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Taxslayer 2012

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Taxslayer 2012

Taxslayer 2012 26. Taxslayer 2012   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. Taxslayer 2012 Parking fees. Taxslayer 2012 Advertising display on car. Taxslayer 2012 Car pools. Taxslayer 2012 Hauling tools or instruments. Taxslayer 2012 Union members' trips from a union hall. Taxslayer 2012 Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. Taxslayer 2012 Statutory employees. Taxslayer 2012 Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. Taxslayer 2012  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Taxslayer 2012 Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. Taxslayer 2012 Depreciation limits on cars, trucks, and vans. Taxslayer 2012  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Taxslayer 2012 For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Taxslayer 2012 For more information, see Depreciation limits in Publication 463. Taxslayer 2012 Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. Taxslayer 2012 An ordinary expense is one that is common and accepted in your trade or business. Taxslayer 2012 A necessary expense is one that is helpful and appropriate for your business. Taxslayer 2012 An expense does not have to be required to be considered necessary. Taxslayer 2012 This chapter explains the following. Taxslayer 2012 What expenses are deductible. Taxslayer 2012 How to report your expenses on your return. Taxslayer 2012 What records you need to prove your expenses. Taxslayer 2012 How to treat any expense reimbursements you may receive. Taxslayer 2012 Who does not need to use this chapter. Taxslayer 2012   If you are an employee, you will not need to read this chapter if all of the following are true. Taxslayer 2012 You fully accounted to your employer for your work-related expenses. Taxslayer 2012 You received full reimbursement for your expenses. Taxslayer 2012 Your employer required you to return any excess reimbursement and you did so. Taxslayer 2012 There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. Taxslayer 2012 If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. Taxslayer 2012 See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. Taxslayer 2012    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. Taxslayer 2012 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. Taxslayer 2012 This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. Taxslayer 2012 It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. Taxslayer 2012 Travel expenses defined. Taxslayer 2012   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. Taxslayer 2012   You will find examples of deductible travel expenses in Table 26-1 . Taxslayer 2012 Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Taxslayer 2012 This rest requirement is not satisfied by merely napping in your car. Taxslayer 2012 You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Taxslayer 2012 Example 1. Taxslayer 2012 You are a railroad conductor. Taxslayer 2012 You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Taxslayer 2012 During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Taxslayer 2012 You are considered to be away from home. Taxslayer 2012 Example 2. Taxslayer 2012 You are a truck driver. Taxslayer 2012 You leave your terminal and return to it later the same day. Taxslayer 2012 You get an hour off at your turnaround point to eat. Taxslayer 2012 Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Taxslayer 2012 Members of the Armed Forces. Taxslayer 2012   If you are a member of the U. Taxslayer 2012 S. Taxslayer 2012 Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Taxslayer 2012 You cannot deduct your expenses for meals and lodging. Taxslayer 2012 You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Taxslayer 2012 If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Taxslayer 2012    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. Taxslayer 2012 Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Taxslayer 2012 Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Taxslayer 2012 It includes the entire city or general area in which your business or work is located. Taxslayer 2012 If you have more than one regular place of business, your tax home is your main place of business. Taxslayer 2012 See Main place of business or work , later. Taxslayer 2012 If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Taxslayer 2012 See No main place of business or work , later. Taxslayer 2012 If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. Taxslayer 2012 As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Taxslayer 2012 Main place of business or work. Taxslayer 2012   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. Taxslayer 2012 The total time you ordinarily spend in each place. Taxslayer 2012 The level of your business activity in each place. Taxslayer 2012 Whether your income from each place is significant or insignificant. Taxslayer 2012 Example. Taxslayer 2012 You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Taxslayer 2012 You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Taxslayer 2012 Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Taxslayer 2012 No main place of business or work. Taxslayer 2012   You may have a tax home even if you do not have a regular or main place of business or work. Taxslayer 2012 Your tax home may be the home where you regularly live. Taxslayer 2012 Factors used to determine tax home. Taxslayer 2012   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. Taxslayer 2012 You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Taxslayer 2012 You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Taxslayer 2012 You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. Taxslayer 2012   If you satisfy all three factors, your tax home is the home where you regularly live. Taxslayer 2012 If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Taxslayer 2012 If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Taxslayer 2012 Example. Taxslayer 2012 You are single and live in Boston in an apartment you rent. Taxslayer 2012 You have worked for your employer in Boston for a number of years. Taxslayer 2012 Your employer enrolls you in a 12-month executive training program. Taxslayer 2012 You do not expect to return to work in Boston after you complete your training. Taxslayer 2012 During your training, you do not do any work in Boston. Taxslayer 2012 Instead, you receive classroom and on-the-job training throughout the United States. Taxslayer 2012 You keep your apartment in Boston and return to it frequently. Taxslayer 2012 You use your apartment to conduct your personal business. Taxslayer 2012 You also keep up your community contacts in Boston. Taxslayer 2012 When you complete your training, you are transferred to Los Angeles. Taxslayer 2012 You do not satisfy factor (1) because you did not work in Boston. Taxslayer 2012 You satisfy factor (2) because you had duplicate living expenses. Taxslayer 2012 You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Taxslayer 2012 Therefore, you have a tax home in Boston. Taxslayer 2012 Tax home different from family home. Taxslayer 2012   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Taxslayer 2012 You also cannot deduct the cost of meals and lodging while at your tax home. Taxslayer 2012 See Example 1 . Taxslayer 2012   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Taxslayer 2012 See Example 2 . Taxslayer 2012 Example 1. Taxslayer 2012 You are a truck driver and you and your family live in Tucson. Taxslayer 2012 You are employed by a trucking firm that has its terminal in Phoenix. Taxslayer 2012 At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Taxslayer 2012 You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Taxslayer 2012 This is because Phoenix is your tax home. Taxslayer 2012 Example 2. Taxslayer 2012 Your family home is in Pittsburgh, where you work 12 weeks a year. Taxslayer 2012 The rest of the year you work for the same employer in Baltimore. Taxslayer 2012 In Baltimore, you eat in restaurants and sleep in a rooming house. Taxslayer 2012 Your salary is the same whether you are in Pittsburgh or Baltimore. Taxslayer 2012 Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Taxslayer 2012 You cannot deduct any expenses you have for meals and lodging there. Taxslayer 2012 However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Taxslayer 2012 You can deduct the cost of your round trip between Baltimore and Pittsburgh. Taxslayer 2012 You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Taxslayer 2012 Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Taxslayer 2012 It may not be practical to return to your tax home from this other location at the end of each work day. Taxslayer 2012 Temporary assignment vs. Taxslayer 2012 indefinite assignment. Taxslayer 2012   If your assignment or job away from your main place of work is temporary, your tax home does not change. Taxslayer 2012 You are considered to be away from home for the whole period you are away from your main place of work. Taxslayer 2012 You can deduct your travel expenses if they otherwise qualify for deduction. Taxslayer 2012 Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Taxslayer 2012   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Taxslayer 2012 An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Taxslayer 2012   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Taxslayer 2012 You may be able to deduct the cost of relocating to your new tax home as a moving expense. Taxslayer 2012 See Publication 521 for more information. Taxslayer 2012 Exception for federal crime investigations or prosecutions. Taxslayer 2012   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Taxslayer 2012 This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year, provided you meet the other requirements for deductibility. Taxslayer 2012   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. Taxslayer 2012 Determining temporary or indefinite. Taxslayer 2012   You must determine whether your assignment is temporary or indefinite when you start work. Taxslayer 2012 If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Taxslayer 2012 An assignment or job that is initially temporary may become indefinite due to changed circumstances. Taxslayer 2012 A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Taxslayer 2012 Going home on days off. Taxslayer 2012   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. Taxslayer 2012 You cannot deduct the cost of your meals and lodging there. Taxslayer 2012 However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Taxslayer 2012 You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Taxslayer 2012   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Taxslayer 2012 In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Taxslayer 2012 Probationary work period. Taxslayer 2012   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Taxslayer 2012 You cannot deduct any of your expenses for meals and lodging during the probationary period. Taxslayer 2012 What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Taxslayer 2012 You can deduct ordinary and necessary expenses you have when you travel away from home on business. Taxslayer 2012 The type of expense you can deduct depends on the facts and your circumstances. Taxslayer 2012 Table 26-1 summarizes travel expenses you may be able to deduct. Taxslayer 2012 You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Taxslayer 2012 When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Taxslayer 2012 You can use a log, diary, notebook, or any other written record to keep track of your expenses. Taxslayer 2012 The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. Taxslayer 2012 Separating costs. Taxslayer 2012   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Taxslayer 2012 You must have a reasonable basis for making this allocation. Taxslayer 2012 For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Taxslayer 2012 Travel expenses for another individual. Taxslayer 2012   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Taxslayer 2012 Employee. Taxslayer 2012   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Taxslayer 2012 Business associate. Taxslayer 2012   If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. Taxslayer 2012 A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. Taxslayer 2012 A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Taxslayer 2012 Bona fide business purpose. Taxslayer 2012   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Taxslayer 2012 Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Taxslayer 2012 Example. Taxslayer 2012 Jerry drives to Chicago on business and takes his wife, Linda, with him. Taxslayer 2012 Linda is not Jerry's employee. Taxslayer 2012 Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Taxslayer 2012 