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Myfreetaxes. Myfreetaxes.com/everett com/everett Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Myfreetaxes.com/everett Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. Myfreetaxes.com/everett An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. Myfreetaxes.com/everett In general, an executor and an administrator perform the same duties and have the same responsibilities. Myfreetaxes.com/everett For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. Myfreetaxes.com/everett It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. Myfreetaxes.com/everett Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. Myfreetaxes.com/everett The personal representative also must perform the following duties. Myfreetaxes.com/everett Apply for an employer identification number (EIN) for the estate. Myfreetaxes.com/everett File all tax returns, including income, estate and gift tax returns, when due. Myfreetaxes.com/everett Pay the tax determined up to the date of discharge from duties. Myfreetaxes.com/everett Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. Myfreetaxes.com/everett If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. Myfreetaxes.com/everett Penalty. Myfreetaxes.com/everett   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. Myfreetaxes.com/everett Reliance on an agent (attorney, accountant, etc. Myfreetaxes.com/everett ) is not reasonable cause for late filing. Myfreetaxes.com/everett It is the personal representative's duty to file the returns for the decedent and the estate when due. Myfreetaxes.com/everett Identification number. Myfreetaxes.com/everett   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. Myfreetaxes.com/everett You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. Myfreetaxes.com/everett You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. Myfreetaxes.com/everett   You can get an EIN by applying online at www. Myfreetaxes.com/everett irs. Myfreetaxes.com/everett gov (click on "Apply for an EIN Online" under the Tools heading). Myfreetaxes.com/everett Generally, if you apply online, you will receive your EIN immediately upon completing the application. Myfreetaxes.com/everett You can also apply using Form SS-4, Application for Employer Identification Number. Myfreetaxes.com/everett Generally, if you apply by mail, it takes about 4 weeks to get your EIN. Myfreetaxes.com/everett See the form instructions for other ways to apply. Myfreetaxes.com/everett   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. Myfreetaxes.com/everett After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. Myfreetaxes.com/everett As the personal representative handling the estate, you must furnish this identification number to the payer. Myfreetaxes.com/everett For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. Myfreetaxes.com/everett If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. Myfreetaxes.com/everett   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). Myfreetaxes.com/everett Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. Myfreetaxes.com/everett    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. Myfreetaxes.com/everett Also do not use it to make estimated tax payments for a tax year after the year of death. Myfreetaxes.com/everett Penalty. Myfreetaxes.com/everett   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. Myfreetaxes.com/everett You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. Myfreetaxes.com/everett Notice of fiduciary relationship. Myfreetaxes.com/everett   The term fiduciary means any person acting for another person. Myfreetaxes.com/everett It applies to persons who have positions of trust on behalf of others. Myfreetaxes.com/everett A personal representative for a decedent's estate is a fiduciary. Myfreetaxes.com/everett Form 56. Myfreetaxes.com/everett   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Myfreetaxes.com/everett Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. Myfreetaxes.com/everett See the Instructions for Form 56 for filing requirements and other information. Myfreetaxes.com/everett   File Form 56 as soon as all the necessary information (including the EIN) is available. Myfreetaxes.com/everett It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. Myfreetaxes.com/everett The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. Myfreetaxes.com/everett Termination of fiduciary relationship. Myfreetaxes.com/everett   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. Myfreetaxes.com/everett See Form 56 and its instructions for more information. Myfreetaxes.com/everett   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. Myfreetaxes.com/everett See below for a discussion of these forms. Myfreetaxes.com/everett Request for prompt assessment (charge) of tax. Myfreetaxes.com/everett   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. Myfreetaxes.com/everett However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. Myfreetaxes.com/everett This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. Myfreetaxes.com/everett This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. Myfreetaxes.com/everett This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. Myfreetaxes.com/everett Form 4810. Myfreetaxes.com/everett   Form 4810 can be used for making this request. Myfreetaxes.com/everett It must be filed separately from any other document. Myfreetaxes.com/everett   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. Myfreetaxes.com/everett You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. Myfreetaxes.com/everett This applies even though the returns were filed before the decedent's death. Myfreetaxes.com/everett Failure to report income. Myfreetaxes.com/everett   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. Myfreetaxes.com/everett However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. Myfreetaxes.com/everett Request for discharge from personal liability for tax. Myfreetaxes.com/everett   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. Myfreetaxes.com/everett The request must be made after the returns for those taxes are filed. Myfreetaxes.com/everett To make the request, file Form 5495. Myfreetaxes.com/everett For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. Myfreetaxes.com/everett   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. Myfreetaxes.com/everett If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. Myfreetaxes.com/everett If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. Myfreetaxes.com/everett    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. Myfreetaxes.com/everett Insolvent estate. Myfreetaxes.com/everett   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Myfreetaxes.com/everett Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. Myfreetaxes.com/everett The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. Myfreetaxes.com/everett The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Myfreetaxes.com/everett Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. Myfreetaxes.com/everett Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. Myfreetaxes.com/everett If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. Myfreetaxes.com/everett If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. Myfreetaxes.com/everett If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. Myfreetaxes.com/everett Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. Myfreetaxes.com/everett A surviving spouse, under certain circumstances, may have to file the returns for the decedent. Myfreetaxes.com/everett See Joint Return, later. Myfreetaxes.com/everett Return for preceding year. Myfreetaxes.com/everett   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. Myfreetaxes.com/everett The return for that year will be a regular return and the personal representative must file it. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Samantha Smith died on March 21, 2013, before filing her 2012 tax return. Myfreetaxes.com/everett Her personal representative must file her 2012 return by April 15, 2013. Myfreetaxes.com/everett Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. Myfreetaxes.com/everett Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Myfreetaxes.com/everett If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. Myfreetaxes.com/everett If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. Myfreetaxes.com/everett Third party designee. Myfreetaxes.com/everett   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. Myfreetaxes.com/everett This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. Myfreetaxes.com/everett It also allows the designee to perform certain actions. Myfreetaxes.com/everett See the Instructions for Form 1040 for details. Myfreetaxes.com/everett Signature. Myfreetaxes.com/everett   If a personal representative has been appointed, that person must sign the return. Myfreetaxes.com/everett If it is a joint return, the surviving spouse must also sign it. Myfreetaxes.com/everett If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. Myfreetaxes.com/everett ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Myfreetaxes.com/everett ” Paid preparer. Myfreetaxes.com/everett   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. Myfreetaxes.com/everett See the Form 1040 instructions for details. Myfreetaxes.com/everett When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. Myfreetaxes.com/everett A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. Myfreetaxes.com/everett However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. Myfreetaxes.com/everett