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Publication 525, Taxable and Nontaxable Income
You can receive income in the form of money, property, or services. This publication discusses many kinds of income and explains whether they are taxable or nontaxable. It includes discussions on:
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The 1040 Ez
1040 ez 4. 1040 ez Deductions Table of Contents Standard DeductionStandard Deduction for Dependents Itemized DeductionsMedical and Dental Expenses Most taxpayers have a choice of taking a standard deduction or itemizing their deductions. 1040 ez You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. 1040 ez If you have a choice, you should use the method that gives you the lower tax. 1040 ez Standard Deduction The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. 1040 ez Generally, the standard deduction amounts are adjusted each year for inflation. 1040 ez In most cases, you can use Worksheet 4-1 to figure your standard deduction amount. 1040 ez Persons not eligible for the standard deduction. 1040 ez Your standard deduction is zero and you should itemize any deductions you have if: You are married and filing a separate return, and your spouse itemizes deductions, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. 1040 ez You are considered a dual-status alien if you were both a nonresident alien and a resident alien during the year. 1040 ez If you are a nonresident alien who is married to a U. 1040 ez S. 1040 ez citizen or resident alien at the end of the year, you can choose to be treated as a U. 1040 ez S. 1040 ez resident. 1040 ez See Publication 519, U. 1040 ez S. 1040 ez Tax Guide for Aliens. 1040 ez If you make this choice, you can take the standard deduction. 1040 ez Decedent's final return. 1040 ez The amount of the standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. 1040 ez However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. 1040 ez Higher standard deduction for age (65 or older). 1040 ez If you do not itemize deductions, you are entitled to a higher standard deduction if you are age 65 or older at the end of the year. 1040 ez You are considered age 65 on the day before your 65th birthday. 1040 ez Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. 1040 ez Higher standard deduction for blindness. 1040 ez If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. 1040 ez You qualify for this benefit if you are totally or partly blind. 1040 ez Not totally blind. 1040 ez If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is not more than 20 degrees. 1040 ez If your eye condition will never improve beyond these limits, the statement should include this fact. 1040 ez You must keep the statement in your records. 1040 ez If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. 1040 ez Spouse 65 or older or blind. 1040 ez You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and an exemption for your spouse could not be claimed by another taxpayer. 1040 ez You cannot claim the higher standard deduction for an individual other than yourself and your spouse. 1040 ez Example. 1040 ez This example illustrates how to determine your standard deduction using Worksheet 4-1. 1040 ez Bill and Lisa are filing a joint return for 2013. 1040 ez Both are over age 65. 1040 ez Neither is blind, and neither can be claimed as a dependent. 1040 ez They do not itemize deductions, so they use Worksheet 4-1. 1040 ez Because they are married filing jointly, they enter $12,200 on line 1. 1040 ez They check the “No” box on line 2, so they also enter $12,200 on line 4. 1040 ez Because they are both over age 65, they enter $2,400 ($1,200 × 2) on line 5. 1040 ez They enter $14,600 ($12,200 + $2,400) on line 6, so their standard deduction is $14,600. 1040 ez Standard Deduction for Dependents The standard deduction for an individual for whom an exemption can be claimed on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). 1040 ez However, the standard deduction may be higher if the individual is 65 or older or blind. 1040 ez If an exemption for you (or your spouse if you are filing jointly) can be claimed on someone else's return, use Worksheet 4-1, if applicable, to determine your standard deduction. 1040 ez Worksheet 4-1. 1040 ez 2013 Standard Deduction Worksheet Caution. 1040 ez If you are married filing separately and your spouse itemizes deductions, or if you are a dual-status alien, do not complete this worksheet. 1040 ez If you were born before January 2, 1949, and/or blind, check the correct number of boxes below. 1040 ez Put the total number of boxes checked in box c and go to line 1. 1040 ez a. 1040 ez You Born before January 2, 1949 Blind b. 1040 ez Your spouse, if claiming spouse's exemption Born before January 2, 1949 Blind c. 1040 ez Total boxes checked 1. 1040 ez Enter the amount shown below for your filing status. 1040 ez Single or married filing separately — $6,100 Married filing jointly or Qualifying widow(er) — $12,200 Head of household — $8,950 1. 1040 ez 2. 1040 ez Can you (or your spouse if filing jointly) be claimed as a dependent on someone else's return? No. 1040 ez Skip line 3; enter the amount from line 1 on line 4. 