The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Taxslayer 2012 Her expenses are not deductible. Taxslayer 2012 Jerry pays $199 a day for a double room. Taxslayer 2012 A single room costs $149 a day. Taxslayer 2012 He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Taxslayer 2012 If he uses public transportation, he can deduct only his fare. Taxslayer 2012 Table 26-1. Taxslayer 2012 Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. Taxslayer 2012 IF you have expenses for. Taxslayer 2012 . Taxslayer 2012 . Taxslayer 2012 THEN you can deduct the cost of. Taxslayer 2012 . Taxslayer 2012 . Taxslayer 2012 transportation travel by airplane, train, bus, or car between your home and your business destination. Taxslayer 2012 If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Taxslayer 2012 If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. Taxslayer 2012 taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Taxslayer 2012 baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Taxslayer 2012 car operating and maintaining your car when traveling away from home on business. Taxslayer 2012 You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. Taxslayer 2012 If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Taxslayer 2012 lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Taxslayer 2012 Meals include amounts spent for food, beverages, taxes, and related tips. Taxslayer 2012 See Meals and Incidental Expenses for additional rules and limits. Taxslayer 2012 cleaning dry cleaning and laundry. Taxslayer 2012 telephone business calls while on your business trip. Taxslayer 2012 This includes business communication by fax machine or other communication devices. Taxslayer 2012 tips tips you pay for any expenses in this chart. Taxslayer 2012 other other similar ordinary and necessary expenses related to your business travel. Taxslayer 2012 These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Taxslayer 2012 Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. Taxslayer 2012 It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Taxslayer 2012 The meal is business-related entertainment. Taxslayer 2012 Business-related entertainment is discussed under Entertainment Expenses , later. Taxslayer 2012 The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. Taxslayer 2012 Lavish or extravagant. Taxslayer 2012   You cannot deduct expenses for meals that are lavish or extravagant. Taxslayer 2012 An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Taxslayer 2012 Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Taxslayer 2012 50% limit on meals. Taxslayer 2012   You can figure your meal expenses using either of the following methods. Taxslayer 2012 Actual cost. Taxslayer 2012 The standard meal allowance. Taxslayer 2012 Both of these methods are explained below. Taxslayer 2012 But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Taxslayer 2012   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Taxslayer 2012 If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Taxslayer 2012 The 50% limit is explained later under Entertainment Expenses . Taxslayer 2012 Accountable and nonaccountable plans are discussed later under Reimbursements . Taxslayer 2012 Actual cost. Taxslayer 2012   You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Taxslayer 2012 If you use this method, you must keep records of your actual cost. Taxslayer 2012 Standard meal allowance. Taxslayer 2012   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Taxslayer 2012 It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Taxslayer 2012 The set amount varies depending on where and when you travel. Taxslayer 2012 In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Taxslayer 2012 If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Taxslayer 2012 See Recordkeeping , later. Taxslayer 2012 Incidental expenses. Taxslayer 2012   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Taxslayer 2012 Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Taxslayer 2012 Incidental expenses only method. Taxslayer 2012   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Taxslayer 2012 The amount of the deduction is $5 a day. Taxslayer 2012 You can use this method only if you did not pay or incur any meal expenses. Taxslayer 2012 You cannot use this method on any day that you use the standard meal allowance. Taxslayer 2012    Federal employees should refer to the Federal Travel Regulations at  www. Taxslayer 2012 gsa. Taxslayer 2012 gov. Taxslayer 2012 Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Taxslayer 2012 50% limit may apply. Taxslayer 2012   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Taxslayer 2012 If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Taxslayer 2012 The 50% limit is explained later under Entertainment Expenses . Taxslayer 2012 Accountable and nonaccountable plans are discussed later under Reimbursements . Taxslayer 2012 There is no optional standard lodging amount similar to the standard meal allowance. Taxslayer 2012 Your allowable lodging expense deduction is your actual cost. Taxslayer 2012 Who can use the standard meal allowance. Taxslayer 2012   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Taxslayer 2012   Use of the standard meal allowance for other travel. Taxslayer 2012    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Taxslayer 2012 You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Taxslayer 2012 You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Taxslayer 2012 Amount of standard meal allowance. Taxslayer 2012   The standard meal allowance is the federal M&IE rate. Taxslayer 2012 For travel in 2013, the daily rate for most small localities in the United States is $46. Taxslayer 2012   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Taxslayer 2012 You can find this information (organized by state) on the Internet at www. Taxslayer 2012 gsa. Taxslayer 2012 gov. Taxslayer 2012 Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. Taxslayer 2012 However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. Taxslayer 2012 You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. Taxslayer 2012   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Taxslayer 2012 If you work in the transportation industry, however, see Special rate for transportation workers , later. Taxslayer 2012 Standard meal allowance for areas outside the continental United States. Taxslayer 2012    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Taxslayer 2012 The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Taxslayer 2012 S. Taxslayer 2012 Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Taxslayer 2012 The Department of State establishes per diem rates for all other foreign areas. Taxslayer 2012    You can access per diem rates for non-foreign areas outside the continental United States at: www. Taxslayer 2012 defensetravel. Taxslayer 2012 dod. Taxslayer 2012 mil/site/perdiemCalc. Taxslayer 2012 cfm. Taxslayer 2012 You can access all other foreign per diem rates at www. Taxslayer 2012 state. Taxslayer 2012 gov/travel/. Taxslayer 2012 Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. Taxslayer 2012 Special rate for transportation workers. Taxslayer 2012   You can use a special standard meal allowance if you work in the transportation industry. Taxslayer 2012 You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Taxslayer 2012 If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). Taxslayer 2012   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Taxslayer 2012 If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Taxslayer 2012 Travel for days you depart and return. Taxslayer 2012   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Taxslayer 2012 You can do so by one of two methods. Taxslayer 2012 Method 1: You can claim 3/4 of the standard meal allowance. Taxslayer 2012 Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Taxslayer 2012 Example. Taxslayer 2012 Jen is employed in New Orleans as a convention planner. Taxslayer 2012 In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Taxslayer 2012 She left her home in New Orleans at 10 a. Taxslayer 2012 m. Taxslayer 2012 on Wednesday and arrived in Washington, DC, at 5:30 p. Taxslayer 2012 m. Taxslayer 2012 After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Taxslayer 2012 m. Taxslayer 2012 Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Taxslayer 2012 Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Taxslayer 2012 Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Taxslayer 2012 For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Taxslayer 2012 Travel in the United States The following discussion applies to travel in the United States. Taxslayer 2012 For this purpose, the United States includes only the 50 states and the District of Columbia. Taxslayer 2012 The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Taxslayer 2012 See Part of Trip Outside the United States , later. Taxslayer 2012 Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. Taxslayer 2012 If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. Taxslayer 2012 These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Taxslayer 2012 Example. Taxslayer 2012 You work in Atlanta and take a business trip to New Orleans in May. Taxslayer 2012 On your way home, you stop in Mobile to visit your parents. Taxslayer 2012 You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Taxslayer 2012 If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. Taxslayer 2012 You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. Taxslayer 2012 The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Taxslayer 2012 Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Taxslayer 2012 However, you can deduct any expenses you have while at your destination that are directly related to your business. Taxslayer 2012 A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Taxslayer 2012 The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Taxslayer 2012 Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. Taxslayer 2012 For the part of your trip that is inside the United States, use the rules for travel in the United States. Taxslayer 2012 Travel outside the United States does not include travel from one point in the United States to another point in the United States. Taxslayer 2012 The following discussion can help you determine whether your trip was entirely within the United States. Taxslayer 2012 Public transportation. Taxslayer 2012   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Taxslayer 2012 Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Taxslayer 2012 Example. Taxslayer 2012 You fly from New York to Puerto Rico with a scheduled stop in Miami. Taxslayer 2012 You return to New York nonstop. Taxslayer 2012 The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Taxslayer 2012 Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Taxslayer 2012 Private car. Taxslayer 2012   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. Taxslayer 2012 Example. Taxslayer 2012 You travel by car from Denver to Mexico City and return. Taxslayer 2012 Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Taxslayer 2012 The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Taxslayer 2012 Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Taxslayer 2012 For this purpose, the United States includes only the 50 states and the District of Columbia. Taxslayer 2012 How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Taxslayer 2012 See chapter 1 of Publication 463 for information on luxury water travel. Taxslayer 2012 Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Taxslayer 2012 Travel entirely for business. Taxslayer 2012   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Taxslayer 2012 Travel considered entirely for business. Taxslayer 2012   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Taxslayer 2012 Exception 1 - No substantial control. Taxslayer 2012   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Taxslayer 2012 The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Taxslayer 2012   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. Taxslayer 2012    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . Taxslayer 2012   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Taxslayer 2012    A self-employed person generally has substantial control over arranging business trips. Taxslayer 2012 Exception 2 - Outside United States no more than a week. Taxslayer 2012   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Taxslayer 2012 One week means 7 consecutive days. Taxslayer 2012 In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Taxslayer 2012 Exception 3 - Less than 25% of time on personal activities. Taxslayer 2012   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Taxslayer 2012 For this purpose, count both the day your trip began and the day it ended. Taxslayer 2012 Exception 4 - Vacation not a major consideration. Taxslayer 2012   