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1040ez Form 2013 Instructions

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1040ez Form 2013 Instructions

1040ez form 2013 instructions 12. 1040ez form 2013 instructions   Business Deduction for Work-Related Education Table of Contents What's New Introduction Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. 1040ez form 2013 instructions Transportation Expenses Travel Expenses No Double Benefit Allowed How To Treat ReimbursementsAccountable Plans Nonaccountable Plans Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping Illustrated Example What's New Standard mileage rate. 1040ez form 2013 instructions  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013, is 56. 1040ez form 2013 instructions 5 cents per mile. 1040ez form 2013 instructions For more information, see Transportation Expenses under What Expenses Can Be Deducted, later. 1040ez form 2013 instructions Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. 1040ez form 2013 instructions To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee, File Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education , later. 1040ez form 2013 instructions What is the tax benefit of taking a business deduction for work-related education. 1040ez form 2013 instructions   If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. 1040ez form 2013 instructions Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. 1040ez form 2013 instructions An itemized deduction reduces the amount of your income subject to tax. 1040ez form 2013 instructions   If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. 1040ez form 2013 instructions This reduces the amount of your income subject to both income tax and self-employment tax. 1040ez form 2013 instructions   Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits. 1040ez form 2013 instructions You may qualify for these other benefits even if you do not meet the requirements listed above. 1040ez form 2013 instructions   Also, your work-related education expenses may qualify you to claim more than one tax benefit. 1040ez form 2013 instructions Generally, you may claim any number of benefits as long as you use different expenses to figure each one. 1040ez form 2013 instructions Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. 1040ez form 2013 instructions This is education that meets at least one of the following two tests. 1040ez form 2013 instructions The education is required by your employer or the law to keep your present salary, status, or job. 1040ez form 2013 instructions The required education must serve a bona fide business purpose of your employer. 1040ez form 2013 instructions The education maintains or improves skills needed in your present work. 1040ez form 2013 instructions However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. 1040ez form 2013 instructions You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. 1040ez form 2013 instructions Use Figure 12-1, Does Your Work-Related Education Qualify as a quick check to see if your education qualifies. 1040ez form 2013 instructions Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. 1040ez form 2013 instructions This additional education is qualifying work-related education if all three of the following requirements are met. 1040ez form 2013 instructions It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. 1040ez form 2013 instructions When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. 1040ez form 2013 instructions See Education To Maintain or Improve Skills , later. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You are a teacher who has satisfied the minimum requirements for teaching. 1040ez form 2013 instructions Your employer requires you to take an additional college course each year to keep your teaching job. 1040ez form 2013 instructions If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. 1040ez form 2013 instructions This image is too large to be displayed in the current screen. 1040ez form 2013 instructions Please click the link to view the image. 1040ez form 2013 instructions Figure 12-1 Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. 1040ez form 2013 instructions This could include refresher courses, courses on current developments, and academic or vocational courses. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You repair televisions, radios, and stereo systems for XYZ Store. 1040ez form 2013 instructions To keep up with the latest changes, you take special courses in radio and stereo service. 1040ez form 2013 instructions These courses maintain and improve skills required in your work. 1040ez form 2013 instructions Maintaining skills vs. 1040ez form 2013 instructions qualifying for new job. 1040ez form 2013 instructions   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. 1040ez form 2013 instructions Education during temporary absence. 1040ez form 2013 instructions   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. 1040ez form 2013 instructions Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You quit your biology research job to become a full-time biology graduate student for 1 year. 1040ez form 2013 instructions If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. 1040ez form 2013 instructions Education during indefinite absence. 1040ez form 2013 instructions   If you stop work for more than a year, your absence from your job is considered indefinite. 1040ez form 2013 instructions Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. 1040ez form 2013 instructions Therefore, it is not qualifying work-related education. 1040ez form 2013 instructions Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. 1040ez form 2013 instructions The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. 1040ez form 2013 instructions Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. 1040ez form 2013 instructions This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. 1040ez form 2013 instructions You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. 1040ez form 2013 instructions Example 1. 1040ez form 2013 instructions You are a full-time engineering student. 1040ez form 2013 instructions Although you have not received your degree or certification, you work part time as an engineer for a firm that will employ you as a full-time engineer after you finish college. 1040ez form 2013 instructions Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. 1040ez form 2013 instructions The education is not qualifying work-related education. 1040ez form 2013 instructions Example 2. 1040ez form 2013 instructions You are an accountant and you have met the minimum educational requirements of your employer. 1040ez form 2013 instructions Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. 1040ez form 2013 instructions These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. 1040ez form 2013 instructions Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. 1040ez form 2013 instructions The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. 1040ez form 2013 instructions If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. 1040ez form 2013 instructions The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. 1040ez form 2013 instructions You generally will be considered a faculty member when one or more of the following occurs. 1040ez form 2013 instructions You have tenure. 1040ez form 2013 instructions Your years of service count toward obtaining tenure. 1040ez form 2013 instructions You have a vote in faculty decisions. 1040ez form 2013 instructions Your school makes contributions for you to a retirement plan other than social security or a similar program. 1040ez form 2013 instructions Example 1. 1040ez form 2013 instructions The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. 1040ez form 2013 instructions In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. 1040ez form 2013 instructions If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. 1040ez form 2013 instructions However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. 1040ez form 2013 instructions Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. 1040ez form 2013 instructions If you have all the required education except the fifth year, you have met the minimum educational requirements. 1040ez form 2013 instructions The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. 1040ez form 2013 instructions Example 2. 1040ez form 2013 instructions Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. 1040ez form 2013 instructions The additional four education courses can be qualifying work-related education. 