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State Taxes Free E File

State taxes free e file 8. State taxes free e file   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. State taxes free e file Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. State taxes free e file It is similar to the straight line method of depreciation. State taxes free e file The various amortizable costs covered in this chapter are included in the list below. State taxes free e file However, this chapter does not discuss amortization of bond premium. State taxes free e file For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. State taxes free e file Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. State taxes free e file How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. State taxes free e file To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. State taxes free e file For example, in 2012, you began to amortize a lease. State taxes free e file In 2013, you began to amortize a second lease. State taxes free e file Report amortization from the new lease on line 42 of your 2013 Form 4562. State taxes free e file Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. State taxes free e file If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). State taxes free e file Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. State taxes free e file Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. State taxes free e file Generally, you recover costs for particular assets through depreciation deductions. State taxes free e file However, you generally cannot recover other costs until you sell the business or otherwise go out of business. State taxes free e file For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. State taxes free e file For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. State taxes free e file The costs that are not deducted currently can be amortized ratably over a 180-month period. State taxes free e file The amortization period starts with the month you begin operating your active trade or business. State taxes free e file You are not required to attach a statement to make this election. State taxes free e file You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. State taxes free e file Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. State taxes free e file See Regulations sections 1. State taxes free e file 195-1, 1. State taxes free e file 248-1, and 1. State taxes free e file 709-1. State taxes free e file For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. State taxes free e file Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. State taxes free e file If the election is made, you must attach any statement required by Regulations sections 1. State taxes free e file 195-1(b), 1. State taxes free e file 248-1(c), and 1. State taxes free e file 709-1(c), as in effect before September 9, 2008. State taxes free e file Note. State taxes free e file You can apply the provisions of Regulations sections 1. State taxes free e file 195-1, 1. State taxes free e file 248-1, and 1. State taxes free e file 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. State taxes free e file Otherwise, the provisions under Regulations sections 1. State taxes free e file 195-1(b), 1. State taxes free e file 248-1(c), and 1. State taxes free e file 709-1(c), as in effect before September 9, 2008, will apply. State taxes free e file For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. State taxes free e file See How To Make the Election , later. State taxes free e file The cost must qualify as one of the following. State taxes free e file A business start-up cost. State taxes free e file An organizational cost for a corporation. State taxes free e file An organizational cost for a partnership. State taxes free e file Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. State taxes free e file Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. State taxes free e file Qualifying costs. State taxes free e file   A start-up cost is amortizable if it meets both of the following tests. State taxes free e file It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). State taxes free e file It is a cost you pay or incur before the day your active trade or business begins. State taxes free e file   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. State taxes free e file Advertisements for the opening of the business. State taxes free e file Salaries and wages for employees who are being trained and their instructors. State taxes free e file Travel and other necessary costs for securing prospective distributors, suppliers, or customers. State taxes free e file Salaries and fees for executives and consultants, or for similar professional services. State taxes free e file Nonqualifying costs. State taxes free e file   Start-up costs do not include deductible interest, taxes, or research and experimental costs. State taxes free e file See Research and Experimental Costs , later. State taxes free e file Purchasing an active trade or business. State taxes free e file   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. State taxes free e file These are costs that help you decide whether to purchase a business. State taxes free e file Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. State taxes free e file Example. State taxes free e file On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. State taxes free e file They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. State taxes free e file In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. State taxes free e file The letter stated that a binding commitment would result only after a purchase agreement was signed. State taxes free e file The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. State taxes free e file On October 22nd, you signed a purchase agreement with XYZ, Inc. State taxes free e file All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. State taxes free e file Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. State taxes free e file Disposition of business. State taxes free e file   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. State taxes free e file However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. State taxes free e file Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. State taxes free e file Qualifying costs. State taxes free e file   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. State taxes free e file   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. State taxes free e file   Examples of organizational costs include: The cost of temporary directors. State taxes free e file The cost of organizational meetings. State taxes free e file State incorporation fees. State taxes free e file The cost of legal services. State taxes free e file Nonqualifying costs. State taxes free e file   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. State taxes free e file Costs associated with the transfer of assets to the corporation. State taxes free e file Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. State taxes free e file Qualifying costs. State taxes free e file   A partnership can amortize an organizational cost only if it meets all the following tests. State taxes free e file It is for the creation of the partnership and not for starting or operating the partnership trade or business. State taxes free e file It is chargeable to a capital account (see chapter 1). State taxes free e file It could be amortized over the life of the partnership if the partnership had a fixed life. State taxes free e file It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. State taxes free e file However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. State taxes free e file It is for a type of item normally expected to benefit the partnership throughout its entire life. State taxes free e file   Organizational costs include the following fees. State taxes free e file Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. State taxes free e file Accounting fees for services incident to the organization of the partnership. State taxes free e file Filing fees. State taxes free e file Nonqualifying costs. State taxes free e file   The following costs cannot be amortized. State taxes free e file The cost of acquiring assets for the partnership or transferring assets to the partnership. State taxes free e file The cost of admitting or removing partners, other than at the time the partnership is first organized. State taxes free e file The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. State taxes free e file The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. State taxes free e file These “syndication fees” are capital expenses that cannot be depreciated or amortized. State taxes free e file