez   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Irs forms 1040 ez Parking fees and tolls. Irs forms 1040 ez   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Irs forms 1040 ez (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Irs forms 1040 ez ) Actual expenses. Irs forms 1040 ez   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. Irs forms 1040 ez    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. Irs forms 1040 ez   Actual car expenses include the costs of the following items. Irs forms 1040 ez Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Irs forms 1040 ez You can divide your expenses based on the miles driven for each purpose. Irs forms 1040 ez Example. Irs forms 1040 ez You are the sole proprietor of a flower shop. Irs forms 1040 ez You drove your van 20,000 miles during the year. Irs forms 1040 ez 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). Irs forms 1040 ez You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Irs forms 1040 ez More information. Irs forms 1040 ez   For more information about the rules for claiming car and truck expenses, see Publication 463. Irs forms 1040 ez Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. Irs forms 1040 ez The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Irs forms 1040 ez For details, see chapter 11 in Publication 535. Irs forms 1040 ez That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Irs forms 1040 ez Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Irs forms 1040 ez You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. Irs forms 1040 ez This method of deducting the cost of business property is called depreciation. Irs forms 1040 ez The discussion here is brief. Irs forms 1040 ez You will find more information about depreciation in Publication 946. Irs forms 1040 ez What property can be depreciated?   You can depreciate property if it meets all the following requirements. Irs forms 1040 ez It must be property you own. Irs forms 1040 ez It must be used in business or held to produce income. Irs forms 1040 ez You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. Irs forms 1040 ez It must have a useful life that extends substantially beyond the year it is placed in service. Irs forms 1040 ez It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Irs forms 1040 ez You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. Irs forms 1040 ez It must not be excepted property. Irs forms 1040 ez This includes property placed in service and disposed of in the same year. Irs forms 1040 ez Repairs. Irs forms 1040 ez    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. Irs forms 1040 ez You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. Irs forms 1040 ez Depreciation method. Irs forms 1040 ez   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). Irs forms 1040 ez MACRS is discussed in detail in Publication 946. Irs forms 1040 ez Section 179 deduction. Irs forms 1040 ez   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Irs forms 1040 ez This deduction is known as the “section 179 deduction. Irs forms 1040 ez ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). Irs forms 1040 ez See IRC 179(e). Irs forms 1040 ez   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Irs forms 1040 ez The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). Irs forms 1040 ez Special rules apply to trucks and vans. Irs forms 1040 ez For more information, see Publication 946. Irs forms 1040 ez It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. Irs forms 1040 ez    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. Irs forms 1040 ez For more information, see the Instructions for Form 4562 or Publication 946. Irs forms 1040 ez Listed property. Irs forms 1040 ez   You must follow special rules and recordkeeping requirements when depreciating listed property. Irs forms 1040 ez Listed property is any of the following. Irs forms 1040 ez Most passenger automobiles. Irs forms 1040 ez Most other property used for transportation. Irs forms 1040 ez Any property of a type generally used for entertainment, recreation, or amusement. Irs forms 1040 ez Certain computers and related peripheral equipment. Irs forms 1040 ez   For more information about listed property, see Publication 946. Irs forms 1040 ez Form 4562. Irs forms 1040 ez   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. Irs forms 1040 ez Depreciation on property placed in service during the current tax year. Irs forms 1040 ez A section 179 deduction. Irs forms 1040 ez Depreciation on any listed property (regardless of when it was placed in service). Irs forms 1040 ez    If you have to use Form 4562, you must file Schedule C. Irs forms 1040 ez You cannot use Schedule C-EZ. Irs forms 1040 ez   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. Irs forms 1040 ez The pay may be in cash, property, or services. Irs forms 1040 ez To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. Irs forms 1040 ez In addition, the pay must meet both the following tests. Irs forms 1040 ez The pay must be reasonable. Irs forms 1040 ez The pay must be for services performed. Irs forms 1040 ez Chapter 2 in Publication 535 explains and defines these requirements. Irs forms 1040 ez You cannot deduct your own salary or any personal withdrawals you make from your business. Irs forms 1040 ez As a sole proprietor, you are not an employee of the business. Irs forms 1040 ez If you had employees during the year, you must use Schedule C. Irs forms 1040 ez You cannot use Schedule C-EZ. Irs forms 1040 ez Kinds of pay. Irs forms 1040 ez   Some of the ways you may provide pay to your employees are listed below. Irs forms 1040 ez For an explanation of each of these items, see chapter 2 in Publication 535. Irs forms 1040 ez Awards. Irs forms 1040 ez