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Taxslayer 2012 Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. Taxslayer 2012 You can only deduct the business portion of your cost of getting to and from your destination. Taxslayer 2012 You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. Taxslayer 2012 These travel allocation rules are discussed in chapter 1 of Publication 463. Taxslayer 2012 You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. Taxslayer 2012 In those cases, you can deduct the total cost of getting to and from your destination. Taxslayer 2012 Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Taxslayer 2012 If you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Taxslayer 2012 Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Taxslayer 2012 You cannot deduct the travel expenses for your family. Taxslayer 2012 If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Taxslayer 2012 Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Taxslayer 2012 You can deduct your travel expenses only if your attendance is connected to your own trade or business. Taxslayer 2012 Convention agenda. Taxslayer 2012   The convention agenda or program generally shows the purpose of the convention. Taxslayer 2012 You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Taxslayer 2012 The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Taxslayer 2012 Conventions held outside the North American area. Taxslayer 2012    See chapter 1 of Publication 463 for information on conventions held outside the North American area. Taxslayer 2012 Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Taxslayer 2012 You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. Taxslayer 2012 Directly-related test. Taxslayer 2012 Associated test. Taxslayer 2012 Both of these tests are explained in chapter 2 of Publication 463. Taxslayer 2012 The amount you can deduct for entertainment expenses may be limited. Taxslayer 2012 Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Taxslayer 2012 This limit is discussed next. Taxslayer 2012 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Taxslayer 2012 (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Taxslayer 2012 See Individuals subject to “hours of service” limits , later. Taxslayer 2012 ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Taxslayer 2012 Figure 26-A summarizes the general rules explained in this section. Taxslayer 2012 The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Taxslayer 2012 Included expenses. Taxslayer 2012   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Taxslayer 2012 However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Taxslayer 2012 Application of 50% limit. Taxslayer 2012   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. Taxslayer 2012   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Taxslayer 2012 It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. Taxslayer 2012 It also applies to the cost of meals included in deductible educational expenses. Taxslayer 2012 When to apply the 50% limit. Taxslayer 2012   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Taxslayer 2012 You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. Taxslayer 2012 Example 1. Taxslayer 2012 You spend $200 for a business-related meal. Taxslayer 2012 If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Taxslayer 2012 Your deduction cannot be more than $45 (. Taxslayer 2012 50 × $90). Taxslayer 2012 Example 2. Taxslayer 2012 You purchase two tickets to a concert and give them to a client. Taxslayer 2012 You purchased the tickets through a ticket agent. Taxslayer 2012 You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Taxslayer 2012 Your deduction cannot be more than $80 (. Taxslayer 2012 50 × $160). Taxslayer 2012 Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Taxslayer 2012 Figure 26-A can help you determine if the 50% limit applies to you. Taxslayer 2012 Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Taxslayer 2012 Employee's reimbursed expenses. Taxslayer 2012   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Taxslayer 2012 Accountable plans are discussed later under Reimbursements . Taxslayer 2012 Individuals subject to “hours of service” limits. Taxslayer 2012   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Taxslayer 2012 The percentage is 80%. Taxslayer 2012   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Taxslayer 2012 Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Taxslayer 2012 Interstate truck operators and bus drivers who are under Department of Transportation regulations. Taxslayer 2012 Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Taxslayer 2012 Certain merchant mariners who are under Coast Guard regulations. Taxslayer 2012 Other exceptions. Taxslayer 2012   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. Taxslayer 2012 These are discussed in Publication 463. Taxslayer 2012 Figure 26-A. Taxslayer 2012 Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Taxslayer 2012 See Exceptions to the 50% Limit . Taxslayer 2012 Please click here for the text description of the image. Taxslayer 2012 Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Taxslayer 2012 Entertainment. Taxslayer 2012    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Taxslayer 2012 Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. Taxslayer 2012 A meal as a form of entertainment. Taxslayer 2012   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Taxslayer 2012 A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Taxslayer 2012 To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Taxslayer 2012 You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Taxslayer 2012 Separating costs. Taxslayer 2012   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Taxslayer 2012 You must have a reasonable basis for making this allocation. Taxslayer 2012 For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Taxslayer 2012 Taking turns paying for meals or entertainment. Taxslayer 2012   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Taxslayer 2012 Lavish or extravagant expenses. Taxslayer 2012   You cannot deduct expenses for entertainment that are lavish or extravagant. Taxslayer 2012 An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Taxslayer 2012 Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Taxslayer 2012 Trade association meetings. Taxslayer 2012    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Taxslayer 2012 These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Taxslayer 2012 Entertainment tickets. Taxslayer 2012   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Taxslayer 2012 For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Taxslayer 2012 What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Taxslayer 2012 Club dues and membership fees. Taxslayer 2012   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Taxslayer 2012 This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities. Taxslayer 2012   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Taxslayer 2012 You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Taxslayer 2012 Entertainment facilities. Taxslayer 2012   Generally, you cannot deduct any expense for the use of an entertainment facility. Taxslayer 2012 This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Taxslayer 2012   An entertainment facility is any property you own, rent, or use for entertainment. Taxslayer 2012 Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Taxslayer 2012 Out-of-pocket expenses. Taxslayer 2012   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Taxslayer 2012 These are not expenses for the use of an entertainment facility. Taxslayer 2012 However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. Taxslayer 2012 Additional information. Taxslayer 2012   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. Taxslayer 2012 Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. Taxslayer 2012 This section explains the limits and rules for deducting the costs of gifts. Taxslayer 2012 $25 limit. Taxslayer 2012   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. Taxslayer 2012 A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. Taxslayer 2012   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. Taxslayer 2012 This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. Taxslayer 2012   If you and your spouse both give gifts, both of you are treated as one taxpayer. Taxslayer 2012 It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. Taxslayer 2012 If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. Taxslayer 2012 Incidental costs. Taxslayer 2012   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. Taxslayer 2012   A cost is incidental only if it does not add substantial value to the gift. Taxslayer 2012 For example, the cost of customary gift wrapping is an incidental cost. Taxslayer 2012 However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. Taxslayer 2012 Exceptions. Taxslayer 2012   The following items are not considered gifts for purposes of the $25 limit. Taxslayer 2012 An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. Taxslayer 2012 Examples include pens, desk sets, and plastic bags and cases. Taxslayer 2012 Signs, display racks, or other promotional material to be used on the business premises of the recipient. Taxslayer 2012 Gift or entertainment. Taxslayer 2012   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Taxslayer 2012 However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. Taxslayer 2012    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Taxslayer 2012 You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. Taxslayer 2012    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Taxslayer 2012 You cannot choose, in this case, to treat the cost of the tickets as a gift expense. Taxslayer 2012 Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . Taxslayer 2012 These expenses include the cost of transportation by air, rail, bus, taxi, etc. Taxslayer 2012 , and the cost of driving and maintaining your car. Taxslayer 2012 Transportation expenses include the ordinary and necessary costs of all of the following. Taxslayer 2012 Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. Taxslayer 2012 (Tax home is defined earlier under Travel Expenses . Taxslayer 2012 ) Visiting clients or customers. Taxslayer 2012 Going to a business meeting away from your regular workplace. Taxslayer 2012 Getting from your home to a temporary workplace when you have one or more regular places of work. Taxslayer 2012 These temporary workplaces can be either within the area of your tax home or outside that area. Taxslayer 2012 Transportation expenses do not include expenses you have while traveling away from home overnight. Taxslayer 2012 Those expenses are travel expenses, discussed earlier. Taxslayer 2012 However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Taxslayer 2012 See Car Expenses , later. Taxslayer 2012 Illustration of transportation expenses. Taxslayer 2012    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. Taxslayer 2012 You may want to refer to it when deciding whether you can deduct your transportation expenses. Taxslayer 2012 Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Taxslayer 2012 However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. Taxslayer 2012 Temporary work location. Taxslayer 2012   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Taxslayer 2012   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Taxslayer 2012   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Taxslayer 2012   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Taxslayer 2012 It will not be treated as temporary after the date you determine it will last more than 1 year. Taxslayer 2012   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Taxslayer 2012 You may have deductible travel expenses as discussed earlier in this chapter. Taxslayer 2012 No regular place of work. Taxslayer 2012   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Taxslayer 2012   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Taxslayer 2012   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Taxslayer 2012 These are nondeductible commuting expenses. Taxslayer 2012 Two places of work. Taxslayer 2012   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Taxslayer 2012 However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Taxslayer 2012   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Taxslayer 2012 You cannot deduct them. Taxslayer 2012 Armed Forces reservists. Taxslayer 2012   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Taxslayer 2012 You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. Taxslayer 2012   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Taxslayer 2012 In this case, your transportation generally is a nondeductible commuting expense. Taxslayer 2012 However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Taxslayer 2012   