Liquidation of partnership. State taxes free e file   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. State taxes free e file However, these costs can be deducted only to the extent they qualify as a loss from a business. State taxes free e file How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). State taxes free e file You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. State taxes free e file Once you choose an amortization period, you cannot change it. State taxes free e file To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. State taxes free e file The result is the amount you can deduct for each month. State taxes free e file Cash method partnership. State taxes free e file   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. State taxes free e file However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. State taxes free e file How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. State taxes free e file You may also be required to attach an accompanying statement (described later) to your return. State taxes free e file For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. State taxes free e file Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. State taxes free e file 195-1, 1. State taxes free e file 248-1, and 1. State taxes free e file 709-1, you must also attach an accompanying statement to elect to amortize the costs. State taxes free e file If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. State taxes free e file See Starting a Business , earlier, for more information. State taxes free e file Generally, you must file the return by the due date (including any extensions). State taxes free e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). State taxes free e file For more information, see the instructions for Part VI of Form 4562. State taxes free e file You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. State taxes free e file Note. State taxes free e file The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. State taxes free e file If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. State taxes free e file A shareholder or partner cannot make this election. State taxes free e file You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. State taxes free e file Only the corporation or partnership can amortize these costs. State taxes free e file However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. State taxes free e file These costs qualify as business start-up costs if you acquire the partnership interest. State taxes free e file Start-up costs election statement. State taxes free e file   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. State taxes free e file A description of the business to which the start-up costs relate. State taxes free e file A description of each start-up cost incurred. State taxes free e file The month your active business began (or was acquired). State taxes free e file The number of months in your amortization period (which is generally 180 months). State taxes free e file Filing the statement early. State taxes free e file   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. State taxes free e file If you file the statement early, the election becomes effective in the month of the tax year your active business begins. State taxes free e file Revised statement. State taxes free e file   You can file a revised statement to include any start-up costs not included in your original statement. State taxes free e file However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. State taxes free e file You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. State taxes free e file Organizational costs election statement. State taxes free e file   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. State taxes free e file A description of each cost. State taxes free e file The amount of each cost. State taxes free e file The date each cost was incurred. State taxes free e file The month your corporation or partnership began active business (or acquired the business). State taxes free e file The number of months in your amortization period (which is generally 180 months). State taxes free e file Partnerships. State taxes free e file   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. State taxes free e file   You do not need to separately list any partnership organizational cost that is less than $10. State taxes free e file Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. State taxes free e file   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. State taxes free e file Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. State taxes free e file The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). State taxes free e file However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). State taxes free e file For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. State taxes free e file How to amortize. State taxes free e file   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. State taxes free e file Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. State taxes free e file You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. State taxes free e file You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. State taxes free e file See Anti-Churning Rules, later. State taxes free e file Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). State taxes free e file The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. State taxes free e file You cannot deduct amortization for the month you dispose of the intangible. State taxes free e file If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. State taxes free e file You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. State taxes free e file Tax-exempt use property subject to a lease. State taxes free e file   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. State taxes free e file Cost attributable to other property. State taxes free e file   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. State taxes free e file For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. State taxes free e file Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. State taxes free e file Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. State taxes free e file You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. State taxes free e file Goodwill. State taxes free e file   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. State taxes free e file Going concern value. State taxes free e file   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. State taxes free e file It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). State taxes free e file It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. State taxes free e file Workforce in place, etc. State taxes free e file   This includes the composition of a workforce (for example, its experience, education, or training). State taxes free e file It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. State taxes free e file   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. State taxes free e file Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. State taxes free e file Business books and records, etc. State taxes free e file   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. State taxes free e file It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. State taxes free e file Patents, copyrights, etc. State taxes free e file   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . State taxes free e file Customer-based intangible. State taxes free e file   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. State taxes free e file For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. State taxes free e file A customer base. State taxes free e file A circulation base. State taxes free e file An undeveloped market or market growth. State taxes free e file Insurance in force. State taxes free e file A mortgage servicing contract. State taxes free e file An investment management contract. State taxes free e file Any other relationship with customers involving the future provision of goods or services. State taxes free e file   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. State taxes free e file Supplier-based intangible. State taxes free e file   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. State taxes free e file The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. State taxes free e file Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. State taxes free e file Also, see Assets That Are Not Section 197 Intangibles below. State taxes free e file Government-granted license, permit, etc. State taxes free e file   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. State taxes free e file For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. State