1040 ez Yes. 1040 ez Go to line 3. 1040 ez 3. 1040 ez Is your earned income* more than $650? Yes. 1040 ez Add $350 to your earned income. 1040 ez Enter the total 3. 1040 ez No. 1040 ez Enter $1,000 4. 1040 ez Enter the smaller of line 1 or line 3 4. 1040 ez 5. 1040 ez If born before January 2, 1949, or blind, multiply the number in box c by $1,200 ($1,500 if single or head of household). 1040 ez Enter the result here. 1040 ez Otherwise, enter -0- 5. 1040 ez 6. 1040 ez Add lines 4 and 5. 1040 ez This is your standard deduction for 2013. 1040 ez 6. 1040 ez * Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. 1040 ez It also includes any amount received as a scholarship that you must include in your income. 1040 ez Generally, your earned income is the total of the amount(s) you reported on Form 1040, lines 7, 12, and 18, minus the amount, if any, on line 27 (or the amount you reported on Form 1040A, line 7). 1040 ez Itemized Deductions Some individuals should itemize their deductions because it will save them money. 1040 ez Others should itemize because they do not qualify for the standard deduction. 1040 ez See the discussion under Standard Deduction , earlier, to decide if it would be to your advantage to itemize deductions. 1040 ez You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than $150,000. 1040 ez For more information, see Overall limitation, later. 1040 ez Medical and dental expenses, some taxes, certain interest expenses, charitable contributions, casualty and theft losses, and certain other miscellaneous expenses may be itemized as deductions on Schedule A (Form 1040). 1040 ez You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Cannot take the standard deduction, Had uninsured medical or dental expenses that are more than 10% of your adjusted gross income (or more than 7. 1040 ez 5% of your adjusted gross income if either you or your spouse is age 65 or older), Paid interest on your home, Paid real estate or personal property taxes, Paid mortgage insurance premiums, Paid state and local income or general sales taxes, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities (see Publication 526, Charitable Contributions), or Have total itemized deductions that are more than the standard deduction that applies to you. 1040 ez See the Schedule A (Form 1040) instructions for more information. 1040 ez Overall limitation. 1040 ez You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000, if married filing separately, $250,000, if single, $275,000, if head of household, or $300,000, if married filing jointly or qualifying widow(er). 1040 ez If your adjusted gross income exceeds the applicable amount, you will use the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040) to figure your total itemized deductions. 1040 ez Medical and Dental Expenses You can deduct certain medical and dental expenses you paid for yourself, your spouse, and your dependent(s) if you itemize your deductions on Schedule A (Form 1040). 1040 ez Table 4-1 shows some common items that you can or cannot include in figuring your medical expense deduction. 1040 ez For more information, see the following discussions of selected items, which are presented in alphabetical order. 1040 ez A more extensive list of items and further details can be found in Publication 502, Medical and Dental Expenses. 1040 ez Table 4-1. 1040 ez Medical and Dental Expenses Checklist You can include: You cannot include: Bandages Capital expenses for equipment or improvements to your home needed for medical care (see Publication 502) Certain weight-loss expenses for obesity Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc. 1040 ez ) Lead-based paint removal (see Publication 502) Long-term care contracts, qualified (see Publication 502) Meals and lodging provided by a hospital during medical treatment Medical and hospital insurance premiums Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Medicare Part D premiums Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Publication 502) Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchair, etc. 1040 ez ) Special education for mentally or physically disabled persons (see Publication 502) Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services (see Publication 502) Contributions to Archer MSAs (see Publication 969) Bottled water Diaper service Expenses for your general health (even if following your doctor's advice) such as: —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pretax basis) (see Publication 502) Funeral, burial, or cremation expenses Health savings account payments for medical expenses (see Publication 502) Illegal operation or treatment Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. 1040 ez Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases (see Publication 502) Surgery for purely cosmetic reasons (see Publication 502) Toothpaste, toiletries, cosmetics, etc. 1040 ez Teeth whitening Weight-loss expenses not for the treatment of obesity or other disease You can deduct only the amount of your medical and dental expenses that is more than 10% of your adjusted gross income (or that is more than 7. 