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Taxslayer 2012   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Taxslayer 2012 These expenses are discussed earlier under Travel Expenses . Taxslayer 2012   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to income rather than as an itemized deduction. Taxslayer 2012 See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. Taxslayer 2012 Commuting expenses. Taxslayer 2012   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Taxslayer 2012 These costs are personal commuting expenses. Taxslayer 2012 You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Taxslayer 2012 You cannot deduct commuting expenses even if you work during the commuting trip. Taxslayer 2012 Example. Taxslayer 2012 You sometimes use your cell phone to make business calls while commuting to and from work. Taxslayer 2012 Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Taxslayer 2012 These activities do not change the trip from personal to business. Taxslayer 2012 You cannot deduct your commuting expenses. Taxslayer 2012 Parking fees. Taxslayer 2012   Fees you pay to park your car at your place of business are nondeductible commuting expenses. Taxslayer 2012 You can, however, deduct business-related parking fees when visiting a customer or client. Taxslayer 2012 Advertising display on car. Taxslayer 2012   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Taxslayer 2012 If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Taxslayer 2012 Car pools. Taxslayer 2012   You cannot deduct the cost of using your car in a nonprofit car pool. Taxslayer 2012 Do not include payments you receive from the passengers in your income. Taxslayer 2012 These payments are considered reimbursements of your expenses. Taxslayer 2012 However, if you operate a car pool for a profit, you must include payments from passengers in your income. Taxslayer 2012 You can then deduct your car expenses (using the rules in this chapter). Taxslayer 2012 Hauling tools or instruments. Taxslayer 2012   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Taxslayer 2012 However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Taxslayer 2012 Union members' trips from a union hall. Taxslayer 2012   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Taxslayer 2012 Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Taxslayer 2012 Office in the home. Taxslayer 2012   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Taxslayer 2012 (See chapter 28 for information on determining if your home office qualifies as a principal place of business. Taxslayer 2012 ) Figure 26-B. Taxslayer 2012 When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. Taxslayer 2012 (Do not use this chart if your home is your principal place of business. Taxslayer 2012 See Office in the home . Taxslayer 2012 ) Please click here for the text description of the image. Taxslayer 2012 Figure 26-B. Taxslayer 2012 Local Transportation Examples of deductible transportation. Taxslayer 2012   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Taxslayer 2012 Example 1. Taxslayer 2012 You regularly work in an office in the city where you live. Taxslayer 2012 Your employer sends you to a 1-week training session at a different office in the same city. Taxslayer 2012 You travel directly from your home to the training location and return each day. Taxslayer 2012 You can deduct the cost of your daily round-trip transportation between your home and the training location. Taxslayer 2012 Example 2. Taxslayer 2012 Your principal place of business is in your home. Taxslayer 2012 You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Taxslayer 2012 Example 3. Taxslayer 2012 You have no regular office, and you do not have an office in your home. Taxslayer 2012 In this case, the location of your first business contact inside the metropolitan area is considered your office. Taxslayer 2012 Transportation expenses between your home and this first contact are nondeductible commuting expenses. Taxslayer 2012 Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Taxslayer 2012 While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. Taxslayer 2012 With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. Taxslayer 2012 Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. Taxslayer 2012 You generally can use one of the two following methods to figure your deductible expenses. Taxslayer 2012 Standard mileage rate. Taxslayer 2012 Actual car expenses. Taxslayer 2012 If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Taxslayer 2012 See Leasing a car under Actual Car Expenses, later. Taxslayer 2012 In this chapter, “car” includes a van, pickup, or panel truck. Taxslayer 2012 Rural mail carriers. Taxslayer 2012   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. Taxslayer 2012 Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. Taxslayer 2012   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Taxslayer 2012 You must complete Form 2106 and attach it to your Form 1040. Taxslayer 2012   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Taxslayer 2012 It is given as an equipment maintenance allowance (EMA) to employees of the U. Taxslayer 2012 S. Taxslayer 2012 Postal Service. Taxslayer 2012 It is at the rate contained in the 1991 collective bargaining agreement. Taxslayer 2012 Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Taxslayer 2012 See your employer for information on your reimbursement. Taxslayer 2012 If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Taxslayer 2012 Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Taxslayer 2012 For 2013, the standard mileage rate for business use is 56½ cents per mile. Taxslayer 2012 If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. Taxslayer 2012 You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Taxslayer 2012 See Reimbursements under How To Report, later. Taxslayer 2012 Choosing the standard mileage rate. Taxslayer 2012   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Taxslayer 2012 Then in later years, you can choose to use either the standard mileage rate or actual expenses. Taxslayer 2012   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Taxslayer 2012   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Taxslayer 2012 You cannot revoke the choice. Taxslayer 2012 However, in a later year, you can switch from the standard mileage rate to the actual expenses method. Taxslayer 2012 If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Taxslayer 2012 Example. Taxslayer 2012 Larry is an employee who occasionally uses his own car for business purposes. Taxslayer 2012 He purchased the car in 2011, but he did not claim any unreimburse
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The Taxslayer 2012

Taxslayer 2012 1. Taxslayer 2012   Investment Income Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: General InformationSSN for joint account. Taxslayer 2012 Custodian account for your child. Taxslayer 2012 Penalty for failure to supply SSN. Taxslayer 2012 Certification. Taxslayer 2012 Underreported interest and dividends. Taxslayer 2012 How to stop backup withholding due to underreporting. Taxslayer 2012 How to stop backup withholding due to an incorrect identification number. Taxslayer 2012 Reporting backup withholding. Taxslayer 2012 Nonresident aliens. Taxslayer 2012 Penalties. Taxslayer 2012 Savings account with parent as trustee. Taxslayer 2012 Interest IncomeInterest not reported on Form 1099-INT. Taxslayer 2012 Nominees. Taxslayer 2012 Incorrect amount. Taxslayer 2012 Information reporting requirement. Taxslayer 2012 Taxable Interest — General Below-Market Loans U. Taxslayer 2012 S. Taxslayer 2012 Savings Bonds U. Taxslayer 2012 S. Taxslayer 2012 Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Discount on Debt InstrumentsOriginal Issue Discount (OID) Market Discount Bonds Discount on Short-Term Obligations Election To Report All Interest as OID When To Report Interest IncomeConstructive receipt. Taxslayer 2012 How To Report Interest IncomeSchedule B (Form 1040A or 1040). Taxslayer 2012 Worksheet for savings bonds distributed from a retirement or profit-sharing plan. Taxslayer 2012 File Form 1099-INT with the IRS. Taxslayer 2012 Dividends and Other DistributionsDividends not reported on Form 1099-DIV. Taxslayer 2012 Nominees. Taxslayer 2012 Ordinary Dividends Capital Gain Distributions Nondividend Distributions Liquidating Distributions Distributions of Stock and Stock Rights Other Distributions How To Report Dividend IncomeElection. Taxslayer 2012 Independent contractor. Taxslayer 2012 Investment interest deducted. Taxslayer 2012 Exception 1. Taxslayer 2012 Exception 2. Taxslayer 2012 Undistributed capital gains. Taxslayer 2012 File Form 1099-DIV with the IRS. Taxslayer 2012 Stripped Preferred Stock REMICs, FASITs, and Other CDOsREMICs Collateralized Debt Obligations (CDOs) FASITs S CorporationsLimit on losses and deductions. Taxslayer 2012 Passive activity losses. Taxslayer 2012 Form 8582. Taxslayer 2012 Investment ClubsInvestments in name of member. Taxslayer 2012 Tax Treatment of the Club Topics - This chapter discusses: Interest Income , Discount on Debt Instruments , When To Report Interest Income , How To Report Interest Income , Dividends and Other Distributions , How To Report Dividend Income , Stripped Preferred Stock , Real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs) , S Corporations , and Investment Clubs . Taxslayer 2012 Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 537 Installment Sales 590 Individual Retirement Arrangements (IRAs) 925 Passive Activity and At-Risk Rules 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses 1040 U. Taxslayer 2012 S. Taxslayer 2012 Individual Income Tax Return 1040A U. Taxslayer 2012 S. Taxslayer 2012 Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1099 General Instructions for Certain Information Returns 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 3115 Application for Change in Accounting Method 6251 Alternative Minimum Tax — Individuals 8582 Passive Activity Loss Limitations 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends 8815 Exclusion of Interest From Series EE and I U. Taxslayer 2012 S. Taxslayer 2012 Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Taxslayer 2012 S. Taxslayer 2012 Savings Bonds Issued After 1989 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets 8960 Net Investment Income Tax—Individuals, Estates, and Trusts See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Taxslayer 2012 General Information A few items of general interest are covered here. Taxslayer 2012 Recordkeeping. Taxslayer 2012 You should keep a list showing sources and investment income amounts you receive during the year. Taxslayer 2012 Also keep the forms you receive showing your investment income (Forms 1099-INT, Interest Income, and 1099-DIV, Dividends and Distributions, for example) as an important part of your records. Taxslayer 2012 Net investment income tax (NIIT). Taxslayer 2012   Beginning in 2013, you may be subject to the NIIT. Taxslayer 2012 The NIIT is a 3. Taxslayer 2012 8% tax on the lesser of your net investment income or the amount of your modified adjusted gross income (MAGI) that is over a threshold amount based on your filing status. Taxslayer 2012    Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household (with qualifying person) $200,000 Qualifying Widow(er) with dependent child $250,000    For more information, see Form 8960 and Instructions for Form 8960. Taxslayer 2012 Tax on unearned income of certain children. Taxslayer 2012   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Taxslayer 2012 This may happen if all of the following are true. Taxslayer 2012 The child had more than $2,000 of unearned income. Taxslayer 2012 The child is required to file a tax return. Taxslayer 2012 The child was: Under age 18 at the end of 2013, Age 18 at the end of 2013 and did not have earned income that was more than half of the child's support, or A full-time student over age 18 and under age 24 at the end of 2013 and did not have earned income that was more than half of the child's support. Taxslayer 2012 At least one of the child's parents was alive at the end of 2013. Taxslayer 2012 The child does not file a joint return for 2013. Taxslayer 2012 A child born on January 1, 1996, is considered to be age 18 at the end of 2013; a child born on January 1, 1995, is considered to be age 19 at the end of 2013; a child born on January 1, 1990, is considered to be age 24 at the end of 2013. Taxslayer 2012   If all of these statements are true, Form 8615 must be completed and attached to the child's tax return. Taxslayer 2012 If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Taxslayer 2012    However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Taxslayer 2012 Use Form 8814 for this purpose. Taxslayer 2012   For more information about the tax on unearned income of children and the parents' election, see Publication 