taxes free e file Covenant not to compete. State taxes free e file   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. State taxes free e file An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. State taxes free e file   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. State taxes free e file Franchise, trademark, or trade name. State taxes free e file   A franchise, trademark, or trade name is a section 197 intangible. State taxes free e file You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. State taxes free e file For information on currently deductible contingent payments, see chapter 11. State taxes free e file Professional sports franchise. State taxes free e file   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. State taxes free e file Contract for the use of, or a term interest in, a section 197 intangible. State taxes free e file   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. State taxes free e file It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. State taxes free e file Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. State taxes free e file Any interest in a corporation, partnership, trust, or estate. State taxes free e file Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. State taxes free e file Any interest in land. State taxes free e file Most computer software. State taxes free e file (See Computer software , later. State taxes free e file ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. State taxes free e file An interest in a film, sound recording, video tape, book, or similar property. State taxes free e file A right to receive tangible property or services under a contract or from a governmental agency. State taxes free e file An interest in a patent or copyright. State taxes free e file Certain rights that have a fixed duration or amount. State taxes free e file (See Rights of fixed duration or amount , later. State taxes free e file ) An interest under either of the following. State taxes free e file An existing lease or sublease of tangible property. State taxes free e file A debt that was in existence when the interest was acquired. State taxes free e file A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. State taxes free e file Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. State taxes free e file Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. State taxes free e file You generally must use the straight line method over its useful life. State taxes free e file For certain intangibles, the depreciation period is specified in the law and regulations. State taxes free e file For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. State taxes free e file For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. State taxes free e file Computer software. State taxes free e file   Section 197 intangibles do not include the following types of computer software. State taxes free e file Software that meets all the following requirements. State taxes free e file It is, or has been, readily available for purchase by the general public. State taxes free e file It is subject to a nonexclusive license. State taxes free e file It has not been substantially modified. State taxes free e file This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. State taxes free e file Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. State taxes free e file Computer software defined. State taxes free e file   Computer software includes all programs designed to cause a computer to perform a desired function. State taxes free e file It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. State taxes free e file Rights of fixed duration or amount. State taxes free e file   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. State taxes free e file However, this does not apply to the following intangibles. State taxes free e file Goodwill. State taxes free e file Going concern value. State taxes free e file A covenant not to compete. State taxes free e file A franchise, trademark, or trade name. State taxes free e file A customer-related information base, customer-based intangible, or similar item. State taxes free e file Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. State taxes free e file You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. State taxes free e file If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. State taxes free e file Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. State taxes free e file Amortize these costs using the rules of Revenue Procedure 2004-36. State taxes free e file For more information, see Revenue Procedure 2004-36, 2004-24 I. State taxes free e file R. State taxes free e file B. State taxes free e file 1063, available at  www. State taxes free e file irs. State taxes free e file gov/irb/2004-24_IRB/ar16. State taxes free e file html. State taxes free e file A change in the treatment of creative property costs is a change in method of accounting. State taxes free e file Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. State taxes free e file These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. State taxes free e file Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. State taxes free e file You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. State taxes free e file You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. State taxes free e file You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). State taxes free e file This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. State taxes free e file See Related person , later, for more information. State taxes free e file Exceptions. State taxes free e file   The anti-churning rules do not apply in the following situations. State taxes free e file You acquired the intangible from a decedent and its basis was stepped up to its fair market value. State taxes free e file The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. State taxes free e file This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. State taxes free e file The gain-recognition exception, discussed later, applies. State taxes free e file Related person. State taxes free e file   For purposes of the anti-churning rules, the following are related persons. State taxes free e file An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. State taxes free e file ), and lineal descendants (children, grandchildren, etc. State taxes free e file ). State taxes free e file A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. State taxes free e file Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. State taxes free e file (For an exception, see section 1. State taxes free e file 197-2(h)(6)(iv) of the regulations. State taxes free e file ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. State taxes free e file The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. State taxes free e file The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. State taxes free e file The executor and beneficiary of an estate. State taxes free e file A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). State taxes free e file A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. State taxes free e file Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. State taxes free e file Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. State taxes free e file A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. State taxes free e file Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). State taxes free e file When to determine relationship. State taxes free e file   Persons are treated as related if the relationship existed at the following time. State taxes free e file In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. State taxes free e file In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. State taxes free e file Ownership of stock. State taxes free e file   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. State taxes free e file Rule 1. State taxes free e file   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. State taxes free e file Rule 2. State taxes free e file   An individual is considered to own the stock directly or indirectly owned by or for his or her family. State taxes free e file Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. State taxes free e file Rule 3. State taxes free e file   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. State taxes free e file Rule 4. State taxes free e file   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. State taxes free e file Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. State taxes free e file Gain-recognition exception. State taxes free e file   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. State taxes free e file That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. State