1040ez form 2013 instructions Although you do not have all the required courses, you have already met the minimum educational requirements. 1040ez form 2013 instructions Example 3. 1040ez form 2013 instructions Assume the same facts as in Example 1 except that you are hired with only 3 years of college. 1040ez form 2013 instructions The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. 1040ez form 2013 instructions They are needed to meet the minimum educational requirements for employment as a teacher. 1040ez form 2013 instructions Example 4. 1040ez form 2013 instructions You have a bachelor's degree and you work as a temporary instructor at a university. 1040ez form 2013 instructions At the same time, you take graduate courses toward an advanced degree. 1040ez form 2013 instructions The rules of the university state that you can become a faculty member only if you get a graduate degree. 1040ez form 2013 instructions Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. 1040ez form 2013 instructions You have not met the minimum educational requirements to qualify you as a faculty member. 1040ez form 2013 instructions The graduate courses are not qualifying work-related education. 1040ez form 2013 instructions Certification in a new state. 1040ez form 2013 instructions   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. 1040ez form 2013 instructions This is true even if you must get additional education to be certified in another state. 1040ez form 2013 instructions Any additional education you need is qualifying work-related education. 1040ez form 2013 instructions You have already met the minimum requirements for teaching. 1040ez form 2013 instructions Teaching in another state is not a new trade or business. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. 1040ez form 2013 instructions You move to State B and are promptly hired as a teacher. 1040ez form 2013 instructions You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. 1040ez form 2013 instructions These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. 1040ez form 2013 instructions Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. 1040ez form 2013 instructions This is true even if you do not plan to enter that trade or business. 1040ez form 2013 instructions If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. 1040ez form 2013 instructions Example 1. 1040ez form 2013 instructions You are an accountant. 1040ez form 2013 instructions Your employer requires you to get a law degree at your own expense. 1040ez form 2013 instructions You register at a law school for the regular curriculum that leads to a law degree. 1040ez form 2013 instructions Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. 1040ez form 2013 instructions Example 2. 1040ez form 2013 instructions You are a general practitioner of medicine. 1040ez form 2013 instructions You take a 2-week course to review developments in several specialized fields of medicine. 1040ez form 2013 instructions The course does not qualify you for a new profession. 1040ez form 2013 instructions It is qualifying work- related education because it maintains or improves skills required in your present profession. 1040ez form 2013 instructions Example 3. 1040ez form 2013 instructions While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. 1040ez form 2013 instructions The program will lead to qualifying you to practice psychoanalysis. 1040ez form 2013 instructions The psychoanalytic training does not qualify you for a new profession. 1040ez form 2013 instructions It is qualifying work-related education because it maintains or improves skills required in your present profession. 1040ez form 2013 instructions Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. 1040ez form 2013 instructions They are part of a program of study that can qualify you for a new profession. 1040ez form 2013 instructions Teaching and Related Duties All teaching and related duties are considered the same general kind of work. 1040ez form 2013 instructions A change in duties in any of the following ways is not considered a change to a new business. 1040ez form 2013 instructions Elementary school teacher to secondary school teacher. 1040ez form 2013 instructions Teacher of one subject, such as biology, to teacher of another subject, such as art. 1040ez form 2013 instructions Classroom teacher to guidance counselor. 1040ez form 2013 instructions Classroom teacher to school administrator. 1040ez form 2013 instructions What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education you can generally deduct your education expenses as business expenses. 1040ez form 2013 instructions If you are not self-employed, you can deduct business expenses only if you itemize your deductions. 1040ez form 2013 instructions You cannot deduct expenses related to tax-exempt and excluded income. 1040ez form 2013 instructions Deductible expenses. 1040ez form 2013 instructions   The following education expenses can be deducted. 1040ez form 2013 instructions Tuition, books, supplies, lab fees, and similar items. 1040ez form 2013 instructions Certain transportation and travel costs. 1040ez form 2013 instructions Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. 1040ez form 2013 instructions Nondeductible expenses. 1040ez form 2013 instructions   You cannot deduct personal or capital expenses. 1040ez form 2013 instructions For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. 1040ez form 2013 instructions This amount is a personal expense. 1040ez form 2013 instructions Unclaimed reimbursement. 1040ez form 2013 instructions   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions Your employer agrees to pay your education expenses if you file a voucher showing your expenses. 1040ez form 2013 instructions You do not file a voucher and you do not get reimbursed. 1040ez form 2013 instructions Because you did not file a voucher, you cannot deduct the expenses on your tax return. 1040ez form 2013 instructions Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. 1040ez form 2013 instructions If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. 1040ez form 2013 instructions Temporary basis. 1040ez form 2013 instructions   You go to school on a temporary basis if either of the following situations applies to you. 1040ez form 2013 instructions Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. 1040ez form 2013 instructions Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. 1040ez form 2013 instructions Your attendance is temporary up to the date you determine it will last more than 1 year. 1040ez form 2013 instructions If you are in either situation (1) or (2) above, your attendance is not temporary if facts and circumstances indicate otherwise. 1040ez form 2013 instructions Attendance not on a temporary basis. 1040ez form 2013 instructions   You do not go to school on a temporary basis if either of the following situations apply to you. 1040ez form 2013 instructions Your attendance at school is realistically expected to last more than 1 year. 1040ez form 2013 instructions It does not matter how long you actually attend. 1040ez form 2013 instructions Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. 1040ez form 2013 instructions Your attendance is not temporary after the date you determine it will last more than 1 year. 1040ez form 2013 instructions Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. 1040ez form 2013 instructions This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. 1040ez form 2013 instructions Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. 1040ez form 2013 instructions Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. 1040ez form 2013 instructions Example 1. 1040ez form 2013 instructions You regularly work in a nearby town, and go directly from work to home. 1040ez form 2013 instructions You also attend school every work night for 3 months to take a course that improves your job skills. 1040ez form 2013 instructions Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. 1040ez form 2013 instructions This is true regardless of the distance traveled. 1040ez form 2013 instructions Example 2. 1040ez form 2013 instructions Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. 1040ez form 2013 instructions You can deduct your transportation expenses from your regular work site to school and then home. 1040ez form 2013 instructions Example 3. 1040ez form 2013 instructions Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. 1040ez form 2013 instructions Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. 1040ez form 2013 instructions Example 4. 1040ez form 2013 instructions Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. 