929, Tax Rules for Children and Dependents. Taxslayer 2012 Beneficiary of an estate or trust. Taxslayer 2012   Interest, dividends, and other investment income you receive as a beneficiary of an estate or trust is generally taxable income. Taxslayer 2012 You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Taxslayer 2012 , from the fiduciary. Taxslayer 2012 Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Taxslayer 2012 Social security number (SSN). Taxslayer 2012   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Taxslayer 2012 This includes payers of interest and dividends. Taxslayer 2012 If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Taxslayer 2012 SSN for joint account. Taxslayer 2012   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Taxslayer 2012 (For information on who owns the funds in a joint account, see Joint accounts , later. Taxslayer 2012 ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Taxslayer 2012 This is because only one name and SSN can be shown on Form 1099. Taxslayer 2012   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Taxslayer 2012 For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Taxslayer 2012 Custodian account for your child. Taxslayer 2012   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Taxslayer 2012 For example, you must give your child's SSN to the payer of dividends on stock owned by your child, even though the dividends are paid to you as custodian. Taxslayer 2012 Penalty for failure to supply SSN. Taxslayer 2012   You will be subject to a penalty if, when required, you fail to: Include your SSN on any return, statement, or other document, Give your SSN to another person who must include it on any return, statement, or other document, or Include the SSN of another person on any return, statement, or other document. Taxslayer 2012 The penalty is $50 for each failure up to a maximum penalty of $100,000 for any calendar year. Taxslayer 2012   You will not be subject to this penalty if you can show that your failure to provide the SSN was due to reasonable cause and not to willful neglect. Taxslayer 2012   If you fail to supply an SSN, you may also be subject to backup withholding. Taxslayer 2012 Backup withholding. Taxslayer 2012   Your investment income is generally not subject to regular withholding. Taxslayer 2012 However, it may be subject to backup withholding to ensure that income tax is collected on the income. Taxslayer 2012 Under backup withholding, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Taxslayer 2012   Backup withholding applies if: You do not give the payer your identification number (either a social security number or an employer identification number) in the required manner, The IRS notifies the payer that you gave an incorrect identification number, The IRS notifies the payer that you are subject to backup withholding on interest or dividends because you have underreported interest or dividends on your income tax return, or You are required, but fail, to certify that you are not subject to backup withholding for the reason described in (3). Taxslayer 2012 Certification. Taxslayer 2012   For new accounts paying interest or dividends, you must certify under penalties of perjury that your SSN is correct and that you are not subject to backup withholding. Taxslayer 2012 Your payer will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or similar form, to make this certification. Taxslayer 2012 If you fail to make this certification, backup withholding may begin immediately on your new account or investment. Taxslayer 2012 Underreported interest and dividends. Taxslayer 2012   You will be considered to have underreported your interest and dividends if the IRS has determined for a tax year that: You failed to include any part of a reportable interest or dividend payment required to be shown on your return, or You were required to file a return and to include a reportable interest or dividend payment on that return, but you failed to file the return. Taxslayer 2012 How to stop backup withholding due to underreporting. Taxslayer 2012   If you have been notified that you underreported interest or dividends, you can request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. Taxslayer 2012 You must show that at least one of the following situations applies. Taxslayer 2012 No underreporting occurred. Taxslayer 2012 You have a bona fide dispute with the IRS about whether underreporting occurred. Taxslayer 2012 Backup withholding will cause or is causing an undue hardship, and it is unlikely that you will underreport interest and dividends in the future. Taxslayer 2012 You have corrected the underreporting by filing a return if you did not previously file one and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments. Taxslayer 2012   If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sent notices earlier. Taxslayer 2012 How to stop backup withholding due to an incorrect identification number. Taxslayer 2012   If you have been notified by a payer that you are subject to backup withholding because you have provided an incorrect SSN or employer identification number, you can stop it by following the instructions the payer gives you. Taxslayer 2012 Reporting backup withholding. Taxslayer 2012   If backup withholding is deducted from your interest or dividend income or other reportable payment, the bank or other business must give you an information return for the year (for example, a Form 1099-INT) indicating the amount withheld. Taxslayer 2012 The information return will show any backup withholding as “Federal income tax withheld. Taxslayer 2012 ” Nonresident aliens. Taxslayer 2012    Generally, payments made to nonresident aliens are not subject to backup withholding. Taxslayer 2012 You can use Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to certify exempt status. Taxslayer 2012 However, this does not exempt you from the 30% (or lower treaty) withholding rate that may apply to your investment income. Taxslayer 2012 For information on the 30% rate, see Publication 519, U. Taxslayer 2012 S. Taxslayer 2012 Tax Guide for Aliens. Taxslayer 2012 Penalties. Taxslayer 2012   There are civil and criminal penalties for giving false information to avoid backup withholding. Taxslayer 2012 The civil penalty is $500. Taxslayer 2012 The criminal penalty, upon conviction, is a fine of up to $1,000, or imprisonment of up to 1 year, or both. Taxslayer 2012 Where to report investment income. Taxslayer 2012   Table 1-1 gives an overview of the forms and schedules to use to report some common types of investment income. Taxslayer 2012 But see the rest of this publication for detailed information about reporting investment income. Taxslayer 2012 Joint accounts. Taxslayer 2012   If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law. Taxslayer 2012 Community property states. Taxslayer 2012   If you are married and receive a distribution that is community income, one-half of the distribution is generally considered to be received by each spouse. Taxslayer 2012 If you file separate returns, you must each report one-half of any taxable distribution. Taxslayer 2012 See Publication 555, Community Property, for more information on community income. Taxslayer 2012   If the distribution is not considered community property and you and your spouse file separate returns, each of you must report your separate taxable distributions. Taxslayer 2012 Example. Taxslayer 2012 You and your spouse have a joint money market account. Taxslayer 2012 Under state law, half the income from the account belongs to you, and half belongs to your spouse. Taxslayer 2012 If you file separate returns, you each report half the income. Taxslayer 2012 Income from property given to a child. Taxslayer 2012   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Taxslayer 2012   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Taxslayer 2012 Savings account with parent as trustee. Taxslayer 2012   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Taxslayer 2012 The savings account legally belongs to the child. Taxslayer 2012 The parents are not legally permitted to use any of the funds to support the child. Taxslayer 2012 Table 1-1. Taxslayer 2012 Where To Report Common Types of Investment Income (For detailed information about reporting investment income, see the rest of this publication, especially How To Report Interest Income and How To Report Dividend Income in chapter 1. Taxslayer 2012 ) Type of Income If you file Form 1040, report on . Taxslayer 2012 . Taxslayer 2012 . Taxslayer 2012 If you can file Form 1040A, report on . Taxslayer 2012 . Taxslayer 2012 . Taxslayer 2012 If you can file Form 1040EZ, report on . Taxslayer 2012 . Taxslayer 2012 . Taxslayer 2012 Tax-exempt interest (Form 1099-INT, box 8) Line 8b Line 8b Space to the left of line 2 (enter “TEI” and the amount) Taxable interest that totals $1,500 or less Line 8a (You may need to file Schedule B as well. Taxslayer 2012 ) Line 8a (You may need to file Schedule B as well. Taxslayer 2012 ) Line 2 Taxable interest that totals more than $1,500 Line 8a; also use Schedule B, line 1 Line 8a; also use Schedule B, line 1   Savings bond interest you will exclude because of higher education expenses Schedule B; also use Form 8815 Schedule B; also use Form 8815   Ordinary dividends that total $1,500 or less Line 9a (You may need to file Schedule B as well. Taxslayer 2012 ) Line 9a (You may need to file Schedule B as well. Taxslayer 2012 )   Ordinary dividends that total more than $1,500 Line 9a; also use Schedule B, line 5 Line 9a; also use Schedule B, line 5   Qualified dividends (if you do not have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2 Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2   Qualified dividends (if you have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, line 2 You cannot use Form 1040A    You cannot use Form 1040EZ Capital gain distributions (if you do not have to file Schedule D) Line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3 Line 10; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3   Capital gain distributions (if you have to file Schedule D) Schedule D, line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     Section 1250, 1202, or collectibles gain (Form 1099-DIV, box 2b, 2c, or 2d) Form 8949 and Schedule D     Nondividend distributions (Form 1099-DIV, box 3) Generally not reported*     Undistributed capital gains (Form 2439, boxes 1a - 1d) Schedule D     Gain or loss from sales of stocks or bonds Line 13; also use Form 8949, Schedule D, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet You cannot use Form 1040A   Gain or loss from exchanges of like-kind investment property Line 13; also use Schedule D, Form 8824, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     *Report any amounts in excess of your basis in your mutual fund shares on Form 8949. Taxslayer 2012 Use Part II if you held the shares more than 1 year. Taxslayer 2012 Use Part I if you held your mutual fund shares 1 year or less. Taxslayer 2012 For details on Form 8949, see Reporting Capital Gains and Losses in chapter 4, and the Instructions for Form 8949. Taxslayer 2012 Accuracy-related penalty. Taxslayer 2012   An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregard of rules or regulations or substantial understatement of tax. Taxslayer 2012 For information on the penalty and any interest that applies, see Penalties in chapter 2. Taxslayer 2012 Interest Income This section discusses the tax treatment of different types of interest income. Taxslayer 2012 In general, any interest that you receive or that is credited to your account and can be withdrawn is taxable income. Taxslayer 2012 (It does not have to be entered in your passbook. Taxslayer 2012 ) Exceptions to this rule are discussed later. Taxslayer 2012 Form 1099-INT. Taxslayer 2012   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Taxslayer 2012 This form shows you the interest you received during the year. Taxslayer 2012 Keep this form for your records. Taxslayer 2012 You do not have to attach it to your tax return. Taxslayer 2012   Report on your tax return the total interest income you receive for the tax year. Taxslayer 2012 Interest not reported on Form 1099-INT. Taxslayer 2012   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Taxslayer 2012 For example, you may receive distributive shares of interest from partnerships or S corporations. Taxslayer 2012 This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Taxslayer 2012 , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Taxslayer 2012 Nominees. Taxslayer 2012   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Taxslayer 2012   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on Nominee distributions , later, under How To Report Interest Income. Taxslayer 2012 Incorrect amount. Taxslayer 2012   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Taxslayer 2012 The new Form 