taxes free e file That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. State taxes free e file See chapter 2 in Publication 544 for information on making this choice. State taxes free e file   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. State taxes free e file Notification. State taxes free e file   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. State taxes free e file Anti-abuse rule. State taxes free e file   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. State taxes free e file To avoid the requirement that the intangible be acquired after August 10, 1993. State taxes free e file To avoid any of the anti-churning rules. State taxes free e file More information. State taxes free e file   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. State taxes free e file 197-2(h). State taxes free e file Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. State taxes free e file See Amended Return , next. State taxes free e file If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. State taxes free e file See Changing Your Accounting Method , later. State taxes free e file Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. State taxes free e file A mathematical error made in any year. State taxes free e file A posting error made in any year. State taxes free e file An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. State taxes free e file When to file. State taxes free e file   If an amended return is allowed, you must file it by the later of the following dates. State taxes free e file 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. State taxes free e file (A return filed early is considered filed on the due date. State taxes free e file ) 2 years from the time you paid your tax for that year. State taxes free e file Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. State taxes free e file File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. State taxes free e file The following are examples of a change in method of accounting for amortization. State taxes free e file A change in the amortization method, period of recovery, or convention of an amortizable asset. State taxes free e file A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. State taxes free e file A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. State taxes free e file Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. State taxes free e file An adjustment in the useful life of an amortizable asset. State taxes free e file Generally, the making of a late amortization election or the revocation of a timely valid amortization election. State taxes free e file Any change in the placed-in-service date of an amortizable asset. State taxes free e file See Regulations section 1. State taxes free e file 446-1(e)(2)(ii)(a) for more information and examples. State taxes free e file Automatic approval. State taxes free e file   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. State taxes free e file For a list of automatic accounting method changes, see the Instructions for Form 3115. State taxes free e file Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. State taxes free e file For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. State taxes free e file See Revenue Procedure 2006-12, 2006-3 I. State taxes free e file R. State taxes free e file B. State taxes free e file 310, available at  www. State taxes free e file irs. State taxes free e file gov/irb/2006-03_IRB/ar14. State taxes free e file html. State taxes free e file  See Revenue Procedure 2006-37, 2006-38 I. State taxes free e file R. State taxes free e file B. State taxes free e file 499, available at  www. State taxes free e file irs. State taxes free e file gov/irb/2006-38_IRB/ar10. State taxes free e file html. State taxes free e file  See Revenue Procedure 2008-52, 2008-36 I. State taxes free e file R. State taxes free e file B. State taxes free e file 587, available at www. State taxes free e file irs. State taxes free e file gov/irb/2008-36_IRB/ar09. State taxes free e file html. State taxes free e file  See Revenue Procedure 2009-39, 2009-38 I. State taxes free e file R. State taxes free e file B. State taxes free e file 371, available at  www. State taxes free e file irs. State taxes free e file gov/irb/2009-38_IRB/ar08. State taxes free e file html. State taxes free e file  See Revenue Procedure 2011-14, 2011-4 I. State taxes free e file R. State taxes free e file B. State taxes free e file 330, available at  www. State taxes free e file irs. State taxes free e file gov/irb/2011-04_IRB/ar08. State taxes free e file html. State taxes free e file  See Revenue Procedure 2011-22, 2011-18 I. State taxes free e file R. State taxes free e file B. State taxes free e file 737, available at  www. State taxes free e file irs. State taxes free e file gov/irb/2011-18_IRB/ar08. State taxes free e file html. State taxes free e file Also, see Revenue Procedure 2012-39, 2012-41 I. State taxes free e file R. State taxes free e file B. State taxes free e file 470 available at www. State taxes free e file irs. State taxes free e file gov/irb/2012-41_IRB/index. State taxes free e file html. State taxes free e file Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. State taxes free e file If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). State taxes free e file If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. State taxes free e file Any remaining gain, or any loss, is a section 1231 gain or loss. State taxes free e file If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. State taxes free e file For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. State taxes free e file Nondeductible loss. State taxes free e file   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. State taxes free e file Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. State taxes free e file Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. State taxes free e file The numerator is the adjusted basis of each remaining intangible on the date of the disposition. State taxes free e file The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. State taxes free e file Covenant not to compete. State taxes free e file   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. State taxes free e file Nonrecognition transfers. State taxes free e file   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. State taxes free e file You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. State taxes free e file Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. State taxes free e file   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. State taxes free e file Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. State taxes free e file Example. State taxes free e file You own a section 197 intangible you have amortized for 4 full years. State taxes free e file It has a remaining unamortized basis of $30,000. State taxes free e file You exchange the asset plus $10,000 for a like-kind section 197 intangible. State taxes free e file The nonrecognition provisions of like-kind exchanges apply. State taxes free e file You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. State taxes free e file You amortize the other $10,000 of adjusted basis over a new 15-year period. State taxes free e file For more information, see Regulations section 1. State taxes free e file 197-2(g). State taxes free e file Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. State taxes free e file See Reforestation Costs in chapter 7. State taxes free e file You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. State taxes free e file There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. State taxes free e file The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. State taxes free e file A partner, shareholder, or beneficiary cannot make that election. State taxes free e file A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. State taxes free e file , of a partnership or S corporation. State taxes free e file The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. State taxes free e file Qualifying costs. State taxes free e file   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. State taxes free e file Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. State taxes free e file They include costs for the following items. State taxes free e file Site preparation. State taxes free e file Seeds or seedlings. State taxes free e file Labor. State taxes free e file Tools. State taxes free e file Depreciation on equipment used in planting and seeding. State taxes free e file Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. State taxes free e file Qualified timber property. State taxes free e file   Qualified timber property is property that contains trees in significant