1040 ez 5% of your adjusted gross income if you or your spouse is age 65 or older). 1040 ez What to include. 1040 ez Generally, you can include only the medical and dental expenses you paid this year, regardless of when the services were provided. 1040 ez If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. 1040 ez If you use a pay-by-phone or online account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. 1040 ez You can include medical expenses you charge to your credit card in the year the charge is made. 1040 ez It does not matter when you actually pay the amount charged. 1040 ez Home Improvements You can include in medical expenses amounts you pay for home improvements if their main purpose is medical care for you, your spouse, or your dependent. 1040 ez Only reasonable costs to accommodate a home to your disabled condition (or that of your spouse or your dependent(s) who live with you) are considered medical care. 1040 ez Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. 1040 ez Publication 502 contains additional information and examples, including a capital expense worksheet, to assist you in figuring the amount of the capital expense that you can include in your medical expenses. 1040 ez Also, see Publication 502 for information about deductible operating and upkeep expenses related to such capital expense items, and for information about improvements, for medical reasons, to property rented by a person with disabilities. 1040 ez Household Help You cannot include in medical expenses the cost of household help, even if such help is recommended by a doctor. 1040 ez This is a personal expense that is not deductible. 1040 ez However, you may be able to include certain expenses paid to a person providing nursing-type services. 1040 ez For more information, see Nursing Services , later. 1040 ez Also, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. 1040 ez For more information, see Qualified long-term care services under Long-Term Care, later. 1040 ez Hospital Services You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. 1040 ez This includes amounts paid for meals and lodging. 1040 ez Also, see Meals and Lodging , later. 1040 ez Long-Term Care You can include in medical expenses amounts paid for qualified long-term care services and premiums paid for qualified long-term care insurance contracts. 1040 ez Qualified long-term care services. 1040 ez Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are: Required by a chronically ill individual, and Provided under a plan of care prescribed by a licensed health care practitioner. 1040 ez Chronically ill individual. 1040 ez An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions. 1040 ez He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. 1040 ez Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. 1040 ez He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. 1040 ez Maintenance and personal care services. 1040 ez Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). 1040 ez Qualified long-term care insurance contracts. 1040 ez A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. 1040 ez The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. 1040 ez The amount of qualified long-term care premiums you can include is limited. 1040 ez You can include the following as medical expenses on Schedule A (Form 1040). 1040 ez Qualified long-term care premiums up to the following amounts. 1040 ez Age 40 or under – $360. 1040 ez Age 41 to 50 – $680. 1040 ez Age 51 to 60 – $1,360. 1040 ez Age 61 to 70 – $3,640. 1040 ez Age 71 or over – $4,550. 1040 ez Unreimbursed expenses for qualified long-term care services. 1040 ez Note. 1040 ez The limit on premiums is for each person. 1040 ez Meals and Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if your main reason for being there is to receive medical care. 1040 ez You may be able to include in medical expenses the cost of lodging (but not meals) not provided in a hospital or similar institution. 1040 ez You can include the cost of such lodging while away from home if all of the following requirements are met. 1040 ez The lodging is primarily for, and essential to, medical care. 1040 ez The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. 1040 ez The lodging is not lavish or extravagant under the circumstances. 1040 ez There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. 1040 ez The amount you include in medical expenses for lodging cannot be more than $50 per night for each person. 1040 ez You can include lodging for a person traveling with the person receiving the medical care. 1040 ez For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. 1040 ez (Meals are not included. 1040 ez ) Nursing home. 1040 ez You can include in medical expenses the cost of medical care in a nursing home or a home for the aged for yourself, your spouse, or your dependent(s). 1040 ez This includes the cost of meals and lodging in the home if a main reason for being there is to get medical care. 1040 ez Do not include the cost of meals and lodging if the reason for being in the home is personal. 