1040ez form 2013 instructions Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. 1040ez form 2013 instructions If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. 1040ez form 2013 instructions If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. 1040ez form 2013 instructions Using your car. 1040ez form 2013 instructions    If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. 1040ez form 2013 instructions The standard mileage rate for miles driven from January 1, 2013 through December 31, 2013, is 56. 1040ez form 2013 instructions 5 cents per mile. 1040ez form 2013 instructions Whichever method you use, you can also deduct parking fees and tolls. 1040ez form 2013 instructions See Publication 463, chapter 4, for information on deducting your actual expenses of using a car. 1040ez form 2013 instructions Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. 1040ez form 2013 instructions Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. 1040ez form 2013 instructions For more information, see chapter 1 of Publication 463. 1040ez form 2013 instructions You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining. 1040ez form 2013 instructions Mainly personal travel. 1040ez form 2013 instructions   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. 1040ez form 2013 instructions You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. 1040ez form 2013 instructions   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. 1040ez form 2013 instructions An important factor is the comparison of time spent on personal activities with time spent on educational activities. 1040ez form 2013 instructions If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. 1040ez form 2013 instructions Example 1. 1040ez form 2013 instructions John works in Newark, New Jersey. 1040ez form 2013 instructions He traveled to Chicago to take a deductible 1-week course at the request of his employer. 1040ez form 2013 instructions His main reason for going to Chicago was to take the course. 1040ez form 2013 instructions While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day. 1040ez form 2013 instructions Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. 1040ez form 2013 instructions He cannot deduct his transportation expenses of going to Pleasantville. 1040ez form 2013 instructions He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. 1040ez form 2013 instructions Example 2. 1040ez form 2013 instructions Sue works in Boston. 1040ez form 2013 instructions She went to a university in Michigan to take a course for work. 1040ez form 2013 instructions The course is qualifying work-related education. 1040ez form 2013 instructions She took one course, which is one-fourth of a full course load of study. 1040ez form 2013 instructions She spent the rest of the time on personal activities. 1040ez form 2013 instructions Her reasons for taking the course in Michigan were all personal. 1040ez form 2013 instructions Sue's trip is mainly personal because three-fourths of her time is considered personal time. 1040ez form 2013 instructions She cannot deduct the cost of her round-trip train ticket to Michigan. 1040ez form 2013 instructions She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. 1040ez form 2013 instructions Example 3. 1040ez form 2013 instructions Dave works in Nashville and recently traveled to California to take a 2-week seminar. 1040ez form 2013 instructions The seminar is qualifying work-related education. 1040ez form 2013 instructions While there, he spent an extra 8 weeks on personal activities. 1040ez form 2013 instructions The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. 1040ez form 2013 instructions Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. 1040ez form 2013 instructions He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. 1040ez form 2013 instructions Cruises and conventions. 1040ez form 2013 instructions   Certain cruises and conventions offer seminars or courses as part of their itinerary. 1040ez form 2013 instructions Even if the seminars or courses are work related, your deduction for travel may be limited. 1040ez form 2013 instructions This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. 1040ez form 2013 instructions   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. 1040ez form 2013 instructions 50% limit on meals. 1040ez form 2013 instructions   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. 1040ez form 2013 instructions If you were reimbursed for the meals, see How To Treat Reimbursements , later. 1040ez form 2013 instructions   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. 1040ez form 2013 instructions Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You are a French language teacher. 1040ez form 2013 instructions While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. 1040ez form 2013 instructions You chose your itinerary and most of your activities to improve your French language skills. 1040ez form 2013 instructions You cannot deduct your travel expenses as education expenses. 1040ez form 2013 instructions This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. 1040ez form 2013 instructions No Double Benefit Allowed You cannot do either of the following. 1040ez form 2013 instructions Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, as a tuition and fees deduction. 1040ez form 2013 instructions Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. 1040ez form 2013 instructions See Adjustments to Qualifying Work-Related Education Expenses, next. 1040ez form 2013 instructions Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. 1040ez form 2013 instructions You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. 1040ez form 2013 instructions Tax-free educational assistance. 1040ez form 2013 instructions   This includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). 1040ez form 2013 instructions Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 1040ez form 2013 instructions Amounts that do not reduce qualifying work-related education expenses. 1040ez form 2013 instructions   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. 1040ez form 2013 instructions Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. 1040ez form 2013 instructions How To Treat Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. 1040ez form 2013 instructions There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. 1040ez form 2013 instructions You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. 1040ez form 2013 instructions Note. 1040ez form 2013 instructions The following rules about reimbursement arrangements also apply to expense allowances received from your employer. 1040ez form 2013 instructions Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. 1040ez form 2013 instructions Your expenses must have a business connection. 1040ez form 2013 instructions This means your expenses must be deductible under the rules for qualifying work-related education explained earlier. 1040ez form 2013 instructions You must adequately account to your employer for your expenses within a reasonable period of time. 1040ez form 2013 instructions You must return any reimbursement or allowance in excess of the expenses accounted for within a reasonable period of time. 1040ez form 2013 instructions If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W-2. 1040ez form 2013 instructions If your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2. 1040ez form 2013 instructions Accountable plan rules not met. 1040ez form 2013 instructions   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable plans. 1040ez form 2013 instructions Those expenses that fail to meet the three rules are treated as having been reimbursed under a Nonaccountable Plan (discussed later). 1040ez form 2013 instructions Expenses equal reimbursement. 1040ez form 2013 instructions   Under an accountable plan, if your expenses equal your reimbursement, you do not complete Form 2106 or 2106-EZ. 1040ez form 2013 instructions Because your expenses and reimbursements are equal, you do not have a deduction. 1040ez form 2013 instructions Excess expenses. 1040ez form 2013 instructions   If your expenses are more than your reimbursement, you can deduct your excess expenses. 1040ez form 2013 instructions This is discussed later, under Deducting Business Expenses . 1040ez form 2013 instructions Allocating your reimbursements for meals. 1040ez form 2013 instructions   Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. 1040ez form 2013 instructions If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. 1040ez form 2013 instructions Make the allocation as follows. 