Bonuses. Irs forms 1040 ez Education expenses. Irs forms 1040 ez Fringe benefits (discussed later). Irs forms 1040 ez Loans or advances you do not expect the employee to repay if they are for personal services actually performed. Irs forms 1040 ez Property you transfer to an employee as payment for services. Irs forms 1040 ez Reimbursements for employee business expenses. Irs forms 1040 ez Sick pay. Irs forms 1040 ez Vacation pay. Irs forms 1040 ez Fringe benefits. Irs forms 1040 ez   A fringe benefit is a form of pay for the performance of services. Irs forms 1040 ez The following are examples of fringe benefits. Irs forms 1040 ez Benefits under qualified employee benefit programs. Irs forms 1040 ez Meals and lodging. Irs forms 1040 ez The use of a car. Irs forms 1040 ez Flights on airplanes. Irs forms 1040 ez Discounts on property or services. Irs forms 1040 ez Memberships in country clubs or other social clubs. Irs forms 1040 ez Tickets to entertainment or sporting events. Irs forms 1040 ez   Employee benefit programs include the following. Irs forms 1040 ez Accident and health plans. Irs forms 1040 ez Adoption assistance. Irs forms 1040 ez Cafeteria plans. Irs forms 1040 ez Dependent care assistance. Irs forms 1040 ez Educational assistance. Irs forms 1040 ez Group-term life insurance coverage. Irs forms 1040 ez Welfare benefit funds. Irs forms 1040 ez   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. Irs forms 1040 ez For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. Irs forms 1040 ez If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. Irs forms 1040 ez    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. Irs forms 1040 ez For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Irs forms 1040 ez Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. Irs forms 1040 ez Fire, theft, flood, or similar insurance. Irs forms 1040 ez Credit insurance that covers losses from business bad debts. Irs forms 1040 ez Group hospitalization and medical insurance for employees, including long-term care insurance. Irs forms 1040 ez Liability insurance. Irs forms 1040 ez Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Irs forms 1040 ez 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. Irs forms 1040 ez Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Irs forms 1040 ez Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Irs forms 1040 ez Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Irs forms 1040 ez 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. Irs forms 1040 ez If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Irs forms 1040 ez Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. Irs forms 1040 ez Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Irs forms 1040 ez Nondeductible premiums. Irs forms 1040 ez   You cannot deduct premiums on the following kinds of insurance. Irs forms 1040 ez Self-insurance reserve funds. Irs forms 1040 ez You cannot deduct amounts credited to a reserve set up for self-insurance. Irs forms 1040 ez This applies even if you cannot get business insurance coverage for certain business risks. Irs forms 1040 ez However, your actual losses may be deductible. Irs forms 1040 ez For more information, see Publication 547, Casualties, Disasters, and Thefts. Irs forms 1040 ez Loss of earnings. Irs forms 1040 ez You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. Irs forms 1040 ez However, see item (8) in the previous list. Irs forms 1040 ez Certain life insurance and annuities. Irs forms 1040 ez 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. Irs forms 1040 ez 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. Irs forms 1040 ez 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. Irs forms 1040 ez 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. Irs forms 1040 ez The disallowance applies without regard to whom the policy covers. Irs forms 1040 ez Insurance to secure a loan. Irs forms 1040 ez 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. Irs forms 1040 ez Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Irs forms 1040 ez In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Irs forms 1040 ez Self-employed health insurance deduction. Irs forms 1040 ez   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. Irs forms 1040 ez How to figure the deduction. Irs forms 1040 ez   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Irs forms 1040 ez However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. Irs forms 1040 ez You have more than one source of income subject to self-employment tax. Irs forms 1040 ez You file Form 2555 or Form 2555-EZ (relating to foreign earned income). Irs forms 1040 ez You are using amounts paid for qualified long-term care insurance to figure the deduction. Irs forms 1040 ez Prepayment. Irs forms 1040 ez   You cannot deduct expenses in advance, even if you pay them in advance. Irs forms 1040 ez 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. Irs forms 1040 ez Example. Irs forms 1040 ez In 2013, you signed a 3-year insurance contract. Irs forms 1040 ez 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. Irs forms 1040 ez You can deduct in 2014 and 2015 the premium allocable to those years. Irs forms 1040 ez More information. Irs forms 1040 ez   For more information about deducting insurance, see chapter 6 in Publication 535. Irs forms 1040 ez Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. Irs forms 1040 ez Interest relates to your business if you use the proceeds of the loan for a business expense. Irs forms 1040 ez It does not matter what type of property secures the loan. Irs forms 1040 ez You can deduct interest on a debt only if you meet all of the following requirements. Irs forms 1040 ez You are legally liable for that debt. Irs forms 1040 ez Both you and