The tax return must be prepared for the year of death regardless of when during the year death occurred. Myfreetaxes.com/everett Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. Myfreetaxes.com/everett A tax return for a decedent can be electronically filed. Myfreetaxes.com/everett A personal representative may also obtain an income tax filing extension on behalf of a decedent. Myfreetaxes.com/everett Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Myfreetaxes.com/everett Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. Myfreetaxes.com/everett It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. Myfreetaxes.com/everett In general, filing status depends on whether the decedent was considered single or married at the time of death. Myfreetaxes.com/everett See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. Myfreetaxes.com/everett Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. Myfreetaxes.com/everett Also, the decedent may be entitled to other credits that result in a refund. Myfreetaxes.com/everett These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. Myfreetaxes.com/everett Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Myfreetaxes.com/everett   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. Myfreetaxes.com/everett   If the personal representative is filing a claim for refund on Form 1040X, Amended U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Edward Green died before filing his tax return. Myfreetaxes.com/everett You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. Myfreetaxes.com/everett You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. Myfreetaxes.com/everett    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. Myfreetaxes.com/everett Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. Myfreetaxes.com/everett A new check will be issued in your name and mailed to you. Myfreetaxes.com/everett Death certificate. Myfreetaxes.com/everett   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. Myfreetaxes.com/everett Instead, keep it for your records and provide it if requested. Myfreetaxes.com/everett Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. Myfreetaxes.com/everett See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. Myfreetaxes.com/everett Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. Myfreetaxes.com/everett However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. Myfreetaxes.com/everett This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. Myfreetaxes.com/everett The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. Myfreetaxes.com/everett A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. Myfreetaxes.com/everett The filing status of the decedent in this instance is married filing a separate return. Myfreetaxes.com/everett For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. Myfreetaxes.com/everett Personal representative may revoke joint return election. Myfreetaxes.com/everett   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. Myfreetaxes.com/everett This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). Myfreetaxes.com/everett The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. Myfreetaxes.com/everett Relief from joint liability. Myfreetaxes.com/everett   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Myfreetaxes.com/everett If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. Myfreetaxes.com/everett For information on requesting this relief, see Publication 971, Innocent Spouse Relief. Myfreetaxes.com/everett Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. Myfreetaxes.com/everett The method of accounting regularly used by the decedent before death also determines the income includible on the final return. Myfreetaxes.com/everett This section explains how some types of income are reported on the final return. Myfreetaxes.com/everett For more information about accounting methods, see Publication 538, Accounting Periods and Methods. Myfreetaxes.com/everett Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. Myfreetaxes.com/everett Constructive receipt of income. Myfreetaxes.com/everett   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. Myfreetaxes.com/everett Include the interest income on the final return. Myfreetaxes.com/everett   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. Myfreetaxes.com/everett If the corporation customarily mailed its dividend checks, the dividend was includible when received. Myfreetaxes.com/everett If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. Myfreetaxes.com/everett Do not include the dividend in the final return. Myfreetaxes.com/everett Accrual Method Generally, under an accrual method of accounting, income is reported when earned. Myfreetaxes.com/everett If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. Myfreetaxes.com/everett Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. Myfreetaxes.com/everett A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. Myfreetaxes.com/everett You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. Myfreetaxes.com/everett For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). Myfreetaxes.com/everett For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. Myfreetaxes.com/everett If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. Myfreetaxes.com/everett See U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. Myfreetaxes.com/everett How to report. Myfreetaxes.com/everett   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Myfreetaxes.com/everett Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Myfreetaxes.com/everett Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Myfreetaxes.com/everett Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. Myfreetaxes.com/everett   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. Myfreetaxes.com/everett    Note. Myfreetaxes.com/everett If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. Myfreetaxes.com/everett See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. Myfreetaxes.com/everett Partnership Income The death of a partner closes the partnership's tax year for that partner. Myfreetaxes.com/everett Generally, it does not close the partnership's tax year for the remaining partners. Myfreetaxes.com/everett The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. Myfreetaxes.com/everett To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. Myfreetaxes.com/everett On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. Myfreetaxes.com/everett The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Myfreetaxes.com/everett The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. Myfreetaxes.com/everett The partnership uses a tax year ending June 30. Myfreetaxes.com/everett Mary died August 31, 2013, and her estate established its tax year through August 31. Myfreetaxes.com/everett The distributive share of partnership items based on the decedent's partnership interest is reported as follows. Myfreetaxes.com/everett Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). Myfreetaxes.com/everett Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. Myfreetaxes.com/everett S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. Myfreetaxes.com/everett The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Myfreetaxes.com/everett The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. Myfreetaxes.com/everett Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. Myfreetaxes.com/everett For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. Myfreetaxes.com/everett For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. Myfreetaxes.com/everett Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. Myfreetaxes.com/everett For more information, see Publication 555, Community Property. Myfreetaxes.com/everett HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. Myfreetaxes.com/everett If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. Myfreetaxes.com/everett The estate tax deduction, discussed later, does not apply to this amount. Myfreetaxes.com/everett If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Myfreetaxes.com/everett For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Myfreetaxes.com/everett Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. Myfreetaxes.com/everett The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. Myfreetaxes.com/everett If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. Myfreetaxes.com/everett The estate tax deduction, discussed later, does not apply to this amount. Myfreetaxes.com/everett If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Myfreetaxes.com/everett The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. Myfreetaxes.com/everett This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. Myfreetaxes.com/everett For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. Myfreetaxes.com/everett Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. Myfreetaxes.com/everett These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. Myfreetaxes.com/everett Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. Myfreetaxes.com/everett For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. Myfreetaxes.com/everett Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Myfreetaxes.com/everett Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. Myfreetaxes.com/everett This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. Myfreetaxes.com/everett See Medical Expenses, later. Myfreetaxes.com/everett Exemptions You can claim the decedent's personal exemption on the final income tax return. Myfreetaxes.com/everett