1040 ez However, you can include in medical expenses the part of the cost that is for medical or nursing care. 1040 ez Medical Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. 1040 ez Policies can provide payment for: Hospitalization, surgical fees, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Qualified long-term care insurance contracts (subject to the additional limits included in the discussion on qualified long-term care insurance contracts under Long-Term Care , earlier). 1040 ez If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. 1040 ez The cost of the medical portion must be separately stated in the insurance contract or given to you in a separate statement. 1040 ez Medicare Part A. 1040 ez If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare Part A. 1040 ez The payroll tax paid for Medicare Part A is not a medical expense. 1040 ez If you are not covered under social security (or were not a government employee who paid Medicare tax), you can enroll voluntarily in Medicare Part A. 1040 ez In this situation you can include the premiums you paid for Medicare Part A as a medical expense. 1040 ez Medicare Part B. 1040 ez Medicare Part B is a supplemental medical insurance. 1040 ez Premiums you pay for Medicare Part B are a medical expense. 1040 ez If you applied for it at age 65 or after you became disabled, you can include in medical expenses the monthly premiums you paid. 1040 ez If you were over age 65 or disabled when you first enrolled, check with your local Social Security Administration office, or go to their website at www. 1040 ez SSA. 1040 ez gov, to find out your premium. 1040 ez Medicare Part D. 1040 ez Medicare Part D is a voluntary prescription drug insurance program for persons with Medicare Part A or Part B. 1040 ez You can include as a medical expense premiums you pay for Medicare Part D. 1040 ez Prepaid insurance premiums. 1040 ez Insurance premiums you pay before you are age 65 for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments, or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). 1040 ez Medicines You can include in medical expenses amounts you pay for prescribed medicines and drugs. 1040 ez A prescribed drug is one that requires a prescription by a doctor for its use by an individual. 1040 ez You can also include amounts you pay for insulin. 1040 ez Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. 1040 ez Imported medicines and drugs. 1040 ez If you import medicines or drugs from other countries, see Medicines and Drugs From Other Countries, under What Expenses Are Not Includible, in Publication 502. 1040 ez Nursing Services You can include in medical expenses wages and other amounts you pay for nursing services. 1040 ez The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. 1040 ez This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. 1040 ez These services can be provided in your home or another care facility. 1040 ez Generally, only the amount spent for nursing services is a medical expense. 1040 ez If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. 1040 ez However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. 1040 ez See Maintenance and personal care services under Qualified long-term care services, earlier. 1040 ez Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit. 1040 ez See Child and Dependent Care Credit , later, and Publication 503, Child and Dependent Care Expenses. 1040 ez You can also include in medical expenses part of the amount you pay for that attendant's meals. 1040 ez Divide the food expense among the household members to find the cost of the attendant's food. 1040 ez Then divide that cost in the same manner as in the preceding paragraph. 1040 ez If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. 1040 ez This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant. 1040 ez Employment taxes. 1040 ez You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for a nurse, attendant, or other person who provides medical care. 1040 ez If the attendant also provides personal and household services, you can include as a medical expense only the amount of employment taxes paid for medical services as explained earlier under Nursing Services. 1040 ez For information on employment tax responsibilities of household employers, see Publication 926, Household Employer's Tax Guide. 1040 ez Transportation You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. 1040 ez Car expenses. 1040 ez You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. 1040 ez You cannot include depreciation, insurance, general repair, or maintenance expenses. 1040 ez If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents a mile. 1040 ez You can also include parking fees and tolls. 1040 ez You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate. 1040 ez You can also include: Bus, taxi, train, or plane fares or ambulance service, and Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone. 1040 ez Do not include transportation expenses if, for purely personal reasons, you choose to travel to another city for an operation or other medical care prescribed by your doctor. 1040 ez Prev Up Next Home More Online Publications