the lender intend that the debt be repaid. Irs forms 1040 ez You and the lender have a true debtor-creditor relationship. Irs forms 1040 ez You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. Irs forms 1040 ez If a loan is part business and part personal, you must divide the interest between the personal part and the business part. Irs forms 1040 ez Example. Irs forms 1040 ez In 2013, you paid $600 interest on a car loan. Irs forms 1040 ez During 2013, you used the car 60% for business and 40% for personal purposes. Irs forms 1040 ez You are claiming actual expenses on the car. Irs forms 1040 ez You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. Irs forms 1040 ez The remaining interest of $240 is a nondeductible personal expense. Irs forms 1040 ez More information. Irs forms 1040 ez   For more information about deducting interest, see chapter 4 in Publication 535. Irs forms 1040 ez That chapter explains the following items. Irs forms 1040 ez Interest you can deduct. Irs forms 1040 ez Interest you cannot deduct. Irs forms 1040 ez How to allocate interest between personal and business use. Irs forms 1040 ez When to deduct interest. Irs forms 1040 ez The rules for a below-market interest rate loan. Irs forms 1040 ez (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Irs forms 1040 ez ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. Irs forms 1040 ez However, you usually cannot deduct legal fees you pay to acquire business assets. Irs forms 1040 ez Add them to the basis of the property. Irs forms 1040 ez If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. Irs forms 1040 ez The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. Irs forms 1040 ez For more information, see Publication 529, Miscellaneous Deductions. Irs forms 1040 ez Tax preparation fees. Irs forms 1040 ez   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. Irs forms 1040 ez You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Irs forms 1040 ez   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. Irs forms 1040 ez Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. Irs forms 1040 ez SEP (Simplified Employee Pension) plans. Irs forms 1040 ez SIMPLE (Savings Incentive Match Plan for Employees) plans. Irs forms 1040 ez Qualified plans (including Keogh or H. Irs forms 1040 ez R. Irs forms 1040 ez 10 plans). Irs forms 1040 ez SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. Irs forms 1040 ez You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. Irs forms 1040 ez If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. Irs forms 1040 ez You can also deduct trustees' fees if contributions to the plan do not cover them. Irs forms 1040 ez Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Irs forms 1040 ez You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. Irs forms 1040 ez Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. Irs forms 1040 ez These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. Irs forms 1040 ez For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Irs forms 1040 ez Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. Irs forms 1040 ez Rent Expense Rent is any amount you pay for the use of property you do not own. Irs forms 1040 ez In general, you can deduct rent as a business expense only if the rent is for property you use in your business. Irs forms 1040 ez If you have or will receive equity in or title to the property, you cannot deduct the rent. Irs forms 1040 ez Unreasonable rent. Irs forms 1040 ez   You cannot take a rental deduction for unreasonable rents. Irs forms 1040 ez Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Irs forms 1040 ez Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Irs forms 1040 ez Rent is not unreasonable just because it is figured as a percentage of gross receipts. Irs forms 1040 ez   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Irs forms 1040 ez For a list of the other related persons, see section 267 of the Internal Revenue Code. Irs forms 1040 ez Rent on your home. Irs forms 1040 ez   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Irs forms 1040 ez You must meet the requirements for business use of your home. Irs forms 1040 ez For more information, see Business Use of Your Home , later. Irs forms 1040 ez Rent paid in advance. Irs forms 1040 ez   Generally, rent paid in your business is deductible in the year paid or accrued. Irs forms 1040 ez If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Irs forms 1040 ez You can deduct the rest of your payment only over the period to which it applies. Irs forms 1040 ez More information. Irs forms 1040 ez   For more information about rent, see chapter 3 in Publication 535. Irs forms 1040 ez Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. Irs forms 1040 ez Income taxes. Irs forms 1040 ez   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. Irs forms 1040 ez You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. Irs forms 1040 ez Do not deduct federal income tax. Irs forms 1040 ez Employment taxes. Irs forms 1040 ez   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. Irs forms 1040 ez Employment taxes are discussed briefly in chapter 1. Irs forms 1040 ez You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. Irs forms 1040 ez Deduct these payments as taxes. Irs forms 1040 ez Self-employment tax. Irs forms 1040 ez   You can deduct one-half of your self-employment tax on line 27 of Form 1040. Irs forms 1040 ez Self-employment tax is discussed in chapters 1 and 10. Irs forms 1040 ez Personal property tax. Irs forms 1040 ez   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. Irs forms 1040 ez   You can also deduct registration fees for the right to use property within a state or local area. Irs forms 1040 ez Example. Irs forms 1040 ez