If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. Myfreetaxes.com/everett Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. Myfreetaxes.com/everett For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. Myfreetaxes.com/everett Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. Myfreetaxes.com/everett This includes expenses for the decedent, as well as for the decedent's spouse and dependents. Myfreetaxes.com/everett Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. Myfreetaxes.com/everett In that case medical expenses exceeding 7. Myfreetaxes.com/everett 5% of AGI may be deducted. Myfreetaxes.com/everett Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. Myfreetaxes.com/everett Election for decedent's expenses. Myfreetaxes.com/everett   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). Myfreetaxes.com/everett However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. Myfreetaxes.com/everett   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). Myfreetaxes.com/everett You can deduct expenses incurred in the year of death on the final income tax return. Myfreetaxes.com/everett You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. Myfreetaxes.com/everett   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. Myfreetaxes.com/everett 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). Myfreetaxes.com/everett Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. Myfreetaxes.com/everett Making the election. Myfreetaxes.com/everett   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. Myfreetaxes.com/everett The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. Myfreetaxes.com/everett This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Myfreetaxes.com/everett Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. Myfreetaxes.com/everett Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. Myfreetaxes.com/everett Richard itemized his deductions when he filed his 2012 income tax return. Myfreetaxes.com/everett The personal representative of the estate paid the entire $800 liability in August 2013. Myfreetaxes.com/everett The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. Myfreetaxes.com/everett 5% limit. Myfreetaxes.com/everett The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. Myfreetaxes.com/everett 5% limit. Myfreetaxes.com/everett The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. Myfreetaxes.com/everett Medical expenses not paid by estate. Myfreetaxes.com/everett   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. Myfreetaxes.com/everett If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. Myfreetaxes.com/everett Insurance reimbursements. Myfreetaxes.com/everett   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. Myfreetaxes.com/everett The reimbursements are also includible in the decedent's gross estate. Myfreetaxes.com/everett No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. Myfreetaxes.com/everett These expenses may be deductible for estate tax purposes on Form 706. Myfreetaxes.com/everett Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. Myfreetaxes.com/everett A net operating loss on the decedent's final income tax return can be carried back to prior years. Myfreetaxes.com/everett (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Myfreetaxes.com/everett ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. Myfreetaxes.com/everett At-risk loss limits. Myfreetaxes.com/everett   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. Myfreetaxes.com/everett   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. Myfreetaxes.com/everett An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. Myfreetaxes.com/everett An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. Myfreetaxes.com/everett The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. Myfreetaxes.com/everett For more information, see Publication 925, Passive Activity and At-Risk Rules. Myfreetaxes.com/everett Passive activity rules. Myfreetaxes.com/everett   A passive activity is any trade or business activity in which the taxpayer does not materially participate. Myfreetaxes.com/everett To determine material participation, see Publication 925. Myfreetaxes.com/everett Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. Myfreetaxes.com/everett   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. Myfreetaxes.com/everett Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. Myfreetaxes.com/everett   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. Myfreetaxes.com/everett Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. Myfreetaxes.com/everett The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. Myfreetaxes.com/everett   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. Myfreetaxes.com/everett For more information, see Publication 925. Myfreetaxes.com/everett Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. Myfreetaxes.com/everett Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. Myfreetaxes.com/everett Some of these credits are discussed next. Myfreetaxes.com/everett Earned income credit. Myfreetaxes.com/everett   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. Myfreetaxes.com/everett If the allowable credit is more than the tax liability for the year, the excess is refunded. Myfreetaxes.com/everett   For more information, see Publication 596, Earned Income Credit (EIC). Myfreetaxes.com/everett Credit for the elderly or the disabled. Myfreetaxes.com/everett   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. Myfreetaxes.com/everett The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. Myfreetaxes.com/everett   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. Myfreetaxes.com/everett Child tax credit. Myfreetaxes.com/everett   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. Myfreetaxes.com/everett You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. Myfreetaxes.com/everett For more information, see the Instructions for Form 1040. Myfreetaxes.com/everett Adoption credit. Myfreetaxes.com/everett   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. Myfreetaxes.com/everett   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. Myfreetaxes.com/everett See Form 8839, Qualified Adoption Expenses, and its instructions for more details. Myfreetaxes.com/everett General business tax credit. Myfreetaxes.com/everett   The general business credit available to a taxpayer is limited. Myfreetaxes.com/everett Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. Myfreetaxes.com/everett Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. Myfreetaxes.com/everett   After the carryforward period, a deduction may be allowed for any unused business credit. Myfreetaxes.com/everett If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. Myfreetaxes.com/everett   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. Myfreetaxes.com/everett Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. Myfreetaxes.com/everett Self-employment tax. Myfreetaxes.com/everett   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. Myfreetaxes.com/everett 28 or more. Myfreetaxes.com/everett Alternative minimum tax (AMT). Myfreetaxes.com/everett   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. Myfreetaxes.com/everett The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. Myfreetaxes.com/everett In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. Myfreetaxes.com/everett Form 6251. Myfreetaxes.com/everett    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. Myfreetaxes.com/everett See the form instructions for information on when you must attach Form 6251 to Form 1040. Myfreetaxes.com/everett Form 8801. Myfreetaxes.com/everett   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. Myfreetaxes.com/everett See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. Myfreetaxes.com/everett Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. Myfreetaxes.com/everett Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. Myfreetaxes.com/everett Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. Myfreetaxes.com/everett For this purpose, a qualified hazardous duty area is treated as a combat zone. Myfreetaxes.com/everett If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. Myfreetaxes.com/everett If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. Myfreetaxes.com/everett Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. Myfreetaxes.com/everett If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Myfreetaxes.com/everett Also, if any tax was collected after the date of death, that amount will be credited or refunded. Myfreetaxes.com/everett The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. Myfreetaxes.com/everett This is true even if death actually occurred earlier. Myfreetaxes.com/everett For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. Myfreetaxes.com/everett Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett employee, and In a military or terrorist action. Myfreetaxes.com/everett The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. Myfreetaxes.com/everett Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. Myfreetaxes.com/everett Military or terrorist action defined. Myfreetaxes.com/everett   A military or terrorist action means the following. Myfreetaxes.com/everett Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. Myfreetaxes.com/everett Any military action involving the U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. Myfreetaxes.com/everett   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. Myfreetaxes.com/everett Military action does not include training exercises. Myfreetaxes.com/everett Any multinational force in which the United States is