commercial quantities. State taxes free e file It can be a woodlot or other site that you own or lease. State taxes free e file The property qualifies only if it meets all of the following requirements. State taxes free e file It is located in the United States. State taxes free e file It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. State taxes free e file It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. State taxes free e file Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. State taxes free e file Amortization period. State taxes free e file   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. State taxes free e file You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. State taxes free e file Life tenant and remainderman. State taxes free e file   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. State taxes free e file Any remainder interest in the property is ignored for amortization purposes. State taxes free e file Recapture. State taxes free e file   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. State taxes free e file See chapter 3 of Publication 544 for more information. State taxes free e file How to make the election. State taxes free e file   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. State taxes free e file A description of the costs and the dates you incurred them. State taxes free e file A description of the type of timber being grown and the purpose for which it is grown. State taxes free e file Attach a separate statement for each property for which you amortize reforestation costs. State taxes free e file   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. State taxes free e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). State taxes free e file Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. State taxes free e file 9100-2” on Form 4562. State taxes free e file File the amended return at the same address you filed the original return. State taxes free e file Revoking the election. State taxes free e file   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. State taxes free e file Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. State taxes free e file Please provide your daytime telephone number (optional), in case we need to contact you. State taxes free e file You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. State taxes free e file    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. State taxes free e file NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. State taxes free e file These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. State taxes free e file For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). State taxes free e file If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. State taxes free e file Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. State taxes free e file However, see Atmospheric pollution control facilities for an exception. State taxes free e file The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. State taxes free e file Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. State taxes free e file You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. State taxes free e file See chapter 3 of Publication 946. State taxes free e file A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. State taxes free e file The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. State taxes free e file The facility must be certified by state and federal certifying authorities. State taxes free e file The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. State taxes free e file Also, it must not significantly change the nature of the manufacturing or production process or facility. State taxes free e file The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). State taxes free e file The federal certifying authority will describe the nature of the potential cost recovery. State taxes free e file You must then reduce the amortizable basis of the facility by this potential recovery. State taxes free e file New identifiable treatment facility. State taxes free e file   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. State taxes free e file It does not include a building and its structural components unless the building is exclusively a treatment facility. State taxes free e file Atmospheric pollution control facilities. State taxes free e file   Certain atmospheric pollution control facilities can be amortized over 84 months. State taxes free e file To qualify, the following must apply. State taxes free e file The facility must be acquired and placed in service after April 11, 2005. State taxes free e file If acquired, the original use must begin with you after April 11, 2005. State taxes free e file The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. State taxes free e file If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. State taxes free e file Basis reduction for corporations. State taxes free e file   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. State taxes free e file More information. State taxes free e file   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. State taxes free e file Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). State taxes free e file If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. State taxes free e file The amortization period begins the month you first receive an economic benefit from the costs. State taxes free e file For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. State taxes free e file Optional write-off method. State taxes free e file   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. State taxes free e file For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. State taxes free e file Costs you can amortize. State taxes free e file   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. State taxes free e file You paid or incurred the costs in your trade or business. State taxes free e file You are not deducting the costs currently. State taxes free e file How to make the election. State taxes free e file   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. State taxes free e file Generally, you must file the return by the due date (including extensions). State taxes free e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). State taxes free e file Attach Form 4562 to the amended return and write “Filed pursuant to section 301. State taxes free e file 9100-2” on Form 4562. State taxes free e file File the amended return at the same address you filed the original return. State taxes free e file   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. State taxes free e file Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. State taxes free e file If you make this election, there is no AMT adjustment. State taxes free e file The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. State taxes free e file How to make the election. State taxes free e file   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. State taxes free e file   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. State taxes free e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). State taxes free e file Attach Form 4562 to the amended return and write “Filed pursuant to section 301. State taxes free e file 9100-2” on Form 4562. State taxes free e file File the amended return at the same address you filed the original return. State taxes free e file Revoking the election. State taxes free e file   You must obtain consent from the IRS to revoke your election. State taxes free e file Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. State taxes free e file The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. State taxes free e file If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. State taxes free e file Prev  Up  Next   Home   More Online Publications
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The Internal Revenue Service will not tolerate discrimination against anyone because of race, color, national origin (including limited English proficiency), reprisal, disability, age or sex (in education programs or activities) by its employees or anyone who volunteers or works with taxpayers at one of these community partners:

  • Low Income Tax Clinics (LITC)
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Other bases that apply in education or training programs or activities conducted by the IRS include religion, sexual orientation and status as a parent.

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Persons with disabilities and/or limited English proficiency should be able to participate in or benefit from programs and services that IRS supports. Site Coordinators or Managers at the above sites are required to:

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  • Language assistance services may include oral and written translation.