May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. Irs forms 1040 ez They had to pay $25 for their annual state license tags and $20 for their city registration sticker. Irs forms 1040 ez They also paid $235 in city personal property tax on the car, for a total of $280. Irs forms 1040 ez They are claiming their actual car expenses. Irs forms 1040 ez Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. Irs forms 1040 ez Real estate taxes. Irs forms 1040 ez   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. Irs forms 1040 ez Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Irs forms 1040 ez The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Irs forms 1040 ez   For more information about real estate taxes, see chapter 5 in Publication 535. Irs forms 1040 ez That chapter explains special rules for deducting the following items. Irs forms 1040 ez Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. Irs forms 1040 ez Real estate taxes when you buy or sell property during the year. Irs forms 1040 ez Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. Irs forms 1040 ez Sales tax. Irs forms 1040 ez   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Irs forms 1040 ez If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Irs forms 1040 ez If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Irs forms 1040 ez If the property is depreciable, add the sales tax to the basis for depreciation. Irs forms 1040 ez For information on the basis of property, see Publication 551, Basis of Assets. Irs forms 1040 ez    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Irs forms 1040 ez Do not include these taxes in gross receipts or sales. Irs forms 1040 ez Excise taxes. Irs forms 1040 ez   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. Irs forms 1040 ez Excise taxes are discussed briefly in chapter 1. Irs forms 1040 ez Fuel taxes. Irs forms 1040 ez   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. Irs forms 1040 ez Do not deduct these taxes as a separate item. Irs forms 1040 ez   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Irs forms 1040 ez For more information, see Publication 510, Excise Taxes. Irs forms 1040 ez Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. Irs forms 1040 ez Table 8-1. Irs forms 1040 ez When Are Entertainment Expenses Deductible? (Note. Irs forms 1040 ez The following is a summary of the rules for deducting entertainment expenses. Irs forms 1040 ez For more details about these rules, see Publication 463. Irs forms 1040 ez ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Irs forms 1040 ez Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Irs forms 1040 ez An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Irs forms 1040 ez A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. Irs forms 1040 ez Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Irs forms 1040 ez   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. Irs forms 1040 ez Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Irs forms 1040 ez You cannot deduct expenses that are lavish or extravagant under the circumstances. Irs forms 1040 ez You generally can deduct only 50% of your unreimbursed entertainment expenses. Irs forms 1040 ez Travel expenses. Irs forms 1040 ez   These are the ordinary and necessary expenses of traveling away from home for your business. Irs forms 1040 ez You are traveling away from home if both the following conditions are met. Irs forms 1040 ez Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. Irs forms 1040 ez You need to get sleep or rest to meet the demands of your work while away from home. Irs forms 1040 ez Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Irs forms 1040 ez It includes the entire city or general area in which your business is located. Irs forms 1040 ez See Publication 463 for more information. Irs forms 1040 ez   The following is a brief discussion of the expenses you can deduct. Irs forms 1040 ez Transportation. Irs forms 1040 ez   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. Irs forms 1040 ez Taxi, commuter bus, and limousine. Irs forms 1040 ez   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. Irs forms 1040 ez Baggage and shipping. Irs forms 1040 ez   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. Irs forms 1040 ez Car or truck. Irs forms 1040 ez   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. Irs forms 1040 ez You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. Irs forms 1040 ez If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Irs forms 1040 ez Meals and lodging. Irs forms 1040 ez   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Irs forms 1040 ez In most cases, you can deduct only 50% of your meal expenses. Irs forms 1040 ez Cleaning. Irs forms 1040 ez   You can deduct the costs of dry cleaning and laundry while on your business trip. Irs forms 1040 ez Telephone. Irs forms 1040 ez   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. Irs forms 1040 ez Tips. Irs forms 1040 ez   You can deduct the tips you pay for any expense in this list. Irs forms 1040 ez More information. Irs forms 1040 ez   For more information about travel expenses, see Publication 463. Irs forms 1040 ez Entertainment expenses. Irs forms 1040 ez   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. Irs forms 1040 ez In most cases, you can deduct only 50% of these expenses. Irs forms 1040 ez   The following are examples of entertainment expenses. Irs forms 1040 ez Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. Irs forms 1040 ez Providing meals, a hotel suite, or a car to business customers or their families. Irs forms 1040 ez To be deductible, the expenses must meet the rules listed in Table 8-1. Irs forms 1040 ez For details about these rules, see Publication 463. Irs forms 1040 ez