participating is treated as an ally of the United States. Myfreetaxes.com/everett Determining if a terrorist activity or military action has occurred. Myfreetaxes.com/everett   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. Myfreetaxes.com/everett Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Myfreetaxes.com/everett Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. Myfreetaxes.com/everett The April 19, 1995, terrorist attack on the Alfred P. Myfreetaxes.com/everett Murrah Federal Building (Oklahoma City). Myfreetaxes.com/everett The September 11, 2001, terrorist attacks. Myfreetaxes.com/everett The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. Myfreetaxes.com/everett The Act also exempts from federal income tax the following types of income. Myfreetaxes.com/everett Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. Myfreetaxes.com/everett Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. Myfreetaxes.com/everett Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. Myfreetaxes.com/everett Payments from the September 11th Victim Compensation Fund 2001. Myfreetaxes.com/everett The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. Myfreetaxes.com/everett See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. Myfreetaxes.com/everett Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. Myfreetaxes.com/everett The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. Myfreetaxes.com/everett For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. Myfreetaxes.com/everett However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). Myfreetaxes.com/everett For more information on the Act, see Publication 3920. Myfreetaxes.com/everett Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. Myfreetaxes.com/everett If any tax is still due, it will be canceled. Myfreetaxes.com/everett The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. Myfreetaxes.com/everett If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. Myfreetaxes.com/everett Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. Myfreetaxes.com/everett This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. Myfreetaxes.com/everett Filing a claim. Myfreetaxes.com/everett   Use the following procedures to file a claim. Myfreetaxes.com/everett If a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Myfreetaxes.com/everett Form W-2, Wage and Tax Statement, must accompany all returns. Myfreetaxes.com/everett If a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. Myfreetaxes.com/everett You must file a separate Form 1040X for each year in question. Myfreetaxes.com/everett   You must file these returns and claims at the following address for regular mail (U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Postal Service). Myfreetaxes.com/everett    Internal Revenue Service 333 W. Myfreetaxes.com/everett Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. Myfreetaxes.com/everett On the applicable return, write the same phrase on the line for total tax. Myfreetaxes.com/everett If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. Myfreetaxes.com/everett   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. Myfreetaxes.com/everett On joint returns, make an allocation of the tax as described below under Joint returns. Myfreetaxes.com/everett If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. Myfreetaxes.com/everett   You must attach Form 1310 to all returns and claims for refund. Myfreetaxes.com/everett However, for exceptions to filing Form 1310, see Form 1310. Myfreetaxes.com/everett Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. Myfreetaxes.com/everett   You must also attach proof of death that includes a statement that the individual was a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett employee on the date of injury and on the date of death and died as the result of a military or terrorist action. Myfreetaxes.com/everett For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. Myfreetaxes.com/everett For other U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. Myfreetaxes.com/everett For other U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett civilian employees killed overseas, attach a certification from the Department of State. Myfreetaxes.com/everett   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Myfreetaxes.com/everett Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. Myfreetaxes.com/everett Joint returns. Myfreetaxes.com/everett   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. Myfreetaxes.com/everett Determine the decedent's tax liability as follows. Myfreetaxes.com/everett Figure the income tax for which the decedent would have been liable if a separate return had been filed. Myfreetaxes.com/everett Figure the income tax for which the spouse would have been liable if a separate return had been filed. Myfreetaxes.com/everett Multiply the joint tax liability by a fraction. Myfreetaxes.com/everett The numerator of the fraction is the amount in (1), above. Myfreetaxes.com/everett The denominator of the fraction is the total of (1) and (2). Myfreetaxes.com/everett   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. Myfreetaxes.com/everett Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. Myfreetaxes.com/everett Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Myfreetaxes.com/everett If a personal representative has been appointed, the personal representative must sign the return. Myfreetaxes.com/everett If it is a joint return, the surviving spouse must also sign it. Myfreetaxes.com/everett If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. Myfreetaxes.com/everett If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Myfreetaxes.com/everett ” To claim a refund for the decedent, do the following. Myfreetaxes.com/everett If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. Myfreetaxes.com/everett If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. Myfreetaxes.com/everett (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. Myfreetaxes.com/everett ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). Myfreetaxes.com/everett If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. Myfreetaxes.com/everett Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. Myfreetaxes.com/everett Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. Myfreetaxes.com/everett Joint return by surviving spouse. Myfreetaxes.com/everett   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. Myfreetaxes.com/everett Decedent as your dependent. Myfreetaxes.com/everett   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. Myfreetaxes.com/everett   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. Myfreetaxes.com/everett To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. Myfreetaxes.com/everett To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. Myfreetaxes.com/everett Qualifying widows and widowers. Myfreetaxes.com/everett   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. Myfreetaxes.com/everett Requirements. Myfreetaxes.com/everett   Generally, you qualify for this special benefit if you meet all of the following requirements. Myfreetaxes.com/everett You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. Myfreetaxes.com/everett You did not remarry before the end of the current tax year. Myfreetaxes.com/everett You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. Myfreetaxes.com/everett You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett William Burns' wife died in 2010. Myfreetaxes.com/everett William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. Myfreetaxes.com/everett For 2010, he was entitled to file a joint return for himself and his deceased wife. Myfreetaxes.com/everett For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. Myfreetaxes.com/everett For later years, he may qualify to file as a head of household. Myfreetaxes.com/everett Figuring your tax. Myfreetaxes.com/everett   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. Myfreetaxes.com/everett Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. Myfreetaxes.com/everett   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. Myfreetaxes.com/everett Joint return filing rules. Myfreetaxes.com/everett   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. Myfreetaxes.com/everett See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. Myfreetaxes.com/everett Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. Myfreetaxes.com/everett If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. Myfreetaxes.com/everett This exclusion does not apply to certain income. Myfreetaxes.com/everett For more information, see Publication 3920. Myfreetaxes.com/everett How To Report Income in respect of a decedent must be included in the income of one of the following. Myfreetaxes.com/everett The decedent's estate, if the estate receives it. Myfreetaxes.com/everett The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. Myfreetaxes.com/everett Any person to whom the estate properly distributes the right to receive it. Myfreetaxes.com/everett If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. Myfreetaxes.com/everett See Estate Tax Deduction, later. Myfreetaxes.com/everett Example 1. Myfreetaxes.com/everett Frank Johnson owned and operated an apple orchard. Myfreetaxes.com/everett He used the cash method of accounting. Myfreetaxes.com/everett He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. Myfreetaxes.com/everett The proceeds from the sale are income in respect of a decedent. Myfreetaxes.com/everett When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. Myfreetaxes.com/everett When Frank's