For Frequently Asked Questions about reasonable accommodation, please click here.

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If you believe you’ve been discriminated against, send a written complaint to:

Operations Director, Civil Rights Division
Department of the Treasury - Internal Revenue Service
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Washington, DC  20224

For questions about your civil rights, contact us at the above address or contact us by email.

Page Last Reviewed or Updated: 14-Mar-2014

The State Taxes Free E File

State taxes free e file 30. State taxes free e file   How To Figure Your Tax Table of Contents Introduction Figuring Your Tax Alternative Minimum Tax (AMT) Tax Figured by IRSFiling the Return Introduction After you have figured your income and deductions as explained in Parts One through Five, your next step is to figure your tax. State taxes free e file This chapter discusses: The general steps you take to figure your tax, An additional tax you may have to pay called the alternative minimum tax (AMT), and The conditions you must meet if you want the IRS to figure your tax. State taxes free e file Figuring Your Tax Your income tax is based on your taxable income. State taxes free e file After you figure your income tax and AMT, if any, subtract your tax credits and add any other taxes you may owe. State taxes free e file The result is your total tax. State taxes free e file Compare your total tax with your total payments to determine whether you are entitled to a refund or if you must make a payment. State taxes free e file This section provides a general outline of how to figure your tax. State taxes free e file You can find step-by-step directions in the Instructions for Forms 1040EZ, 1040A, and 1040. State taxes free e file If you are unsure of which tax form you should file, see Which Form Should I Use? in chapter 1. State taxes free e file Tax. State taxes free e file   Most taxpayers use either the Tax Table or the Tax Computation Worksheet to figure their income tax. State taxes free e file However, there are special methods if your income includes any of the following items. State taxes free e file A net capital gain. State taxes free e file (See chapter 16. State taxes free e file ) Qualified dividends taxed at the same rates as a net capital gain. State taxes free e file (See chapters 8 and 16. State taxes free e file ) Lump-sum distributions. State taxes free e file (See chapter 10. State taxes free e file ) Farming or fishing income. State taxes free e file (See Schedule J (Form 1040), Income Averaging for Farmers and Fishermen. State taxes free e file ) Unearned income over $2,000 for certain children. State taxes free e file (See chapter 31. State taxes free e file ) Parents' election to report child's interest and dividends. State taxes free e file (See chapter 31. State taxes free e file ) Foreign earned income exclusion or the housing exclusion. State taxes free e file (See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, and the Foreign Earned Income Tax Worksheet in the Form 1040 instructions. State taxes free e file ) Credits. State taxes free e file   After you figure your income tax and any AMT (discussed later), determine if you are eligible for any tax credits. State taxes free e file Eligibility information for these tax credits is discussed in chapters 32 through 37 and your form instructions. State taxes free e file The following table lists the credits you may be able to subtract from your tax and shows where you can find more information on each credit. State taxes free e file CREDITS For information on: See  chapter: Adoption 37 Alternative motor vehicle 37 Alternative fuel vehicle refueling  property 37 Child and dependent care 32 Child tax 34 Credit to holders of tax credit  bonds 37 Education 35 Elderly or disabled 33 Electric vehicle 37 Foreign tax 37 Mortgage interest 37 Prior year minimum tax 37 Residential energy 37 Retirement savings contributions 37   Some credits (such as the earned income credit) are not listed because they are treated as payments. State taxes free e file See Payments , later. State taxes free e file   There are other credits that are not discussed in this publication. State taxes free e file These include the following credits. State taxes free e file General business credit, which is made up of several separate business-related credits. State taxes free e file These generally are reported on Form 3800, General Business Credit, and are discussed in chapter 4 of Publication 334, Tax Guide for Small Business. State taxes free e file Renewable electricity, refined coal, and Indian coal production credit for electricity and refined coal produced at facilities placed in service after October 22, 2004 (after October 2, 2008, for electricity produced from marine and hydrokinetic renewables), and Indian coal produced at facilities placed in service after August 8, 2005. State taxes free e file See Form 8835, Part II. State taxes free e file Work opportunity credit. State taxes free e file See Form 5884. State taxes free e file Credit for employer social security and Medicare taxes paid on certain employee tips. State taxes free e file See Form 8846. State taxes free e file Other taxes. State taxes free e file   After you subtract your tax credits, determine whether there are any other taxes you must pay. State taxes free e file This chapter does not explain these other taxes. State taxes free e file You can find that information in other chapters of this publication and your form instructions. State taxes free e file See the following table for other taxes you may need to add to your income tax. State taxes free e file OTHER TAXES For information on: See  chapter: Additional taxes on qualified retirement plans and IRAs 10, 17 Household employment taxes 32 Recapture of an education credit 35 Social security and Medicare tax on wages 5 Social security and Medicare tax on tips 6 Uncollected social security and Medicare tax on tips 6   You also may have to pay AMT (discussed later in this chapter). State taxes free e file   There are other taxes that are not discussed in this publication. State taxes free e file These include the following items. State taxes free e file Self-employment tax. State taxes free e file You must figure this tax if either of the following applies to you (or your spouse if you file a joint return). State taxes free e file Your net earnings from self-employment from other than church employee income were $400 or more. State taxes free e file The term “net earnings from self-employment” may include certain nonemployee compensation and other amounts reported to you on Form 1099-MISC, Miscellaneous Income. State taxes free e file If you received a Form 1099-MISC, see the Instructions for Recipient on the back. State taxes free e file Also see the Instructions for Schedule SE (Form 1040), Self-Employment Tax; and Publication 334, Tax Guide for Small Business. State taxes free e file You had church employee income of $108. State taxes free e file 28 or more. State taxes free e file Additional Medicare Tax. State taxes free e file Beginning in 2013, you may be subject to a 0. State taxes free e file 9% Additional Medicare Tax that applies to Medicare wages, Railroad Retirement Act compensation, and self-employment income over a threshold based on your filing status. State taxes free e file For more information, see the Instructions for Form 1040, line 60 and Form 8959. State taxes free e file Net Investment Income Tax (NIIT). State taxes free e file Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). State taxes free e file NIIT is a 3. State taxes free e file 8% tax on the lesser of net investment income or the excess of your modified adjusted gross income over a threshold amount. State taxes free e file For more information, see the Instructions for Form 1040, line 60 and Form 8960. State taxes free e file Recapture taxes. State taxes free e file You may have to pay these taxes if you previously claimed an investment credit, a low-income housing credit, a new markets credit, a qualified plug-in electric drive motor vehicle credit, an alternative motor vehicle credit, a credit for employer-provided child care facilities, an Indian employment credit, or other credits listed in the instructions for Form 1040, line 60. State taxes free e file For more information, see the instructions for Form 1040, line 60. State taxes free e file Section 72(m)(5) excess benefits tax. State taxes free e file If you are (or were) a 5% owner of a business and you received a distribution that exceeds the benefits provided for you under the qualified pension or annuity plan formula, you may have to pay this additional