Reimbursing your employees for expenses. Irs forms 1040 ez   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. Irs forms 1040 ez The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Irs forms 1040 ez For details, see chapter 11 in Publication 535. Irs forms 1040 ez That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Irs forms 1040 ez Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. Irs forms 1040 ez Even then, your deduction may be limited. Irs forms 1040 ez To qualify to claim expenses for business use of your home, you must meet the following tests. Irs forms 1040 ez Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. Irs forms 1040 ez Exclusive use. Irs forms 1040 ez   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Irs forms 1040 ez The area used for business can be a room or other separately identifiable space. Irs forms 1040 ez The space does not need to be marked off by a permanent partition. Irs forms 1040 ez   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Irs forms 1040 ez Example. Irs forms 1040 ez You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Irs forms 1040 ez Your family also uses the den for recreation. Irs forms 1040 ez The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. Irs forms 1040 ez Exceptions to exclusive use. Irs forms 1040 ez   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. Irs forms 1040 ez For the storage of inventory or product samples. Irs forms 1040 ez As a daycare facility. Irs forms 1040 ez For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Irs forms 1040 ez Regular use. Irs forms 1040 ez   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. Irs forms 1040 ez You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. Irs forms 1040 ez Principal place of business. Irs forms 1040 ez   You can have more than one business location, including your home, for a single trade or business. Irs forms 1040 ez To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. Irs forms 1040 ez To determine your principal place of business, you must consider all the facts and circumstances. Irs forms 1040 ez   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Irs forms 1040 ez You use it exclusively and regularly for administrative or management activities of your business. Irs forms 1040 ez You have no other fixed location where you conduct substantial administrative or management activities of your business. Irs forms 1040 ez   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Irs forms 1040 ez The relative importance of the activities performed at each location. Irs forms 1040 ez If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. Irs forms 1040 ez   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Irs forms 1040 ez However, for other ways to qualify to deduct home office expenses, see Publication 587. Irs forms 1040 ez Deduction limit. Irs forms 1040 ez   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Irs forms 1040 ez If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Irs forms 1040 ez   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. Irs forms 1040 ez The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Irs forms 1040 ez The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Irs forms 1040 ez Do not include in (2) above your deduction for one-half of your self-employment tax. Irs forms 1040 ez   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Irs forms 1040 ez New simplified method. Irs forms 1040 ez    The IRS now provides a simplified method to determine your expenses for business use of your home. Irs forms 1040 ez The simplified method is an alternative to calculating and substantiating actual expenses. Irs forms 1040 ez In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. Irs forms 1040 ez The area you use to figure your deduction is limited to 300 square feet. Irs forms 1040 ez For more information, see the Instructions for Schedule C. Irs forms 1040 ez More information. Irs forms 1040 ez   For more information on deducting expenses for the business use of your home, see Publication 587. Irs forms 1040 ez Other Expenses You Can Deduct You may also be able to deduct the following expenses. Irs forms 1040 ez See Publication 535 to find out whether you can deduct them. Irs forms 1040 ez Advertising. Irs forms 1040 ez Bank fees. Irs forms 1040 ez Donations to business organizations. Irs forms 1040 ez Education expenses. Irs forms 1040 ez Energy efficient commercial buildings deduction expenses. Irs forms 1040 ez Impairment-related expenses. Irs forms 1040 ez Interview expense allowances. Irs forms 1040 ez Licenses and regulatory fees. Irs forms 1040 ez Moving machinery. Irs forms 1040 ez Outplacement services. Irs forms 1040 ez Penalties and fines you pay for late performance or nonperformance of a contract. Irs forms 1040 ez Repairs that keep your property in a normal efficient operating condition. Irs forms 1040 ez Repayments of income. Irs forms 1040 ez Subscriptions to trade or professional publications. Irs forms 1040 ez Supplies and materials. Irs forms 1040 ez Utilities. Irs forms 1040 ez Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. Irs forms 1040 ez For more information, see Publication 535. Irs forms 1040 ez Bribes and kickbacks. Irs forms 1040 ez Charitable contributions. Irs forms 1040 ez Demolition expenses or losses. Irs forms 1040 ez Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. Irs forms 1040 ez Lobbying expenses. Irs forms 1040 ez Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. Irs forms 1040 ez Personal, living, and family expenses. Irs forms 1040 ez Political contributions. Irs forms 1040 ez Repairs that add to the value of your property or significantly increase its life. Irs forms 1040 ez Prev  Up  Next   Home   More Online Publications