1040ez form 2013 instructions Divide your meal expenses by your total expenses. 1040ez form 2013 instructions Multiply your total reimbursement by the result from (1). 1040ez form 2013 instructions This is the allocated reimbursement for your meal expenses. 1040ez form 2013 instructions Subtract the amount figured in (2) from your total reimbursement. 1040ez form 2013 instructions The difference is the allocated reimbursement for your other expenses of qualifying work-related education. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions Your employer paid you an expense allowance of $2,000 under an accountable plan. 1040ez form 2013 instructions The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. 1040ez form 2013 instructions There was no indication of how much of the reimbursement was for each type of expense. 1040ez form 2013 instructions Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition). 1040ez form 2013 instructions Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses. 1040ez form 2013 instructions   1. 1040ez form 2013 instructions $425 meal expenses  $2,500 total expenses = . 1040ez form 2013 instructions 17   2. 1040ez form 2013 instructions $2,000 (reimbursement)×. 1040ez form 2013 instructions 17     =$340 (allocated reimbursement for meal expenses)   3. 1040ez form 2013 instructions $2,000 (reimbursement)−$340 (meals)     = $1,660 (allocated reimbursement for other qualifying work-related education expenses) Your excess meal expenses are $85 ($425 − $340) and your excess other expenses are $415 ($2,075 − $1,660). 1040ez form 2013 instructions After you apply the 50% limit to your meals, you have a deduction for work-related education expenses of $458 (($85 × 50%) + $415). 1040ez form 2013 instructions Nonaccountable Plans Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W-2. 1040ez form 2013 instructions You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. 1040ez form 2013 instructions This is discussed later under Deducting Business Expenses . 1040ez form 2013 instructions An illustrated example of a nonaccountable plan, using Form 2106-EZ, is shown at the end of this chapter. 1040ez form 2013 instructions Reimbursements for nondeductible expenses. 1040ez form 2013 instructions   Reimbursements you received for nondeductible expenses are treated as paid under a nonaccountable plan. 1040ez form 2013 instructions You must include them in your income. 1040ez form 2013 instructions For example, you must include in your income reimbursements your employer gave you for expenses of education that: You need to meet the minimum educational requirements for your job, or Is part of a program of study that can qualify you for a new trade or business. 1040ez form 2013 instructions   For more information on accountable and nonaccountable plans, see chapter 6 of Publication 463. 1040ez form 2013 instructions Deducting Business Expenses Self-employed persons and employees report their business expenses differently. 1040ez form 2013 instructions The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. 1040ez form 2013 instructions Self-Employed Persons If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). 1040ez form 2013 instructions If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. 1040ez form 2013 instructions See the instructions for the form you file for information on how to complete it. 1040ez form 2013 instructions Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. 1040ez form 2013 instructions If either (1) or (2) applies, you can deduct the total qualifying cost. 1040ez form 2013 instructions If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. 1040ez form 2013 instructions In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. 1040ez form 2013 instructions (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. 1040ez form 2013 instructions ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. 1040ez form 2013 instructions Form 2106 or 2106-EZ. 1040ez form 2013 instructions   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or 2106-EZ. 1040ez form 2013 instructions Form not required. 1040ez form 2013 instructions   Do not complete either Form 2106 or 2106-EZ if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are not claiming travel, transportation, meal, or entertainment expenses. 1040ez form 2013 instructions   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. 1040ez form 2013 instructions (Special rules for expenses of certain Performing Artists and Fee-Basis Officials and for Impairment-Related Work Expenses are explained later. 1040ez form 2013 instructions ) Using Form 2106-EZ. 1040ez form 2013 instructions   This form is shorter and easier to use than Form 2106. 1040ez form 2013 instructions Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. 1040ez form 2013 instructions   If you do not meet both of these requirements, use Form 2106. 1040ez form 2013 instructions Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. 1040ez form 2013 instructions Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24, or Form 1040NR, line 35. 1040ez form 2013 instructions You do not have to itemize your deductions on Schedule A (Form 1040 or 1040NR), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. 1040ez form 2013 instructions You must complete Form 2106 or 2106-EZ to figure your deduction even if you meet the requirements described earlier under Form not required . 1040ez form 2013 instructions For more information on qualified performing artists, see chapter 6 of Publication 463. 1040ez form 2013 instructions Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. 1040ez form 2013 instructions They are not subject to the 2%-of-adjusted-gross-income limit. 1040ez form 2013 instructions To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . 1040ez form 2013 instructions For more information on impairment-related work expenses, see chapter 6 of Publication 463. 1040ez form 2013 instructions Recordkeeping You must keep records as proof of any deduction claimed on your tax return. 1040ez form 2013 instructions Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. 1040ez form 2013 instructions If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information. 1040ez form 2013 instructions However, you should keep your records for a 3-year period if: You claim deductions for expenses that are more than your reimbursement, Your employer does not use adequate accounting procedures to verify expense accounts, You are related to your employer, or Your expenses are reimbursed under a nonaccountable plan. 1040ez form 2013 instructions Examples of records to keep. 1040ez form 2013 instructions   If any of the above cases apply to you, you must be able to prove that your expenses are deductible. 1040ez form 2013 instructions You should keep adequate records or have sufficient evidence that will support your expenses. 1040ez form 2013 instructions Estimates or approximations do not qualify as proof of an expense. 1040ez form 2013 instructions Some examples of what can be used to help prove your expenses are: Documents, such as transcripts, course descriptions, catalogs, etc. 1040ez form 2013 instructions , showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity. 1040ez form 2013 instructions Canceled checks and receipts to verify amounts you spent for: Tuition and books, Meals and lodging while away from home overnight for educational purposes, Travel and transportation, and Other education expenses. 1040ez form 2013 instructions Statements from your employer explaining whether the education was necessary for you to keep your job, salary, or status; how the education helped maintain or improve skills needed in your job; how much reimbursement you received; and, if you are a teacher, the type of certificate and subjects taught. 1040ez form 2013 instructions Complete information about any scholarship or fellowship grants, including amounts you received during the year. 1040ez form 2013 instructions Illustrated Example Victor Jones teaches math at a private high school in North Carolina. 1040ez form 2013 instructions He was selected to attend a 3-week math seminar at a university in California. 1040ez form 2013 instructions The seminar will improve his skills in his current job and is qualifying work-related education. 1040ez form 2013 instructions He was reimbursed for his expenses under his employer's nonaccountable plan, so his reimbursement of $2,100 is included in the wages shown in box 1 of his Form W-2. 1040ez form 2013 instructions Victor will file Form 1040. 