tax. State taxes free e file See Tax on Excess Benefits in chapter 4 of Publication 560, Retirement Plans for Small Business. State taxes free e file Uncollected social security and Medicare tax on group-term life insurance. State taxes free e file If your former employer provides you with more than $50,000 of group-term life insurance coverage, you must pay the employee part of social security and Medicare taxes on those premiums. State taxes free e file The amount should be shown in box 12 of your Form W-2 with codes M and N. State taxes free e file Tax on golden parachute payments. State taxes free e file This tax applies if you received an “excess parachute payment” (EPP) due to a change in a corporation's ownership or control. State taxes free e file The amount should be shown in box 12 of your Form W-2 with code K. State taxes free e file See the instructions for Form 1040, line 60. State taxes free e file Tax on accumulation distribution of trusts. State taxes free e file This applies if you are the beneficiary of a trust that accumulated its income instead of distributing it currently. State taxes free e file See Form 4970 and its instructions. State taxes free e file Additional tax on HSAs or MSAs. State taxes free e file If amounts contributed to, or distributed from, your health savings account or medical savings account do not meet the rules for these accounts, you may have to pay additional taxes. State taxes free e file See Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans; Form 8853, Archer MSAs and Long-Term Care Insurance Contracts; Form 8889, Health Savings Accounts (HSAs); and Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. State taxes free e file Additional tax on Coverdell ESAs. State taxes free e file This applies if amounts contributed to, or distributed from, your Coverdell ESA do not meet the rules for these accounts. State taxes free e file See Publication 970, Tax Benefits for Education, and Form 5329. State taxes free e file Additional tax on qualified tuition programs. State taxes free e file This applies to amounts distributed from qualified tuition programs that do not meet the rules for these accounts. State taxes free e file See Publication 970 and Form 5329. State taxes free e file Excise tax on insider stock compensation from an expatriated corporation. State taxes free e file You may owe a 15% excise tax on the value of nonstatutory stock options and certain other stock-based compensation held by you or a member of your family from an expatriated corporation or its expanded affiliated group in which you were an officer, director, or more-than-10% owner. State taxes free e file For more information, see the instructions for Form 1040, line 60. State taxes free e file Additional tax on income you received from a nonqualified deferred compensation plan that fails to meet certain requirements. State taxes free e file This income should be shown in Form W-2, box 12, with code Z, or in Form 1099-MISC, box 15b. State taxes free e file For more information, see the instructions for Form 1040, line 60. State taxes free e file Interest on the tax due on installment income from the sale of certain residential lots and timeshares. State taxes free e file For more information, see the instructions for Form 1040, line 60. State taxes free e file Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000. State taxes free e file For more information, see the instructions for Form 1040, line 60. State taxes free e file Repayment of first-time homebuyer credit. State taxes free e file For more information, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. State taxes free e file Also see the instructions for Form 1040, line 59b. State taxes free e file Payments. State taxes free e file   After you determine your total tax, figure the total payments you have already made for the year. State taxes free e file Include credits that are treated as payments. State taxes free e file This chapter does not explain these payments and credits. State taxes free e file You can find that information in other chapters of this publication and your form instructions. State taxes free e file See the following table for amounts you can include in your total payments. State taxes free e file PAYMENTS For information on: See  chapter: Child tax credit (additional) 34 Earned income credit 36 Estimated tax paid 4 Excess social security   and RRTA tax withheld 37 Federal income tax withheld 4 Health coverage tax credit 37 Credit for tax on   undistributed capital gain 37 Tax paid with extension 1   Another credit that is treated as a payment is the credit for federal excise tax paid on fuels. State taxes free e file This credit is for persons who have a nontaxable use of certain fuels, such as diesel fuel and kerosene. State taxes free e file It is claimed on Form 1040, line 70. State taxes free e file See Form 4136, Credit for Federal Tax Paid on Fuels. State taxes free e file Refund or balance due. State taxes free e file   To determine whether you are entitled to a refund or whether you must make a payment, compare your total payments with your total tax. State taxes free e file If you are entitled to a refund, see your form instructions for information on having it directly deposited into one or more of your accounts, or to purchase U. State taxes free e file S. State taxes free e file savings bonds instead of receiving a paper check. State taxes free e file Alternative Minimum Tax (AMT) This section briefly discusses an additional tax you may have to pay. State taxes free e file The tax law gives special treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. State taxes free e file Taxpayers who benefit from this special treatment may have to pay at least a minimum amount of tax through an additional tax called AMT. State taxes free e file You may have to pay the AMT if your taxable income for regular tax purposes, combined with certain adjustments and tax preference items, is more than a certain amount. State taxes free e file See Form 6251, Alternative Minimum Tax — Individuals. State taxes free e file Adjustments and tax preference items. State taxes free e file   The more common adjustments and tax preference items include: Addition of personal exemptions, Addition of the standard deduction (if claimed), Addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses, Subtraction of any refund of state and local taxes included in gross income, Changes to accelerated depreciation of certain property, Difference between gain or loss on the sale of property reported for regular tax purposes and AMT purposes, Addition of certain income from incentive stock options, Change in certain passive activity loss deductions, Addition of certain depletion that is more than the adjusted basis of the property, Addition of part of the deduction for certain intangible drilling costs, and Addition of tax-exempt interest on certain private activity bonds. State taxes free e file More information. State taxes free e file   For more information about the AMT, see the instructions for Form 6251. State taxes free e file Tax Figured by IRS If you file by April 15, 2014, you can have the IRS figure your tax for you on Form 1040EZ, Form 1040A, or Form 1040. State taxes free e file If the IRS figures your tax and you paid too much, you will receive a refund. State taxes free e file If you did not pay enough, you will receive a bill for the balance. State taxes free e file To avoid interest or the penalty for late payment, you must pay the bill within 30 days of the date of the bill or by the due date for your return, whichever is later. State taxes free e file The IRS can also figure the credit for the elderly or the disabled and the earned income credit for you. State taxes free e file When the IRS cannot figure your tax. State taxes free e file   The IRS cannot figure your tax for you if any of the following apply. State taxes free e file You want your refund directly deposited into your accounts. State taxes free e file You want any part of your refund applied to your 2014 estimated tax. State taxes free e file You had income for the year from sources other than wages, salaries, tips, interest, dividends, taxable social security benefits, unemployment compensation, IRA distributions, pensions, and annuities. State taxes free e file Your taxable income is $100,000 or more. State taxes free e file You itemize deductions. State taxes free e file You file any of the following forms. State taxes free e file Form 2555, Foreign Earned Income. State taxes free e file Form 2555-EZ, Foreign Earned Income Exclusion. State taxes free e file Form 4137, Social Security and Medicare Tax on Unreported Tip Income. State taxes free e file Form 4970, Tax on Accumulation Distribution of Trusts. State taxes free