widow collects the $2,000, she must include that amount in her return. Myfreetaxes.com/everett It is not reported on the final return of the decedent or on the return of the estate. Myfreetaxes.com/everett Example 2. Myfreetaxes.com/everett Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. Myfreetaxes.com/everett The amount accrued from the sale of the apples would be included on his final return. Myfreetaxes.com/everett Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. Myfreetaxes.com/everett Example 3. Myfreetaxes.com/everett On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. Myfreetaxes.com/everett His adjusted basis in the tractor was $2,000. Myfreetaxes.com/everett George died on February 15, before receiving payment. Myfreetaxes.com/everett The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. Myfreetaxes.com/everett In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. Myfreetaxes.com/everett Example 4. Myfreetaxes.com/everett Cathy O'Neil was entitled to a large salary payment at the date of her death. Myfreetaxes.com/everett The amount was to be paid in five annual installments. Myfreetaxes.com/everett The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. Myfreetaxes.com/everett The payments are income in respect of a decedent. Myfreetaxes.com/everett None of the payments were includible on Cathy's final return. Myfreetaxes.com/everett The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. Myfreetaxes.com/everett Example 5. Myfreetaxes.com/everett You inherited the right to receive renewal commissions on life insurance sold by your father before his death. Myfreetaxes.com/everett You inherited the right from your mother, who acquired it by bequest from your father. Myfreetaxes.com/everett Your mother died before she received all the commissions she had the right to receive, so you received the rest. Myfreetaxes.com/everett The commissions are income in respect of a decedent. Myfreetaxes.com/everett None of these commissions were includible in your father's final return. Myfreetaxes.com/everett The commissions received by your mother were included in her income. Myfreetaxes.com/everett The commissions you received are not includible in your mother's income, even on her final return. Myfreetaxes.com/everett You must include them in your income. Myfreetaxes.com/everett Character of income. Myfreetaxes.com/everett   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. Myfreetaxes.com/everett If the income would have been a capital gain to the decedent, it will be a capital gain to you. Myfreetaxes.com/everett Transfer of right to income. Myfreetaxes.com/everett   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. Myfreetaxes.com/everett   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. Myfreetaxes.com/everett   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. Myfreetaxes.com/everett See Installment obligations, later. Myfreetaxes.com/everett Transfer defined. Myfreetaxes.com/everett   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. Myfreetaxes.com/everett Installment obligations. Myfreetaxes.com/everett   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Myfreetaxes.com/everett Include in your income the same profit the decedent would have included had death not occurred. Myfreetaxes.com/everett For more information, see Publication 537, Installment Sales. Myfreetaxes.com/everett   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. Myfreetaxes.com/everett Transfer to obligor. Myfreetaxes.com/everett   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). Myfreetaxes.com/everett A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. Myfreetaxes.com/everett An obligation that becomes unenforceable is treated as having been canceled. Myfreetaxes.com/everett   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. Myfreetaxes.com/everett The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. Myfreetaxes.com/everett   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. Myfreetaxes.com/everett Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. Myfreetaxes.com/everett Wages. Myfreetaxes.com/everett   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. Myfreetaxes.com/everett The income is not reduced by any amounts withheld by the employer. Myfreetaxes.com/everett If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. Myfreetaxes.com/everett   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. Myfreetaxes.com/everett However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. Myfreetaxes.com/everett These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. Myfreetaxes.com/everett These wages are not included in box 1 of Form W-2. Myfreetaxes.com/everett   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe
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Myfreetaxes. Myfreetaxes.com/everett com/everett 12. Myfreetaxes.com/everett   Business Deduction for Work-Related Education Table of Contents What's New Introduction Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. Myfreetaxes.com/everett Transportation Expenses Travel Expenses No Double Benefit Allowed How To Treat ReimbursementsAccountable Plans Nonaccountable Plans Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping Illustrated Example What's New Standard mileage rate. Myfreetaxes.com/everett  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013, is 56. Myfreetaxes.com/everett 5 cents per mile. Myfreetaxes.com/everett For more information, see Transportation Expenses under What Expenses Can Be Deducted, later. Myfreetaxes.com/everett Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. Myfreetaxes.com/everett To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee, File Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education , later. Myfreetaxes.com/everett What is the tax benefit of taking a business deduction for work-related education. Myfreetaxes.com/everett   If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Myfreetaxes.com/everett Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. Myfreetaxes.com/everett An itemized deduction reduces the amount of your income subject to tax. Myfreetaxes.com/everett   If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. Myfreetaxes.com/everett This reduces the amount of your income subject to both income tax and self-employment tax. Myfreetaxes.com/everett   Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits. Myfreetaxes.com/everett You may qualify for these other benefits even if you do not meet the requirements listed above. Myfreetaxes.com/everett   Also, your work-related education expenses may qualify you to claim more than one tax benefit. Myfreetaxes.com/everett Generally, you may claim any number of benefits as long as you use different expenses to figure each one. Myfreetaxes.com/everett Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. Myfreetaxes.com/everett This is education that meets at least one of the following two tests. Myfreetaxes.com/everett The education is required by your employer or the law to keep your present salary, status, or job. Myfreetaxes.com/everett The required education must serve a bona fide business purpose of your employer. Myfreetaxes.com/everett The education maintains or improves skills needed in your present work. Myfreetaxes.com/everett However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. Myfreetaxes.com/everett You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. Myfreetaxes.com/everett Use Figure 12-1, Does Your Work-Related Education Qualify as a quick check to see if your education qualifies. Myfreetaxes.com/everett Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. Myfreetaxes.com/everett This additional education is qualifying work-related education if all three of the following requirements are met. Myfreetaxes.com/everett It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. Myfreetaxes.com/everett When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. Myfreetaxes.com/everett See Education To Maintain or Improve Skills , later. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You are a teacher who has satisfied the minimum requirements for teaching. Myfreetaxes.com/everett Your employer requires you to take an additional college course each year to keep your teaching job. Myfreetaxes.com/everett If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. Myfreetaxes.com/everett This image is too large to be displayed in the current screen. Myfreetaxes.com/everett Please click the link to view the image. Myfreetaxes.com/everett Figure 12-1 Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. Myfreetaxes.com/everett This could include refresher courses, courses on current developments, and academic or vocational courses. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You repair televisions, radios, and stereo systems for XYZ Store. Myfreetaxes.com/everett To keep up with the latest changes, you take special courses in radio and stereo service. Myfreetaxes.com/everett These courses maintain and improve skills required in your work. Myfreetaxes.com/everett Maintaining skills vs. Myfreetaxes.com/everett qualifying for new job. Myfreetaxes.com/everett   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. Myfreetaxes.com/everett Education during temporary absence. Myfreetaxes.com/everett   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. Myfreetaxes.com/everett Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You quit your biology research job to become a full-time biology graduate student for 1 year. Myfreetaxes.com/everett If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. Myfreetaxes.com/everett Education during indefinite absence. Myfreetaxes.com/everett   If you stop work for more than a year, your absence from your job is considered indefinite. Myfreetaxes.com/everett Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. Myfreetaxes.com/everett Therefore, it is not qualifying work-related education. Myfreetaxes.com/everett Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Myfreetaxes.com/everett The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. Myfreetaxes.com/everett Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. Myfreetaxes.com/everett This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. Myfreetaxes.com/everett You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. Myfreetaxes.com/everett Example 1. Myfreetaxes.com/everett You are a full-time engineering student. Myfreetaxes.com/everett Although you have not received your degree or certification, you work part time as an engineer for a firm that will employ you as a full-time engineer after you finish college. Myfreetaxes.com/everett Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. Myfreetaxes.com/everett The education is not qualifying work-related education. Myfreetaxes.com/everett Example 2. Myfreetaxes.com/everett You are an accountant and you have met the minimum educational requirements of your employer. Myfreetaxes.com/everett Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. Myfreetaxes.com/everett These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. Myfreetaxes.com/everett Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. Myfreetaxes.com/everett The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. Myfreetaxes.com/everett If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. Myfreetaxes.com/everett The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. Myfreetaxes.com/everett You generally will be considered a faculty member when one or more of the following occurs. Myfreetaxes.com/everett You have tenure. Myfreetaxes.com/everett Your years of service count toward obtaining tenure. Myfreetaxes.com/everett You have a vote in faculty decisions. Myfreetaxes.com/everett Your school makes contributions for you to a retirement plan other than social security or a similar program. Myfreetaxes.com/everett Example 1. Myfreetaxes.com/everett The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. Myfreetaxes.com/everett In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. Myfreetaxes.com/everett If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. Myfreetaxes.com/everett However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. Myfreetaxes.com/everett Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. Myfreetaxes.com/everett If you have all the required education except the fifth year, you have met the minimum educational requirements. Myfreetaxes.com/everett The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. Myfreetaxes.com/everett Example 2. Myfreetaxes.com/everett Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. Myfreetaxes.com/everett The additional four education courses can be qualifying work-related education. Myfreetaxes.com/everett Although you do not have all the required courses, you have already met the minimum educational requirements. Myfreetaxes.com/everett Example 3. Myfreetaxes.com/everett Assume the same facts as in Example 1 except that you are hired with only 3 years of college. Myfreetaxes.com/everett The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. Myfreetaxes.com/everett They are needed to meet the minimum educational requirements for employment as a teacher. Myfreetaxes.com/everett Example 4. Myfreetaxes.com/everett You have a bachelor's degree and you work as a temporary instructor at a university. Myfreetaxes.com/everett At the same time, you take graduate courses toward an advanced degree. Myfreetaxes.com/everett The rules of the university state that you can become a faculty member only if you get a graduate degree. Myfreetaxes.com/everett Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. Myfreetaxes.com/everett You have not met the minimum educational requirements to qualify you as a faculty member. Myfreetaxes.com/everett The graduate courses are not qualifying work-related education. Myfreetaxes.com/everett Certification in a new state. Myfreetaxes.com/everett   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. Myfreetaxes.com/everett This is true even if you must get additional education to be certified in another state. Myfreetaxes.com/everett Any additional education you need is qualifying work-related education. Myfreetaxes.com/everett You have already met the minimum requirements for teaching. Myfreetaxes.com/everett Teaching in another state is not a new trade or business. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. Myfreetaxes.com/everett You move to State B and are promptly hired as a teacher. Myfreetaxes.com/everett You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. Myfreetaxes.com/everett These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. Myfreetaxes.com/everett Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. Myfreetaxes.com/everett This is true even if you do not plan to enter that trade or business. Myfreetaxes.com/everett If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. Myfreetaxes.com/everett Example 1. Myfreetaxes.com/everett You are an accountant. Myfreetaxes.com/everett Your employer requires you to get a law degree at your own expense. Myfreetaxes.com/everett You register at a law school for the regular curriculum that leads to a law degree. Myfreetaxes.com/everett Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. Myfreetaxes.com/everett Example 2. Myfreetaxes.com/everett You are a general practitioner of medicine. Myfreetaxes.com/everett You take a 2-week course to review developments in several specialized fields of medicine. Myfreetaxes.com/everett The course does not qualify you for a new profession. Myfreetaxes.com/everett It is qualifying work- related education because it maintains or improves skills required in your present profession. Myfreetaxes.com/everett Example 3. Myfreetaxes.com/everett While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. Myfreetaxes.com/everett The program will lead to qualifying you to practice psychoanalysis. Myfreetaxes.com/everett The psychoanalytic training does not qualify you for a new profession. Myfreetaxes.com/everett It is qualifying work-related education because it maintains or improves skills required in your present profession. Myfreetaxes.com/everett Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. Myfreetaxes.com/everett They are part of a program of study that can qualify you for a new profession. Myfreetaxes.com/everett Teaching and Related Duties All teaching and related duties are considered the same general kind of work. Myfreetaxes.com/everett A change in duties in any of the following ways is not considered a change to a new business. Myfreetaxes.com/everett Elementary school teacher to secondary school teacher. Myfreetaxes.com/everett Teacher of one subject, such as biology, to teacher of another subject, such as art. Myfreetaxes.com/everett Classroom teacher to guidance counselor. Myfreetaxes.com/everett Classroom teacher to school administrator. Myfreetaxes.com/everett What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education you can generally deduct your education expenses as business expenses. Myfreetaxes.com/everett If you are not self-employed, you can deduct business expenses only if you itemize your deductions. Myfreetaxes.com/everett You cannot deduct expenses related to tax-exempt and excluded income. Myfreetaxes.com/everett Deductible expenses. Myfreetaxes.com/everett   The following education expenses can be deducted. Myfreetaxes.com/everett Tuition, books, supplies, lab fees, and similar items. Myfreetaxes.com/everett Certain transportation and travel costs. Myfreetaxes.com/everett Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. Myfreetaxes.com/everett Nondeductible expenses. Myfreetaxes.com/everett   You cannot deduct personal or capital expenses. Myfreetaxes.com/everett For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. Myfreetaxes.com/everett This amount is a personal expense. Myfreetaxes.com/everett Unclaimed reimbursement. Myfreetaxes.com/everett   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Your employer agrees to pay your education expenses if you file a voucher showing your expenses. Myfreetaxes.com/everett You do not file a voucher and you do not get reimbursed. Myfreetaxes.com/everett Because you did not file a voucher, you cannot deduct the expenses on your tax return. Myfreetaxes.com/everett Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. Myfreetaxes.com/everett If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. Myfreetaxes.com/everett Temporary basis. Myfreetaxes.com/everett   You go to school on a temporary basis if either of the following situations applies to you. Myfreetaxes.com/everett Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. Myfreetaxes.com/everett Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Myfreetaxes.com/everett Your attendance is temporary up to the date you determine it will last more than 1 year. Myfreetaxes.com/everett If you are in either situation (1) or (2) above, your attendance is not temporary if facts and circumstances indicate otherwise. Myfreetaxes.com/everett Attendance not on a temporary basis. Myfreetaxes.com/everett   You do not go to school on a temporary basis if either of the following situations