1040ez form 2013 instructions His actual expenses for the seminar are as follows:   Lodging   $1,050     Meals   526     Airfare   550     Taxi fares   50     Tuition and books   400     Total Expenses   $2,576   Victor files Form 2106-EZ with his tax return. 1040ez form 2013 instructions He shows his expenses for the seminar in Part I of the form. 1040ez form 2013 instructions He enters $1,650 ($1,050 + $550 + $50) on line 3 to account for his lodging, airfare, and taxi fares. 1040ez form 2013 instructions He enters $400 on line 4 for his tuition and books. 1040ez form 2013 instructions On the line provided for total meals and entertainment expenses, Victor enters $526 for meal expenses. 1040ez form 2013 instructions He multiplies that amount by 50% and enters the result, $263, on line 5. 1040ez form 2013 instructions On line 6, Victor totals the amounts from lines 3 through 5. 1040ez form 2013 instructions He carries the total, $2,313, to Schedule A (Form 1040), line 21. 1040ez form 2013 instructions Since he does not claim any vehicle expenses, Victor leaves Part II blank. 1040ez form 2013 instructions His filled-in form is shown on the next page. 1040ez form 2013 instructions This image is too large to be displayed in the current screen. 1040ez form 2013 instructions Please click the link to view the image. 1040ez form 2013 instructions Form 2106-EZ for V. 1040ez form 2013 instructions Jones Prev  Up  Next   Home   More Online Publications
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National Runaway Switchboard (NRS)

The mission of the National Runaway Switchboard (NRS) is to help keep America? runaway and at-risk youth safe and off the streets. The organization serves as the federally designated national communication system for runaway and homeless youth.

Contact the Agency or Department

Website: National Runaway Switchboard (NRS)

E-mail:

Address: 3080 N. Lincoln Ave.
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Phone Number: 773-880-9860

Toll-free: 1-800-786-2929 (24 hrs./7 days a week)

The 1040ez Form 2013 Instructions

1040ez form 2013 instructions Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. 1040ez form 2013 instructions Employee business expenses. 1040ez form 2013 instructions Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. 1040ez form 2013 instructions You can change your choice for each year's taxes. 1040ez form 2013 instructions To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax return. 1040ez form 2013 instructions However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. 1040ez form 2013 instructions See How To Figure the Credit , later. 1040ez form 2013 instructions To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. 1040ez form 2013 instructions Figure your tax both ways—claiming the credit and claiming the deduction. 1040ez form 2013 instructions Then fill out your return the way that benefits you more. 1040ez form 2013 instructions See Why Choose the Credit, later. 1040ez form 2013 instructions Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. 1040ez form 2013 instructions If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. 1040ez form 2013 instructions You cannot deduct any of them. 1040ez form 2013 instructions Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. 1040ez form 2013 instructions You cannot take a credit for any of them. 1040ez form 2013 instructions See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. 1040ez form 2013 instructions There are exceptions to this general rule, which are described next. 1040ez form 2013 instructions Exceptions for foreign taxes not allowed as a credit. 1040ez form 2013 instructions   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. 1040ez form 2013 instructions Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax purposes. 1040ez form 2013 instructions For more information, see Internal Revenue Code section 901(m). 1040ez form 2013 instructions The IRS intends to issue guidance that will explain this provision in greater detail. 1040ez form 2013 instructions   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. 1040ez form 2013 instructions Foreign taxes that are not income taxes. 1040ez form 2013 instructions   In most cases, only foreign income taxes qualify for the foreign tax credit. 1040ez form 2013 instructions Other taxes, such as foreign real and personal property taxes, do not qualify. 1040ez form 2013 instructions But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. 1040ez form 2013 instructions   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. 1040ez form 2013 instructions However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). 1040ez form 2013 instructions Carrybacks and carryovers. 1040ez form 2013 instructions   There is a limit on the credit you can claim in a tax year. 1040ez form 2013 instructions If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. 1040ez form 2013 instructions If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. 1040ez form 2013 instructions That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. 1040ez form 2013 instructions   For more information on the limit, see How To Figure the Credit , later. 1040ez form 2013 instructions For more information on carrybacks and carryovers, see Carryback and Carryover , later. 1040ez form 2013 instructions Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. 1040ez form 2013 instructions You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You paid foreign taxes for the last 13 years and chose to deduct them on your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions income tax returns. 1040ez form 2013 instructions You were timely in both filing your returns and paying your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability. 1040ez form 2013 instructions In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. 1040ez form 2013 instructions Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). 1040ez form 2013 instructions Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. 1040ez form 2013 instructions Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. 1040ez form 2013 instructions If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. 1040ez form 2013 instructions Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. 1040ez form 2013 instructions Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. 1040ez form 2013 instructions However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. 1040ez form 2013 instructions You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. 1040ez form 2013 instructions See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. 1040ez form 2013 instructions Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. 1040ez form 2013 instructions In most cases, if the foreign tax rate is higher than the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions rate, there will be no U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax on the foreign income. 1040ez form 2013 instructions If the foreign tax rate is lower than the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions rate, U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax on the foreign income will be limited to the difference between the rates. 1040ez form 2013 instructions The foreign tax credit can only reduce U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions taxes on foreign source income; it cannot reduce U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions taxes on U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions source income. 1040ez form 2013 instructions Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. 1040ez form 2013 instructions This is because: A credit reduces your actual U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. 1040ez form 2013 instructions You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. 1040ez form 2013 instructions (See Limit on credit under How To Figure the Credit, later. 1040ez form 2013 instructions ) Example 1. 1040ez form 2013 instructions For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. 1040ez form 2013 instructions None of the dividends are qualified dividends. 1040ez form 2013 instructions You file a joint return and can claim two $3,900 exemptions. 1040ez form 2013 instructions You had to pay $2,000 in foreign income taxes on the dividend income. 1040ez form 2013 instructions If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. 1040ez form 2013 instructions Your taxable income then is $57,500 and your tax is $7,736. 1040ez form 2013 instructions If you take the credit instead, your itemized deductions are only $13,000. 1040ez form 2013 instructions Your taxable income then is $59,500 and your tax before the credit is $8,036. 1040ez form 2013 instructions After the credit, however, your tax is only $6,036. 