1099-INT you receive will be marked “Corrected. Taxslayer 2012 ” Form 1099-OID. Taxslayer 2012   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Taxslayer 2012 For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Taxslayer 2012 Exempt-interest dividends. Taxslayer 2012   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Taxslayer 2012 (However, see Information reporting requirement , next. Taxslayer 2012 ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Taxslayer 2012 You do not reduce your basis for distributions that are exempt-interest dividends. Taxslayer 2012 Information reporting requirement. Taxslayer 2012   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Taxslayer 2012 This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Taxslayer 2012 See How To Report Interest Income , later. Taxslayer 2012 Note. Taxslayer 2012 Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Taxslayer 2012 The exempt-interest dividends subject to the alternative minimum tax are shown in box 11 of Form 1099-DIV. Taxslayer 2012 See Form 6251 and its instructions for more information about this tax. Taxslayer 2012 Private activity bonds are discussed later under State or Local Government Obligations. Taxslayer 2012 Interest on VA dividends. Taxslayer 2012   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Taxslayer 2012 This includes interest paid on dividends on converted United States Government Life Insurance policies and on National Service Life Insurance policies. Taxslayer 2012 Individual retirement arrangements (IRAs). Taxslayer 2012   Interest on a Roth IRA generally is not taxable. Taxslayer 2012 Interest on a traditional IRA is tax deferred. Taxslayer 2012 You generally do not include it in your income until you make withdrawals from the IRA. Taxslayer 2012 See Publication 590 for more information. Taxslayer 2012 Taxable Interest — General Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Taxslayer 2012 The following are some sources of taxable interest. Taxslayer 2012 Dividends that are actually interest. Taxslayer 2012   Certain distributions commonly called dividends are actually interest. Taxslayer 2012 You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Taxslayer 2012  The “dividends” will be shown as interest income on Form 1099-INT. Taxslayer 2012 Money market funds. Taxslayer 2012   Money market funds are offered by nonbank financial institutions such as mutual funds and stock brokerage houses, and pay dividends. Taxslayer 2012 Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Taxslayer 2012 Certificates of deposit and other deferred interest accounts. Taxslayer 2012   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Taxslayer 2012 You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Taxslayer 2012 The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Taxslayer 2012 If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Taxslayer 2012 Interest subject to penalty for early withdrawal. Taxslayer 2012   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Taxslayer 2012 You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Taxslayer 2012 See Penalty on early withdrawal of savings under How To Report Interest Income, later, for more information on how to report the interest and deduct the penalty. Taxslayer 2012 Money borrowed to invest in certificate of deposit. Taxslayer 2012   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Taxslayer 2012 You must report the total interest you earn on the certificate in your income. Taxslayer 2012 If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Taxslayer 2012 See Interest Expenses in chapter 3. Taxslayer 2012 Example. Taxslayer 2012 You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Taxslayer 2012 The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Taxslayer 2012 The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Taxslayer 2012 The bank also gives you a statement showing that you paid $310 interest for 2013. Taxslayer 2012 You must include the $575 in your income. Taxslayer 2012 If you itemize your deductions on Schedule A (Form 1040), Itemized Deductions, you can deduct $310, subject to the net investment income limit. Taxslayer 2012 Gift for opening account. Taxslayer 2012   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Taxslayer 2012   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Taxslayer 2012 For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Taxslayer 2012 The value is determined by the cost to the financial institution. Taxslayer 2012 Example. Taxslayer 2012 You open a savings account at your local bank and deposit $800. Taxslayer 2012 The account earns $20 interest. Taxslayer 2012 You also receive a $15 calculator. Taxslayer 2012 If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Taxslayer 2012 You must report $35 interest income on your tax return. Taxslayer 2012 Interest on insurance dividends. Taxslayer 2012   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Taxslayer 2012 However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Taxslayer 2012 Prepaid insurance premiums. Taxslayer 2012   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Taxslayer 2012 U. Taxslayer 2012 S. Taxslayer 2012 obligations. Taxslayer 2012   Interest on U. Taxslayer 2012 S. Taxslayer 2012 obligations, such as U. Taxslayer 2012 S. Taxslayer 2012 Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Taxslayer 2012 Interest on tax refunds. Taxslayer 2012   Interest you receive on tax refunds is taxable income. Taxslayer 2012 Interest on condemnation award. Taxslayer 2012   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Taxslayer 2012 Installment sale payments. Taxslayer 2012   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Taxslayer 2012 That interest is taxable when you receive it. Taxslayer 2012 If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Taxslayer 2012 See Unstated Interest and Original Issue Discount (OID) in Publication 537. Taxslayer 2012 Interest on annuity contract. Taxslayer 2012   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Taxslayer 2012 Usurious interest. Taxslayer 2012   Usurious interest is interest charged at an illegal rate. Taxslayer 2012 This is taxable as interest unless state law automatically changes it to a payment on the principal. Taxslayer 2012 Interest income on frozen deposits. Taxslayer 2012   Exclude from your gross income interest on frozen deposits. Taxslayer 2012 A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state in which the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Taxslayer 2012   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Taxslayer 2012 If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income for information about reporting this interest income exclusion on your tax return. Taxslayer 2012   The interest you exclude is treated as credited to your account in the following year. Taxslayer 2012 You must include it in income in the year you can withdraw it. Taxslayer 2012 Example. Taxslayer 2012 $100 of interest was credited on your frozen deposit during the year. Taxslayer 2012 You withdrew $80 but could not withdraw any more as of the end of the year. Taxslayer 2012 You must include $80 in your income and exclude $20 from your income for the year. Taxslayer 2012 You must include the $20 in your income for the year you can withdraw it. Taxslayer 2012 Bonds traded flat. Taxslayer 2012    If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Taxslayer 2012 The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Taxslayer 2012 When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Taxslayer 2012 Interest that accrues after the date of purchase, however, is taxable interest income for the year received or accrued. Taxslayer 2012 See Bonds Sold Between Interest Dates , later in this chapter. Taxslayer 2012 Below-Market Loans If you make a below-market gift or demand loan, you must report as interest income any forgone interest (defined later) from that loan. Taxslayer 2012 The below-market loan rules and exceptions are described in this section. Taxslayer 2012 For more information, see section 7872 of the Internal Revenue Code and its regulations. Taxslayer 2012 If you receive a below-market loan, you may be able to deduct the forgone interest as well as any interest you actually paid, but not if it is personal interest. Taxslayer 2012 Loans subject to the rules. Taxslayer 2012   The rules for below-market loans apply to: Gift loans, Pay-related loans, Corporation-shareholder loans, Tax avoidance loans, and Certain loans made to qualified continuing care facilities under a continuing care contract. Taxslayer 2012 A pay-related loan is any below-market loan between an employer and an employee or between an independent contractor and a person for whom the contractor provides services. Taxslayer 2012 A tax avoidance loan is any below-market loan where the avoidance of federal tax is one of the main purposes of the interest arrangement. Taxslayer 2012 Forgone interest. Taxslayer 2012   For any period, forgone interest is: The amount of interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Taxslayer 2012 Applicable federal rate. Taxslayer 2012   Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Taxslayer 2012 Some IRS offices have these bulletins available for research. Taxslayer 2012 See chapter 5, How To Get Tax Help , for other ways to get this information. Taxslayer 2012 Rules for below-market loans. Taxslayer 2012   The rules that apply to a below-market loan depend on whether the loan is a gift loan, demand loan, or term loan. Taxslayer 2012 Gift and demand loans. Taxslayer 2012   A gift loan is any below-market loan where the forgone interest is in the nature of a gift. Taxslayer 2012   A demand loan is a loan payable in full at any time upon demand by the lender. Taxslayer 2012 A demand loan is a below-market loan if no interest is charged or if interest is charged at a rate below the applicable federal rate. Taxslayer 2012   A demand loan or gift loan that is a below-market loan is generally treated as an arm's-length transaction in which the lender is treated as having made: A loan to the borrower in exchange for a note that requires the payment of interest at the applicable federal rate, and An additional payment to the borrower in an amount equal to the forgone interest. Taxslayer 2012 The borrower is generally treated as transferring the additional payment back to the lender as interest. Taxslayer 2012 The lender must report that amount as interest income. Taxslayer 2012   The lender's additional payment to the borrower is treated as a gift, dividend, contribution to capital, pay for services, or other payment, depending on the substance of the transaction. Taxslayer 2012 The borrower may have to report this payment as taxable income, depending on its classification. Taxslayer 2012 These transfers are considered to occur annually, generally on December 31. Taxslayer 2012 Term loans. Taxslayer 2012   A term loan is any loan that is not a demand loan. Taxslayer 2012 A term loan is a below-market loan if the amount of the loan is more than the present value of all payments due under the loan. Taxslayer 2012   A lender who makes a below-market term loan other than a gift loan is treated as transferring an additional lump-sum cash payment to the borrower (as a dividend, contribution to capital, etc. Taxslayer 2012 ) on the date the loan is made. Taxslayer 2012 The amount of this payment is the amount of the loan minus the present value, at the applicable federal rate, of all payments due under the loan. Taxslayer 2012 An equal amount is treated as original issue discount (OID). Taxslayer 2012 The lender must report the annual part of the OID as interest income. Taxslayer 2012 The borrower may be able to deduct the OID as interest expense. Taxslayer 2012 See Original Issue Discount (OID) , later. Taxslayer 2012 Exceptions to the below-market loan rules. Taxslayer 2012   Exceptions to the below-market loan rules are discussed here. Taxslayer 2012 Exception for loans of $10,000 or less. Taxslayer 2012   The rules for below-market loans do not apply to any day on which the total outstanding amount of loans between the borrower and lender is $10,000 or less. Taxslayer 2012 This exception applies only to: Gift loans between individuals if the gift loan is not directly used to buy or carry income-producing assets, and Pay-related loans or corporation-shareholder loans if the avoidance of federal tax is not a principal purpose of the interest arrangement. Taxslayer 2012 This exception does not apply to a term loan described in (2) earlier that previously has been subject to the below-market loan rules. Taxslayer 2012 Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Taxslayer 2012 Exception for loans to continuing care facilities. Taxslayer 2012   Loans to qualified continuing care facilities under continuing care contracts are not subject to the rules for