e file Form 4972, Tax on Lump-Sum Distributions. State taxes free e file Form 6198, At-Risk Limitations. State taxes free e file Form 6251, Alternative Minimum Tax—Individuals. State taxes free e file Form 8606, Nondeductible IRAs. State taxes free e file Form 8615, Tax for Certain Children Who Have Unearned Income. State taxes free e file Form 8814, Parents' Election To Report Child's Interest and Dividends. State taxes free e file Form 8839, Qualified Adoption Expenses. State taxes free e file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. State taxes free e file Form 8889, Health Savings Accounts (HSAs). State taxes free e file Form 8919, Uncollected Social Security and Medicare Tax on Wages. State taxes free e file Filing the Return After you complete the line entries for the tax form you are filing, fill in your name and address. State taxes free e file Enter your social security number in the space provided. State taxes free e file If you are married, enter the social security numbers of you and your spouse even if you file separately. State taxes free e file Sign and date your return and enter your occupation(s). State taxes free e file If you are filing a joint return, both you and your spouse must sign it. State taxes free e file Enter your daytime phone number in the space provided. State taxes free e file This may help speed the processing of your return if we have a question that can be answered over the phone. State taxes free e file If you are filing a joint return, you may enter either your or your spouse's daytime phone number. State taxes free e file If you want to allow a friend, family member, or any other person you choose to discuss your 2013 tax return with the IRS, check the “Yes” box in the “Third party designee” area on your return. State taxes free e file Also enter the designee's name, phone number, and any five digits the designee chooses as his or her personal identification number (PIN). State taxes free e file If you check the “Yes” box, you, and your spouse if filing a joint return, are authorizing the IRS to call the designee to answer any questions that may arise during the processing of your return. State taxes free e file Fill in and attach any schedules and forms asked for on the lines you completed to your paper return. State taxes free e file Attach a copy of each of your Forms W-2 to your paper return. State taxes free e file Also attach to your paper return any Form 1099-R you received that has withholding tax in box 4. State taxes free e file Mail your return to the Internal Revenue Service Center for the area where you live. State taxes free e file A list of Service Center addresses is in the instructions for your tax return. State taxes free e file Form 1040EZ Line Entries Read lines 1 through 8b and fill in the lines that apply to you. State taxes free e file Do not complete lines 9 through 12. State taxes free e file If you are filing a joint return, use the space to the left of line 6 to separately show your taxable income and your spouse's taxable income. State taxes free e file Payments. State taxes free e file   Enter any federal income tax withheld on line 7. State taxes free e file Federal income tax withheld is shown on Form W-2, box 2, or Form 1099, box 4. State taxes free e file Earned income credit. State taxes free e file   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. State taxes free e file Enter “EIC” in the space to the left of line 8a. State taxes free e file Enter the nontaxable combat pay you elect to include in earned income on line 8b. State taxes free e file   If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862, Information To Claim Earned Income Credit After Disallowance, with your return. State taxes free e file For details, see the Form 1040EZ Instructions. State taxes free e file Form 1040A Line Entries Read lines 1 through 27 and fill in the lines that apply to you. State taxes free e file If you are filing a joint return, use the space to the left of the entry space for line 27 to separately show your taxable income and your spouse's taxable income. State taxes free e file Do not complete line 28. State taxes free e file Complete lines 29 through 33 and 36 through 40 if they apply to you. State taxes free e file However, do not fill in lines 30 and 38a if you want the IRS to figure the credits shown on those lines. State taxes free e file Also, enter any write-in information that applies to you in the space to the left of line 41. State taxes free e file Do not complete lines 34, 35, and 42 through 46. State taxes free e file Payments. State taxes free e file   Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 36. State taxes free e file Enter any estimated tax payments you made on line 37. State taxes free e file Credit for child and dependent care expenses. State taxes free e file   If you can take this credit, as discussed in chapter 32, complete Form 2441, Child and Dependent Care Expenses, and attach it to your return. State taxes free e file Enter the amount of the credit on line 29. State taxes free e file The IRS will not figure this credit. State taxes free e file Credit for the elderly or the disabled. State taxes free e file   If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. State taxes free e file Enter “CFE” in the space to the left of line 30 and attach Schedule R (Form 1040A or 1040), Credit for the Elderly or the Disabled, to your paper return. State taxes free e file On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. State taxes free e file Complete Part II and Part III, lines 11 and 13, if they apply. State taxes free e file Earned income credit. State taxes free e file   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. State taxes free e file Enter “EIC” to the left of the entry space for line 38a. State taxes free e file Enter the nontaxable combat pay you elect to include in earned income on line 38b. State taxes free e file    If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. State taxes free e file If you do not provide the child's social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2013. State taxes free e file   If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. State taxes free e file For details, see the Form 1040A Instructions. State taxes free e file Form 1040 Line Entries Read lines 1 through 43 and fill in the lines that apply to you. State taxes free e file Do not complete line 44. State taxes free e file If you are filing a joint return, use the space under the words “Adjusted Gross Income” on the front of your return to separately show your taxable income and your spouse's taxable income. State taxes free e file Read lines 45 through 71. State taxes free e file Fill in the lines that apply to you, but do not fill in lines 54, 61, and 72. State taxes free e file Also, do not complete line 55 and lines 73 through 77. State taxes free e file Do not fill in line 53, box “c,” if you are completing Schedule R (Form 1040A or 1040), or line 64a if you want the IRS to figure the credits shown on those lines. State taxes free e file Payments. State taxes free e file   Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 62. State taxes free e file Enter any estimated tax payments you made on line 63. State taxes free e file Credit for child and dependent care expenses. State taxes free e file   If you can take this credit, as discussed in chapter 32, complete Form 2441 and attach it to your paper return. State taxes free e file Enter the amount of the credit on line 48. State taxes free e file The IRS will not figure this credit. State taxes free e file Credit for the elderly or the disabled. State taxes free e file   If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. State taxes free e file Enter “CFE” on the line next to line 53, check box “c,” and attach Schedule R (Form 1040A or 1040) to your paper return. State taxes free e file On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. State taxes free e file Complete Part II and Part III, lines 11 and 13, if they apply. State taxes free e file Earned income credit. State taxes free e file   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. State taxes free e file Enter “EIC” on the dotted line next to Form 1040, line 64a. State taxes free e file Enter the nontaxable combat pay you elect to include in earned income on line 64b. State taxes free e file   If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. State taxes free e file If you do not provide the child's social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2013. State taxes free e file   If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. State taxes free e file For details, see the Form 1040 Instructions. State taxes free e file Prev  Up  Next   Home   More Online Publications