1040ez form 2013 instructions Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. 1040ez form 2013 instructions Example 2. 1040ez form 2013 instructions In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. 1040ez form 2013 instructions You report on your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions return this income as well as $56,000 of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions source wages and an allowable $49,000 partnership loss from a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions partnership. 1040ez form 2013 instructions Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. 1040ez form 2013 instructions You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. 1040ez form 2013 instructions If you deduct the foreign tax on your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. 1040ez form 2013 instructions If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. 1040ez form 2013 instructions You can take a credit of only $113 because of limits discussed later. 1040ez form 2013 instructions Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. 1040ez form 2013 instructions If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). 1040ez form 2013 instructions When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. 1040ez form 2013 instructions Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. 1040ez form 2013 instructions “Tax year” refers to the tax year for which your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions return is filed, not the tax year for which your foreign return is filed. 1040ez form 2013 instructions Accrual method of accounting. 1040ez form 2013 instructions   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. 1040ez form 2013 instructions You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. 1040ez form 2013 instructions   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. 1040ez form 2013 instructions Generally, this occurs on the last day of the tax year for which your foreign return is filed. 1040ez form 2013 instructions Contesting your foreign tax liability. 1040ez form 2013 instructions   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. 1040ez form 2013 instructions However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. 1040ez form 2013 instructions Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. 1040ez form 2013 instructions If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . 1040ez form 2013 instructions You may have to post a bond. 1040ez form 2013 instructions   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. 1040ez form 2013 instructions   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. 1040ez form 2013 instructions Cash method of accounting. 1040ez form 2013 instructions   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. 1040ez form 2013 instructions You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. 1040ez form 2013 instructions Choosing to take credit in the year taxes accrue. 1040ez form 2013 instructions   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. 1040ez form 2013 instructions You make the choice by checking the box in Part II of Form 1116. 1040ez form 2013 instructions Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. 1040ez form 2013 instructions   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. 1040ez form 2013 instructions You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. 1040ez form 2013 instructions   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. 1040ez form 2013 instructions Credit based on taxes paid in earlier year. 1040ez form 2013 instructions   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions Last year you took the credit based on taxes paid. 1040ez form 2013 instructions This year you chose to take the credit based on taxes accrued. 1040ez form 2013 instructions During the year you paid foreign income taxes owed for last year. 1040ez form 2013 instructions You also accrued foreign income taxes for this year that you did not pay by the end of the year. 1040ez form 2013 instructions You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. 1040ez form 2013 instructions Foreign Currency and Exchange Rates U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions income tax is imposed on income expressed in U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. 1040ez form 2013 instructions Therefore, fluctuations in the value of the foreign currency relative to the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar may affect the foreign tax credit. 1040ez form 2013 instructions Translating foreign currency into U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollars. 1040ez form 2013 instructions   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollars. 1040ez form 2013 instructions How and when you do this depends on your functional currency. 1040ez form 2013 instructions In most cases, your functional currency is the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar unless you are required to use the currency of a foreign country. 1040ez form 2013 instructions   You must make all federal income tax determinations in your functional currency. 1040ez form 2013 instructions The U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar is the functional currency for all taxpayers except some qualified business units. 1040ez form 2013 instructions A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. 1040ez form 2013 instructions Unless you are self-employed, your functional currency is the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar. 1040ez form 2013 instructions   Even if you are self-employed and have a qualified business unit, your functional currency is the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar if any of the following apply. 1040ez form 2013 instructions You conduct the business primarily in dollars. 1040ez form 2013 instructions The principal place of business is located in the United States. 1040ez form 2013 instructions You choose to or are required to use the dollar as your functional currency. 1040ez form 2013 instructions The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. 1040ez form 2013 instructions   If your functional currency is the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar, you must immediately translate into dollars all items of income, expense, etc. 1040ez form 2013 instructions , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. 1040ez form 2013 instructions If there is more than one exchange rate, use the one that most properly reflects your income. 1040ez form 2013 instructions In most cases, you can get exchange rates from banks and U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Embassies. 1040ez form 2013 instructions   If your functional currency is not the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar, make all income tax determinations in your functional currency. 1040ez form 2013 instructions At the end of the year, translate the results, such as income or loss, into U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollars to report on your income tax return. 1040ez form 2013 instructions    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. 1040ez form 2013 instructions   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. 1040ez form 2013 instructions If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. 1040ez form 2013 instructions If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. 1040ez form 2013 instructions   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). 1040ez form 2013 instructions Exception. 1040ez form 2013 instructions   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. 1040ez form 2013 instructions This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. 1040ez form 2013 instructions The foreign taxes are paid on or after the first day of the tax year to which they relate. 1040ez form 2013 instructions The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. 1040ez form 2013 instructions The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). 1040ez form 2013 instructions (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. 1040ez form 2013 instructions )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. 1040ez form 2013 instructions Election to use exchange rate on date paid. 1040ez form 2013 instructions   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. 1040ez form 2013 instructions If any of the accrued taxes are unpaid, you must translate them into U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollars using the exchange rate on the last day of the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax year to which those taxes relate. 