below-market loans for the calendar year if the lender or the lender's spouse is age 62 or older at the end of the year. Taxslayer 2012 For the definitions of qualified continuing care facility and continuing care contract, see Internal Revenue Code section 7872(h). Taxslayer 2012 Exception for loans without significant tax effect. Taxslayer 2012   Loans are excluded from the below-market loan rules if their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Taxslayer 2012 These loans include: Loans made available by the lender to the general public on the same terms and conditions that are consistent with the lender's customary business practice; Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public; Certain employee-relocation loans; Certain loans from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Taxslayer 2012 S. Taxslayer 2012 trade or business and would not be exempt from U. Taxslayer 2012 S. Taxslayer 2012 tax under an income tax treaty; Gift loans to a charitable organization, contributions to which are deductible, if the total outstanding amount of loans between the organization and lender is $250,000 or less at all times during the tax year; and Other loans on which the interest arrangement can be shown to have no significant effect on the federal tax liability of the lender or the borrower. Taxslayer 2012 For a loan described in (6) above, all the facts and circumstances are used to determine if the interest arrangement has a significant effect on the federal tax liability of the lender or borrower. Taxslayer 2012 Some factors to be considered are: Whether items of income and deduction generated by the loan offset each other; The amount of these items; The cost to you of complying with the below-market loan rules, if they were to apply; and Any reasons other than taxes for structuring the transaction as a below-market loan. Taxslayer 2012 If you structure a transaction to meet this exception and one of the principal purposes of that structure is the avoidance of federal tax, the loan will be considered a tax-avoidance loan, and this exception will not apply. Taxslayer 2012 Limit on forgone interest for gift loans of $100,000 or less. Taxslayer 2012   For gift loans between individuals, if the outstanding loans between the lender and borrower total $100,000 or less, the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. Taxslayer 2012 If the borrower's net investment income is $1,000 or less, it is treated as zero. Taxslayer 2012 This limit does not apply to a loan if the avoidance of federal tax is one of the main purposes of the interest arrangement. Taxslayer 2012 Effective dates. Taxslayer 2012    These rules apply to term loans made after June 6, 1984, and to demand loans outstanding after that date. Taxslayer 2012 U. Taxslayer 2012 S. Taxslayer 2012 Savings Bonds This section provides tax information on U. Taxslayer 2012 S. Taxslayer 2012 savings bonds. Taxslayer 2012 It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Taxslayer 2012 U. Taxslayer 2012 S. Taxslayer 2012 savings bonds currently offered to individuals include Series EE bonds and Series I bonds. Taxslayer 2012 For other information on U. Taxslayer 2012 S. Taxslayer 2012 savings bonds, write to:  For Series HH/H: Bureau of the Fiscal Service Division of Customer Assistance P. Taxslayer 2012 O. Taxslayer 2012 Box 2186 Parkersburg, WV 26106-2186  For Series EE and I paper savings bonds: Bureau of the Fiscal Service Division of Customer Assistance P. Taxslayer 2012 O. Taxslayer 2012 Box 7012 Parkersburg, WV 26106-7012  For Series EE and I electronic bonds: Bureau of the Fiscal Service  Division of Customer Assistance P. Taxslayer 2012 O. Taxslayer 2012 Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Taxslayer 2012 treasurydirect. Taxslayer 2012 gov/indiv/indiv. Taxslayer 2012 htm. Taxslayer 2012 Accrual method taxpayers. Taxslayer 2012   If you use an accrual method of accounting, you must report interest on U. Taxslayer 2012 S. Taxslayer 2012 savings bonds each year as it accrues. Taxslayer 2012 You cannot postpone reporting interest until you receive it or until the bonds mature. Taxslayer 2012 Cash method taxpayers. Taxslayer 2012   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Taxslayer 2012 S. Taxslayer 2012 savings bonds when you receive it. Taxslayer 2012 But see Reporting options for cash method taxpayers , later. Taxslayer 2012 Series HH bonds. Taxslayer 2012   These bonds were issued at face value. Taxslayer 2012 Interest is paid twice a year by direct deposit to your bank account. Taxslayer 2012 If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Taxslayer 2012   Series HH bonds were first offered in 1980 and last offered in August 2004. Taxslayer 2012 Before 1980, series H bonds were issued. Taxslayer 2012 Series H bonds are treated the same as series HH bonds. Taxslayer 2012 If you are a cash method taxpayer, you must report the interest when you receive it. Taxslayer 2012   Series H bonds have a maturity period of 30 years. Taxslayer 2012 Series HH bonds mature in 20 years. Taxslayer 2012 The last series H bonds matured in 2009. Taxslayer 2012 The last series HH bonds will mature in 2024. Taxslayer 2012 Series EE and series I bonds. Taxslayer 2012   Interest on these bonds is payable when you redeem the bonds. Taxslayer 2012 The difference between the purchase price and the redemption value is taxable interest. Taxslayer 2012 Series EE bonds. Taxslayer 2012   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Taxslayer 2012 Before July 1980, series E bonds were issued. Taxslayer 2012 The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Taxslayer 2012 Paper series EE and series E bonds are issued at a discount. Taxslayer 2012 The face value is payable to you at maturity. Taxslayer 2012 Electronic series EE bonds are issued at their face value. Taxslayer 2012 The face value plus accrued interest is payable to you at maturity. Taxslayer 2012 As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Taxslayer 2012    Owners of paper series EE bonds can convert them to electronic bonds. Taxslayer 2012 These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Taxslayer 2012 Series I bonds. Taxslayer 2012   Series I bonds were first offered in 1998. Taxslayer 2012 These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Taxslayer 2012 The face value plus all accrued interest is payable to you at maturity. Taxslayer 2012 Reporting options for cash method taxpayers. Taxslayer 2012   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Taxslayer 2012 Method 1. Taxslayer 2012 Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. Taxslayer 2012 (However, see Savings bonds traded , later. Taxslayer 2012 )  Note. Taxslayer 2012 Series EE bonds issued in 1983 matured in 2013. Taxslayer 2012 If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Taxslayer 2012 The last series E bonds were issued in 1980 and matured in 2010. Taxslayer 2012 If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Taxslayer 2012 Method 2. Taxslayer 2012 Choose to report the increase in redemption value as interest each year. Taxslayer 2012  You must use the same method for all series EE, series E, and series I bonds you own. Taxslayer 2012 If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Taxslayer 2012 If you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Taxslayer 2012 To learn how, see Education Savings Bond Program, later. Taxslayer 2012 Change from method 1. Taxslayer 2012   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Taxslayer 2012 In the year of change, you must report all interest accrued to date and not previously reported for all your bonds. Taxslayer 2012   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Taxslayer 2012 Change from method 2. Taxslayer 2012   To change from method 2 to method 1, you must request permission from the IRS. Taxslayer 2012 Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Taxslayer 2012 You have typed or printed the following number at the top: “131. Taxslayer 2012 ” It includes your name and social security number under “131. Taxslayer 2012 ” It includes the year of change (both the beginning and ending dates). Taxslayer 2012 It identifies the savings bonds for which you are requesting this change. Taxslayer 2012 It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest; and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Taxslayer 2012   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Taxslayer 2012   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Taxslayer 2012 On the statement, type or print “Filed pursuant to section 301. Taxslayer 2012 9100-2. Taxslayer 2012 ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Taxslayer 2012    By the date you file the original statement with your return, you must also send a signed copy to the address below. Taxslayer 2012    Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Taxslayer 2012 O. Taxslayer 2012 Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Taxslayer 2012 Internal Revenue Service Attention: CC:IT&A  (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW Washington, DC 20224    Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115. Taxslayer 2012 In that case, follow the form instructions for an automatic change. Taxslayer 2012 No user fee is required. Taxslayer 2012 Co-owners. Taxslayer 2012   If a U. Taxslayer 2012 S. Taxslayer 2012 savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Taxslayer 2012 One co-owner's funds used. Taxslayer 2012   If you used your funds to buy the bond, you must pay the tax on the interest. Taxslayer 2012 This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Taxslayer 2012 Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Taxslayer 2012 The co-owner who redeemed the bond is a “nominee. Taxslayer 2012 ” See Nominee distributions under How To Report Interest Income, later, for more information about how a person who is a nominee reports interest income belonging to another person. Taxslayer 2012 Both co-owners' funds used. Taxslayer 2012   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Taxslayer 2012 Community property. Taxslayer 2012   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Taxslayer 2012 If you file separate returns, each of you generally must report one-half of the bond interest. Taxslayer 2012 For more information about community property, see Publication 555. Taxslayer 2012 Table 1-2. Taxslayer 2012   These rules are also shown in Table 1-2. Taxslayer 2012 Child as only owner. Taxslayer 2012   Interest on U. Taxslayer 2012 S. Taxslayer 2012 savings bonds bought for and registered only in the name of your child is income to your child, even if you paid for the bonds and are named as beneficiary. Taxslayer 2012 If the bonds are series EE, series E, or series I bonds, the interest on the bonds is income to your child in the earlier of the year the bonds are cashed or disposed of or the year the bonds mature, unless your child chooses to report the interest income each year. Taxslayer 2012 Choice to report interest each year. Taxslayer 2012   The choice to report the accrued interest each year can be made either by your child or by you for your child. Taxslayer 2012 This choice is made by filing an income tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. Taxslayer 2012 Either you or your child should keep a copy of this return. Taxslayer 2012   Unless your child is otherwise required to file a tax return for any year after making this choice, your child does not have to file a return only to report the annual accrual of U. Taxslayer 2012 S. Taxslayer 2012 savings bond interest under this choice. Taxslayer 2012 However, see Tax on unearned income of certain children , earlier, under General Information. Taxslayer 2012 Neither you nor your child can change the way you report the interest unless you request permission from the IRS, as discussed earlier under Change from method 2 . Taxslayer 2012 Ownership transferred. Taxslayer 2012   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Taxslayer 2012 But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Taxslayer 2012   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Taxslayer 2012 Example. Taxslayer 2012 You bought series EE bonds entirely with your own funds. Taxslayer 2012 You did not choose to report the accrued interest each year. Taxslayer 2012 Later, you transfer the bonds to your former spouse under a divorce agreement. Taxslayer 2012 You must include the deferred accrued interest, from the date of the original issue of the bonds to the date of transfer, in your income in the year of transfer. Taxslayer 2012 Your former spouse includes in income the interest on the bonds from the date of transfer to the date of redemption. Taxslayer 2012 Table 1-2. Taxslayer 2012 Who Pays the Tax on U. Taxslayer 2012 S. Taxslayer 2012 Savings Bond Interest IF . Taxslayer 2012 . Taxslayer 2012 . Taxslayer 2012 THEN the interest