apply to you. Myfreetaxes.com/everett Your attendance at school is realistically expected to last more than 1 year. Myfreetaxes.com/everett It does not matter how long you actually attend. Myfreetaxes.com/everett Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Myfreetaxes.com/everett Your attendance is not temporary after the date you determine it will last more than 1 year. Myfreetaxes.com/everett Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. Myfreetaxes.com/everett This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. Myfreetaxes.com/everett Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Myfreetaxes.com/everett Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. Myfreetaxes.com/everett Example 1. Myfreetaxes.com/everett You regularly work in a nearby town, and go directly from work to home. Myfreetaxes.com/everett You also attend school every work night for 3 months to take a course that improves your job skills. Myfreetaxes.com/everett Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. Myfreetaxes.com/everett This is true regardless of the distance traveled. Myfreetaxes.com/everett Example 2. Myfreetaxes.com/everett Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. Myfreetaxes.com/everett You can deduct your transportation expenses from your regular work site to school and then home. Myfreetaxes.com/everett Example 3. Myfreetaxes.com/everett Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Myfreetaxes.com/everett Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. Myfreetaxes.com/everett Example 4. Myfreetaxes.com/everett Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Myfreetaxes.com/everett Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. Myfreetaxes.com/everett If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. Myfreetaxes.com/everett If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. Myfreetaxes.com/everett Using your car. Myfreetaxes.com/everett    If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. Myfreetaxes.com/everett The standard mileage rate for miles driven from January 1, 2013 through December 31, 2013, is 56. Myfreetaxes.com/everett 5 cents per mile. Myfreetaxes.com/everett Whichever method you use, you can also deduct parking fees and tolls. Myfreetaxes.com/everett See Publication 463, chapter 4, for information on deducting your actual expenses of using a car. Myfreetaxes.com/everett Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. Myfreetaxes.com/everett Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. Myfreetaxes.com/everett For more information, see chapter 1 of Publication 463. Myfreetaxes.com/everett You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining. Myfreetaxes.com/everett Mainly personal travel. Myfreetaxes.com/everett   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. Myfreetaxes.com/everett You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. Myfreetaxes.com/everett   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. Myfreetaxes.com/everett An important factor is the comparison of time spent on personal activities with time spent on educational activities. Myfreetaxes.com/everett If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. Myfreetaxes.com/everett Example 1. Myfreetaxes.com/everett John works in Newark, New Jersey. Myfreetaxes.com/everett He traveled to Chicago to take a deductible 1-week course at the request of his employer. Myfreetaxes.com/everett His main reason for going to Chicago was to take the course. Myfreetaxes.com/everett While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day. Myfreetaxes.com/everett Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. Myfreetaxes.com/everett He cannot deduct his transportation expenses of going to Pleasantville. Myfreetaxes.com/everett He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. Myfreetaxes.com/everett Example 2. Myfreetaxes.com/everett Sue works in Boston. Myfreetaxes.com/everett She went to a university in Michigan to take a course for work. Myfreetaxes.com/everett The course is qualifying work-related education. Myfreetaxes.com/everett She took one course, which is one-fourth of a full course load of study. Myfreetaxes.com/everett She spent the rest of the time on personal activities. Myfreetaxes.com/everett Her reasons for taking the course in Michigan were all personal. Myfreetaxes.com/everett Sue's trip is mainly personal because three-fourths of her time is considered personal time. Myfreetaxes.com/everett She cannot deduct the cost of her round-trip train ticket to Michigan. Myfreetaxes.com/everett She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. Myfreetaxes.com/everett Example 3. Myfreetaxes.com/everett Dave works in Nashville and recently traveled to California to take a 2-week seminar. Myfreetaxes.com/everett The seminar is qualifying work-related education. Myfreetaxes.com/everett While there, he spent an extra 8 weeks on personal activities. Myfreetaxes.com/everett The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. Myfreetaxes.com/everett Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. Myfreetaxes.com/everett He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. Myfreetaxes.com/everett Cruises and conventions. Myfreetaxes.com/everett   Certain cruises and conventions offer seminars or courses as part of their itinerary. Myfreetaxes.com/everett Even if the seminars or courses are work related, your deduction for travel may be limited. Myfreetaxes.com/everett This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. Myfreetaxes.com/everett   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. Myfreetaxes.com/everett 50% limit on meals. Myfreetaxes.com/everett   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. Myfreetaxes.com/everett If you were reimbursed for the meals, see How To Treat Reimbursements , later. Myfreetaxes.com/everett   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. Myfreetaxes.com/everett Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett You are a French language teacher. Myfreetaxes.com/everett While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. Myfreetaxes.com/everett You chose your itinerary and most of your activities to improve your French language skills. Myfreetaxes.com/everett You cannot deduct your travel expenses as education expenses. Myfreetaxes.com/everett This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. Myfreetaxes.com/everett No Double Benefit Allowed You cannot do either of the following. Myfreetaxes.com/everett Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, as a tuition and fees deduction. Myfreetaxes.com/everett Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. Myfreetaxes.com/everett See Adjustments to Qualifying Work-Related Education Expenses, next. Myfreetaxes.com/everett Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. Myfreetaxes.com/everett You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. Myfreetaxes.com/everett Tax-free educational assistance. Myfreetaxes.com/everett   This includes: The tax-free part 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). Myfreetaxes.com/everett 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. Myfreetaxes.com/everett Amounts that do not reduce qualifying work-related education expenses. Myfreetaxes.com/everett   Do not reduce the qualifying work-related 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. Myfreetaxes.com/everett Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. Myfreetaxes.com/everett How To Treat Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. Myfreetaxes.com/everett There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. Myfreetaxes.com/everett You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. Myfreetaxes.com/everett Note. Myfreetaxes.com/everett The following rules about reimbursement arrangements also apply to expense allowances received from your employer. Myfreetaxes.com/everett Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. Myfreetaxes.com/everett Your expenses must have a business connection. Myfreetaxes.com/everett This means your expenses must be deductible under the rules for qualifying work-related education explained earlier. Myfreetaxes.com/everett You must adequately account to your employer for your expenses within a reasonable period of time. Myfreetaxes.com/everett You must return any reimbursement or allowance in excess of the expenses accounted for within a reasonable period of time. Myfreetaxes.com/everett If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W-2. Myfreetaxes.com/everett If your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2. Myfreetaxes.com/everett Accountable plan rules not met. Myfreetaxes.com/everett   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable plans. Myfreetaxes.com/everett Those expenses that fail to meet the three rules are treated as having been reimbursed under a Nonaccountable Plan (discussed later). Myfreetaxes.com/everett Expenses equal reimbursement. Myfreetaxes.com/everett   Under an accountable plan, if your expenses equal your reimbursement, you do not complete Form 2106 or 2106-EZ. Myfreetaxes.com/everett Because your expenses and reimbursements are equal, you do not have a deduction. Myfreetaxes.com/everett Excess expenses. Myfreetaxes.com/everett   If your expenses are more than your reimbursement, you can deduct your excess expenses. Myfreetaxes.com/everett This is discussed later, under Deducting Business Expenses . Myfreetaxes.com/everett Allocating your reimbursements for meals. Myfreetaxes.com/everett   Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. Myfreetaxes.com/everett If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. Myfreetaxes.com/everett Make the allocation as follows. Myfreetaxes.com/everett Divide your meal expenses by your total expenses. Myfreetaxes.com/everett Multiply your total reimbursement by the result from (1). Myfreetaxes.com/everett This is the allocated reimbursement for your meal expenses. Myfreetaxes.com/everett Subtract the amount figured in (2) from your total reimbursement. Myfreetaxes.com/everett The difference is the allocated reimbursement for your other expenses of qualifying work-related education. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Your employer paid you an expense allowance of $2,000 under an accountable plan. Myfreetaxes.com/everett The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. Myfreetaxes.com/everett There was no indication of how much of the reimbursement was for each type of expense. Myfreetaxes.com/everett Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition). Myfreetaxes.com/everett Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses. Myfreetaxes.com/everett   1. Myfreetaxes.com/everett $425 meal expenses  $2,500 total expenses = . Myfreetaxes.com/everett 17   2. Myfreetaxes.com/everett $2,000 (reimbursement)×. Myfreetaxes.com/everett 17     =$340 (allocated reimbursement for meal expenses)   3. Myfreetaxes.com/everett $2,000 (reimbursement)−$340 (meals)     = $1,660 (allocated reimbursement for other qualifying work-related education expenses) Your excess meal expenses are $85 ($425 − $340) and your excess other expenses are $415 ($2,075 − $1,660). Myfreetaxes.com/everett After you apply the 50% limit to your meals, you have a deduction for work-related education expenses of $458 (($85 × 50%) + $415). Myfreetaxes.com/everett Nonaccountable Plans Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W-2. Myfreetaxes.com/everett You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. Myfreetaxes.com/everett This is discussed later under Deducting Business Expenses . Myfreetaxes.com/everett An illustrated example of a nonaccountable plan, using Form 2106-EZ, is shown at the end of this chapter. Myfreetaxes.com/everett Reimbursements for nondeductible expenses. Myfreetaxes.com/everett   Reimbursements you received for nondeductible expenses are treated as paid under a nonaccountable plan. Myfreetaxes.com/everett You must include them in your income. Myfreetaxes.com/everett For example, you must include in your income reimbursements your employer gave you for expenses of education that: You need to meet the minimum educational requirements for your job, or Is part of a program of study that can qualify you for a new trade or business. Myfreetaxes.com/everett   For more information on accountable and nonaccountable plans, see chapter 6 of Publication 463. Myfreetaxes.com/everett Deducting Business Expenses Self-employed persons and employees report their business expenses differently. Myfreetaxes.com/everett The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. Myfreetaxes.com/everett Self-Employed Persons If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). Myfreetaxes.com/everett If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. Myfreetaxes.com/everett See the instructions for the form you file for information on how to complete it. Myfreetaxes.com/everett Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. Myfreetaxes.com/everett If either (1) or (2) applies, you can deduct the total qualifying cost. Myfreetaxes.com/everett If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. Myfreetaxes.com/everett In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. Myfreetaxes.com/everett (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. Myfreetaxes.com/everett ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Myfreetaxes.com/everett Form 2106 or 2106-EZ. Myfreetaxes.com/everett   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or 2106-EZ. Myfreetaxes.com/everett Form not required. Myfreetaxes.com/everett   Do not complete either Form 2106 or 2106-EZ if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are not claiming travel, transportation, meal, or entertainment expenses. Myfreetaxes.com/everett   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. Myfreetaxes.com/everett (Special rules for expenses of certain Performing Artists and Fee-Basis Officials and for Impairment-Related Work Expenses are explained later. Myfreetaxes.com/everett ) Using Form 2106-EZ. Myfreetaxes.com/everett   This form is shorter and easier to use than Form 2106. Myfreetaxes.com/everett Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. Myfreetaxes.com/everett   If you do not meet both of these requirements, use Form 2106. Myfreetaxes.com/everett Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. Myfreetaxes.com/everett Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24, or Form 1040NR, line 35. Myfreetaxes.com/everett You do not have to itemize your deductions on Schedule A (Form 1040 or 1040NR), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. Myfreetaxes.com/everett You must complete Form 2106 or 2106-EZ to figure your deduction even if you meet the requirements described earlier under Form not required . Myfreetaxes.com/everett For more information on qualified performing artists, see chapter 6 of Publication 463. Myfreetaxes.com/everett Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. Myfreetaxes.com/everett They are not subject to the 2%-of-adjusted-gross-income limit. Myfreetaxes.com/everett To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . Myfreetaxes.com/everett For more information on impairment-related work expenses, see chapter 6 of Publication 463. Myfreetaxes.com/everett Recordkeeping You must keep records as proof of any deduction claimed on your tax return. Myfreetaxes.com/everett Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. Myfreetaxes.com/everett If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information. Myfreetaxes.com/everett However, you should keep your records for a 3-year period if: You claim deductions for expenses that are more than your reimbursement, Your employer does not use adequate accounting procedures to verify expense accounts, You are related to your employer, or Your expenses are reimbursed under a nonaccountable plan. Myfreetaxes.com/everett Examples of records to keep. Myfreetaxes.com/everett   If any of the above cases apply to you, you must be able to prove that your expenses are deductible. Myfreetaxes.com/everett You should keep adequate records or have sufficient evidence that will support your expenses. Myfreetaxes.com/everett Estimates or approximations do not qualify as proof of an expense. Myfreetaxes.com/everett Some examples of what can be used to help prove your expenses are: Documents, such as transcripts, course descriptions, catalogs, etc. Myfreetaxes.com/everett , showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity. Myfreetaxes.com/everett Canceled checks and receipts to verify amounts you spent for: Tuition and books, Meals and lodging while away from home overnight for educational purposes, Travel and transportation, and Other education expenses. Myfreetaxes.com/everett Statements from your employer explaining whether the education was necessary for you to keep your job, salary, or status; how the education helped maintain or improve skills needed in your job; how much reimbursement you received; and, if you are a teacher, the type of certificate and subjects taught. Myfreetaxes.com/everett Complete information about any scholarship or fellowship grants, including amounts you received during the year. Myfreetaxes.com/everett Illustrated Example Victor Jones teaches math at a private high school in North Carolina. Myfreetaxes.com/everett He was selected to attend a 3-week math seminar at a university in California. Myfreetaxes.com/everett The seminar will improve his skills in his current job and is qualifying work-related education. Myfreetaxes.com/everett He was reimbursed for his expenses under his employer's nonaccountable plan, so his reimbursement of $2,100 is included in the wages shown in box 1 of his Form W-2. Myfreetaxes.com/everett Victor will file Form 1040. Myfreetaxes.com/everett His actual expenses for the seminar are as follows:   Lodging   $1,050     Meals   526     Airfare   550     Taxi fares   50     Tuition and books   400     Total Expenses   $2,576   Victor files Form 2106-EZ with his tax return. Myfreetaxes.com/everett He shows his expenses for the seminar in Part I of the form. Myfreetaxes.com/everett He enters $1,650 ($1,050 + $550 + $50) on line 3 to account for his lodging, airfare, and taxi fares. Myfreetaxes.com/everett He enters $400 on line 4 for his tuition and books. Myfreetaxes.com/everett On the line provided for total meals and entertainment expenses, Victor enters $526 for meal expenses. Myfreetaxes.com/everett He multiplies that amount by 50% and enters the result, $263, on line 5. Myfreetaxes.com/everett On line 6, Victor totals the amounts from lines 3 through 5. Myfreetaxes.com/everett He carries the total, $2,313, to Schedule A (Form 1040), line 21. Myfreetaxes.com/everett Since he does not claim any vehicle expenses, Victor leaves Part II blank. Myfreetaxes.com/everett His filled-in form is shown on the next page. Myfreetaxes.com/everett This image is too large to be displayed in the current screen. Myfreetaxes.com/everett Please click the link to view the image. Myfreetaxes.com/everett Form 2106-EZ for V. Myfreetaxes.com/everett Jones Prev  Up  Next   Home   More Online Publications