1040ez form 2013 instructions You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar functional currency. 1040ez form 2013 instructions Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. 1040ez form 2013 instructions The election is available for tax years beginning after 2004. 1040ez form 2013 instructions It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. 1040ez form 2013 instructions Make the election by attaching a statement to the applicable tax return. 1040ez form 2013 instructions The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollar functional currency. 1040ez form 2013 instructions Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions foreign tax credit claimed. 1040ez form 2013 instructions The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. 1040ez form 2013 instructions If a foreign tax redetermination occurs, a redetermination of your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability is required if any of the following conditions apply. 1040ez form 2013 instructions The accrued taxes when paid differ from the amounts claimed as a credit. 1040ez form 2013 instructions The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. 1040ez form 2013 instructions If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. 1040ez form 2013 instructions You will not be allowed a credit for the unpaid taxes until you pay them. 1040ez form 2013 instructions When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions dollars using the exchange rate as of the date they were paid. 1040ez form 2013 instructions The foreign tax credit is allowed for the year to which the foreign tax relates. 1040ez form 2013 instructions See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. 1040ez form 2013 instructions The foreign taxes you paid are refunded in whole or in part. 1040ez form 2013 instructions For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. 1040ez form 2013 instructions However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax year. 1040ez form 2013 instructions In this case, you must adjust your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax in the tax year in which the accrued foreign taxes are paid. 1040ez form 2013 instructions Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability for each tax year affected by the redetermination. 1040ez form 2013 instructions In most cases, you must file Form 1040X, Amended U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability for the year or years affected. 1040ez form 2013 instructions See Contents of statement , later. 1040ez form 2013 instructions You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. 1040ez form 2013 instructions There are other exceptions to this requirement. 1040ez form 2013 instructions They are discussed later under Due date of notification to IRS . 1040ez form 2013 instructions Contents of statement. 1040ez form 2013 instructions   The statement must include all of the following. 1040ez form 2013 instructions Your name, address, and taxpayer identification number. 1040ez form 2013 instructions The tax year or years that are affected by the foreign tax redetermination. 1040ez form 2013 instructions The date or dates the foreign taxes were accrued, if applicable. 1040ez form 2013 instructions The date or dates the foreign taxes were paid. 1040ez form 2013 instructions The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. 1040ez form 2013 instructions Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. 1040ez form 2013 instructions   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. 1040ez form 2013 instructions   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). 1040ez form 2013 instructions Due date of notification to IRS. 1040ez form 2013 instructions   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. 1040ez form 2013 instructions There is no limit on the time the IRS has to redetermine and assess the correct U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax due. 1040ez form 2013 instructions If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions taxes. 1040ez form 2013 instructions See Time Limit on Refund Claims , later. 1040ez form 2013 instructions   Exceptions to this due date are explained in the next two paragraphs. 1040ez form 2013 instructions Multiple redeterminations of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability for same tax year. 1040ez form 2013 instructions   Where more than one foreign tax redetermination requires a redetermination of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. 1040ez form 2013 instructions If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. 1040ez form 2013 instructions However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability is required may occur after the due date for providing that notification. 1040ez form 2013 instructions In this situation, you may have to file more than one Form 1040X for that tax year. 1040ez form 2013 instructions Additional U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax due eliminated by foreign tax credit carryback or carryover. 1040ez form 2013 instructions   If a foreign tax redetermination requires a redetermination of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability that would otherwise result in an additional amount of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. 1040ez form 2013 instructions Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. 1040ez form 2013 instructions You must file the statement by the due date (with extensions) of that return. 1040ez form 2013 instructions The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability is required). 1040ez form 2013 instructions Failure-to-notify penalty. 1040ez form 2013 instructions   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. 1040ez form 2013 instructions   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax. 1040ez form 2013 instructions This penalty cannot be more than 25% of the tax due. 1040ez form 2013 instructions Foreign tax refund. 1040ez form 2013 instructions   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax for the time before the date of the refund. 1040ez form 2013 instructions   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. 1040ez form 2013 instructions The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. 1040ez form 2013 instructions Interest also is owed from the time you receive a refund until you pay the additional tax due. 1040ez form 2013 instructions Foreign tax imposed on foreign refund. 1040ez form 2013 instructions   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. 1040ez form 2013 instructions However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. 1040ez form 2013 instructions When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. 1040ez form 2013 instructions Time Limit on Refund Claims You have 10 years to file a claim for refund of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. 1040ez form 2013 instructions The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. 1040ez form 2013 instructions You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. 1040ez form 2013 instructions The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). 1040ez form 2013 instructions The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. 1040ez form 2013 instructions See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. 1040ez form 2013 instructions Who Can Take the Credit? U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax on foreign source income may be able to take a foreign tax credit. 1040ez form 2013 instructions U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Citizens If you are a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizen, you are taxed by the United States on your worldwide income wherever you live. 1040ez form 2013 instructions You are normally entitled to take a credit for foreign taxes you pay or accrue. 1040ez form 2013 instructions Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizens. 1040ez form 2013 instructions If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. 1040ez form 2013 instructions Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. 1040ez form 2013 instructions For information on alien status, see Publication 519. 1040ez form 2013 instructions Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. 1040ez form 2013 instructions However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possession on income from foreign sources that is effectively connected with a trade or business in the United States. 