must be reported by . Taxslayer 2012 . Taxslayer 2012 . Taxslayer 2012 you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Taxslayer 2012 you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Taxslayer 2012 you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Taxslayer 2012 you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Taxslayer 2012 If you file separate returns, both you and your spouse generally report one-half of the interest. Taxslayer 2012 Purchased jointly. Taxslayer 2012   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Taxslayer 2012 The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Taxslayer 2012 This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Taxslayer 2012   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Taxslayer 2012 But the new co-owner will report only his or her share of the interest earned after the transfer. Taxslayer 2012   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Taxslayer 2012 Example 1. Taxslayer 2012 You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Taxslayer 2012 The bond was issued to you and your spouse as co-owners. Taxslayer 2012 You both postpone reporting interest on the bond. Taxslayer 2012 You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Taxslayer 2012 At that time neither you nor your spouse has to report the interest earned to the date of reissue. Taxslayer 2012 Example 2. Taxslayer 2012 You bought a $1,000 series EE savings bond entirely with your own funds. Taxslayer 2012 The bond was issued to you and your spouse as co-owners. Taxslayer 2012 You both postponed reporting interest on the bond. Taxslayer 2012 You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Taxslayer 2012 You must report half the interest earned to the date of reissue. Taxslayer 2012 Transfer to a trust. Taxslayer 2012   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Taxslayer 2012 However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Taxslayer 2012 You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Taxslayer 2012   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Taxslayer 2012 See Savings bonds traded , later. Taxslayer 2012 Decedents. Taxslayer 2012   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Taxslayer 2012 Decedent who reported interest each year. Taxslayer 2012   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. Taxslayer 2012 The person who acquires the bonds includes in income only interest earned after the date of death. Taxslayer 2012 Decedent who postponed reporting interest. Taxslayer 2012   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways. Taxslayer 2012 The surviving spouse or personal representative (executor, administrator, etc. Taxslayer 2012 ) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. Taxslayer 2012 The person who acquires the bonds then includes in income only interest earned after the date of death. Taxslayer 2012 If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. Taxslayer 2012 All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. Taxslayer 2012 If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. Taxslayer 2012 In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate. Taxslayer 2012 For more information on income in respect of a decedent, see Publication 559, Survivors, Executors, and Administrators. Taxslayer 2012 Example 1. Taxslayer 2012 Your uncle, a cash method taxpayer, died and left you a $1,000 series EE bond. Taxslayer 2012 He had bought the bond for $500 and had not chosen to report the interest each year. Taxslayer 2012 At the date of death, interest of $200 had accrued on the bond, and its value of $700 was included in your uncle's estate. Taxslayer 2012 Your uncle's executor chose not to include the $200 accrued interest in your uncle's final income tax return. Taxslayer 2012 The $200 is income in respect of the decedent. Taxslayer 2012 You are a cash method taxpayer and do not choose to report the interest each year as it is earned. Taxslayer 2012 If you cash the bond when it reaches maturity value of $1,000, you report $500 interest income—the difference between maturity value of $1,000 and the original cost of $500. Taxslayer 2012 For that year, you can deduct (as a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit) any federal estate tax paid because the $200 interest was included in your uncle's estate. Taxslayer 2012 Example 2. Taxslayer 2012 If, in Example 1 , the executor had chosen to include the $200 accrued interest in your uncle's final return, you would report only $300 as interest when you cashed the bond at maturity. Taxslayer 2012 $300 is the interest earned after your uncle's death. Taxslayer 2012 Example 3. Taxslayer 2012 If, in Example 1 , you make or have made the choice to report the increase in redemption value as interest each year, you include in gross income for the year you acquire the bond all of the unreported increase in value of all series E, series EE, and series I bonds you hold, including the $200 on the bond you inherited from your uncle. Taxslayer 2012 Example 4. Taxslayer 2012 When your aunt died, she owned series HH bonds that she had acquired in a trade for series EE bonds. Taxslayer 2012 You were the beneficiary of these bonds. Taxslayer 2012 Your aunt used the cash method and did not choose to report the interest on the series EE bonds each year as it accrued. Taxslayer 2012 Your aunt's executor chose not to include any interest earned before your aunt's death on her final return. Taxslayer 2012 The income in respect of the decedent is the sum of the unreported interest on the series EE bonds and the interest, if any, payable on the series HH bonds but not received as of the date of your aunt's death. Taxslayer 2012 You must report any interest received during the year as income on your return. Taxslayer 2012 The part of the interest payable but not received before your aunt's death is income in respect of the decedent and may qualify for the estate tax deduction. Taxslayer 2012 For information on when to report the interest on the series EE bonds traded, see Savings bonds traded , later. Taxslayer 2012 Savings bonds distributed from a retirement or profit-sharing plan. Taxslayer 2012   If you acquire a U. Taxslayer 2012 S. Taxslayer 2012 savings bond in a taxable distribution from a retirement or profit-sharing plan, your income for the year of distribution includes the bond's redemption value (its cost plus the interest accrued before the distribution). Taxslayer 2012 When you redeem the bond (whether in the year of distribution or later), your interest income includes only the interest accrued after the bond was distributed. Taxslayer 2012 To figure the interest reported as a taxable distribution and your interest income when you redeem the bond, see Worksheet for savings bonds distributed from a retirement or profit-sharing plan under How To Report Interest Income, later. Taxslayer 2012 Savings bonds traded. Taxslayer 2012   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Taxslayer 2012 (You cannot trade series I bonds for series HH bonds. Taxslayer 2012 After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Taxslayer 2012 ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Taxslayer 2012 When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Taxslayer 2012 Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Taxslayer 2012 Example. Taxslayer 2012 You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Taxslayer 2012 You reported the $223 as taxable income on your tax return. Taxslayer 2012 At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Taxslayer 2012 You hold the series HH bonds until maturity, when you receive $2,500. Taxslayer 2012 You must report $300 as interest income in the year of maturity. Taxslayer 2012 This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Taxslayer 2012 (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Taxslayer 2012 ) Choice to report interest in year of trade. Taxslayer 2012   You could have chosen to treat all of the previously unreported accrued interest on series EE or series E bonds traded for series HH bonds as income in the year of the trade. Taxslayer 2012 If you made this choice, it is treated as a change from method 1. Taxslayer 2012 See Change from method 1 under Series EE and series I bonds, earlier. Taxslayer 2012 Form 1099-INT for U. Taxslayer 2012 S. Taxslayer 2012 savings bond interest. Taxslayer 2012   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Taxslayer 2012 Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Taxslayer 2012 However, your Form 1099-INT may show more interest than you have to include on your income tax return. Taxslayer 2012 For example, this may happen if any of the following are true. Taxslayer 2012 You chose to report the increase in the redemption value of the bond each year. Taxslayer 2012 The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Taxslayer 2012 You received the bond from a decedent. Taxslayer 2012 The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Taxslayer 2012 Ownership of the bond was transferred. Taxslayer 2012 The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Taxslayer 2012 You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Taxslayer 2012 The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Taxslayer 2012 (See Co-owners , earlier in this section, for more information about the reporting requirements. Taxslayer 2012 ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Taxslayer 2012 The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Taxslayer 2012 (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Taxslayer 2012 , for the year of distribution. Taxslayer 2012 )   For more information on including the correct amount of interest on your return, see U. Taxslayer 2012 S. Taxslayer 2012 savings bond interest previously reported or Nominee distributions under How To Report Interest Income, later. Taxslayer 2012    Interest on U. Taxslayer 2012 S. Taxslayer 2012 savings bonds is exempt from state and local taxes. Taxslayer 2012 The Form 1099-INT you receive will indicate the amount that is for U. Taxslayer 2012 S. Taxslayer 2012 savings bonds interest in box 3. Taxslayer 2012 Do not include this income on your state or local income tax return. Taxslayer 2012 Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Taxslayer 2012 S. Taxslayer 2012 savings bonds during the year if you pay qualified higher educational expenses during the same year. Taxslayer 2012 This exclusion is known as the Education Savings Bond Program. Taxslayer 2012 You do not qualify for this exclusion if your filing status is married filing separately. Taxslayer 2012 Form 8815. Taxslayer 2012   Use Form 8815 to figure your exclusion. Taxslayer 2012 Attach the form to your Form 1040 or Form 1040A. Taxslayer 2012 Qualified U. Taxslayer 2012 S. Taxslayer 2012 savings bonds. Taxslayer 2012   A qualified U. Taxslayer 2012 S. Taxslayer 2012 savings bond is a series EE bond issued after 1989 or a series I bond. Taxslayer 2012 The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Taxslayer 2012 You must be at least 24 years old before the bond's issue date. Taxslayer 2012 For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Taxslayer 2012    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Taxslayer 2012 Beneficiary. Taxslayer 2012   You can designate any individual (including a child) as a beneficiary of the bond. Taxslayer 2012 Verification by IRS. Taxslayer 2012   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of Treasury. Taxslayer 2012 Qualified expenses. Taxslayer 2012   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Taxslayer 2012   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Taxslayer 2012 For information about these programs, see Publication 970, Tax Benefits for Education. Taxslayer 2012   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Taxslayer 2012 Eligible educational institutions. Taxslayer 2012   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the Department of Education. Taxslayer 2012 Reduction for certain benefits. Taxslayer 2012   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Taxslayer 2012 Tax-free part of scholarships and fellowships. Taxslayer 2012 Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Taxslayer 2012 Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Taxslayer 2012 Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Taxslayer 2012 Any expense used in figuring the American Opportunity and lifetime learning credits. Taxslayer 2012 For information about these benefits, see Publication 970. Taxslayer 2012 Amount excludable. Taxslayer 2012   If the total proceeds (interest and principal) from the qualified U. Taxslayer 2012 S. Taxslayer 2012 savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Taxslayer 2012 If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Taxslayer 2012   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Taxslayer 2012 The numer