1040ez form 2013 instructions But if you must pay tax to a foreign country or U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possession on income from U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions sources only because you are a citizen or a resident of that country or U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possession, do not use that tax in figuring the amount of your credit. 1040ez form 2013 instructions For information on alien status and effectively connected income, see Publication 519. 1040ez form 2013 instructions What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. 1040ez form 2013 instructions The tax must be imposed on you. 1040ez form 2013 instructions You must have paid or accrued the tax. 1040ez form 2013 instructions The tax must be the legal and actual foreign tax liability. 1040ez form 2013 instructions The tax must be an income tax (or a tax in lieu of an income tax). 1040ez form 2013 instructions Certain foreign taxes do not qualify for the credit even if the four tests are met. 1040ez form 2013 instructions See Foreign Taxes for Which You Cannot Take a Credit, later. 1040ez form 2013 instructions Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possession. 1040ez form 2013 instructions For example, a tax that is deducted from your wages is considered to be imposed on you. 1040ez form 2013 instructions You cannot shift the right to claim the credit by contract or other means. 1040ez form 2013 instructions Foreign country. 1040ez form 2013 instructions   A foreign country includes any foreign state and its political subdivisions. 1040ez form 2013 instructions Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. 1040ez form 2013 instructions U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possessions. 1040ez form 2013 instructions   For foreign tax credit purposes, all qualified taxes paid to U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possessions are considered foreign taxes. 1040ez form 2013 instructions For this purpose, U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possessions include Puerto Rico and American Samoa. 1040ez form 2013 instructions   When the term “foreign country” is used in this publication, it includes U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possessions unless otherwise stated. 1040ez form 2013 instructions You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions possession. 1040ez form 2013 instructions However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. 1040ez form 2013 instructions Joint return. 1040ez form 2013 instructions   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. 1040ez form 2013 instructions Combined income. 1040ez form 2013 instructions   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. 1040ez form 2013 instructions 901-2(f)(3)(iii). 1040ez form 2013 instructions Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. 1040ez form 2013 instructions   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. 1040ez form 2013 instructions However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. 1040ez form 2013 instructions For more details, see paragraphs (f) and (h) of Regulations section 1. 1040ez form 2013 instructions 901-2. 1040ez form 2013 instructions For similar rules applicable to prior tax years, see Regulations section 1. 1040ez form 2013 instructions 901-2 (revised as of April 1, 2011). 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You and your spouse reside in Country X, which imposes income tax on your combined incomes. 1040ez form 2013 instructions Both of you use the “u” as your functional currency. 1040ez form 2013 instructions Country X apportions tax based on income. 1040ez form 2013 instructions You had income of 30,000u and your spouse had income of 20,000u. 1040ez form 2013 instructions Your filing status on your U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions income tax return is married filing separately. 1040ez form 2013 instructions You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. 1040ez form 2013 instructions S income tax return. 1040ez form 2013 instructions Your spouse can claim only 40% (20,000u/50,000u). 1040ez form 2013 instructions Partner or S corporation shareholder. 1040ez form 2013 instructions   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. 1040ez form 2013 instructions These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. 1040ez form 2013 instructions However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. 1040ez form 2013 instructions Beneficiary. 1040ez form 2013 instructions   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. 1040ez form 2013 instructions This amount will be shown on the Schedule K-1 you receive from the estate or trust. 1040ez form 2013 instructions However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. 1040ez form 2013 instructions Mutual fund shareholder. 1040ez form 2013 instructions   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. 1040ez form 2013 instructions You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. 1040ez form 2013 instructions If you do not receive this information, you will need to contact the fund. 1040ez form 2013 instructions Controlled foreign corporation shareholder. 1040ez form 2013 instructions   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. 1040ez form 2013 instructions If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. 1040ez form 2013 instructions Controlled foreign corporation. 1040ez form 2013 instructions   A controlled foreign corporation is a foreign corporation in which U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions shareholders own more than 50% of the voting power or value of the stock. 1040ez form 2013 instructions You are considered a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. 1040ez form 2013 instructions See Internal Revenue Code sections 951(b) and 958(b) for more information. 1040ez form 2013 instructions Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. 1040ez form 2013 instructions Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. 1040ez form 2013 instructions Foreign tax refund. 1040ez form 2013 instructions   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. 1040ez form 2013 instructions   For example, the United States has tax treaties with many countries allowing U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizens and residents reductions in the rates of tax of those foreign countries. 1040ez form 2013 instructions However, some treaty countries require U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. 1040ez form 2013 instructions The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. 1040ez form 2013 instructions Subsidy received. 1040ez form 2013 instructions   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. 1040ez form 2013 instructions This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. 1040ez form 2013 instructions A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. 1040ez form 2013 instructions   The term “subsidy” includes any type of benefit. 1040ez form 2013 instructions Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. 1040ez form 2013 instructions Shareholder receiving refund for corporate tax in integrated system. 1040ez form 2013 instructions   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. 1040ez form 2013 instructions You may be able to claim a refund of these taxes from the foreign government. 1040ez form 2013 instructions You must include the refund (including any amount withheld) in your income in the year received. 1040ez form 2013 instructions Any tax withheld from the refund is a qualified foreign tax. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You are a shareholder of a French corporation. 1040ez form 2013 instructions You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. 1040ez form 2013 instructions The French government imposes a 15% withholding tax ($15) on the refund you received. 1040ez form 2013 instructions You receive a check for $85. 1040ez form 2013 instructions You include $100 in your income. 1040ez form 2013 instructions The $15 of tax withheld is a qualified foreign tax. 1040ez form 2013 instructions Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. 1040ez form 2013 instructions Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. 1040ez form 2013 instructions Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. 1040ez form 2013 instructions See Taxes in Lieu of Income Taxes , later. 1040ez form 2013 instructions Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. 1040ez form 2013 instructions A foreign levy is an income tax only if it meets both of the following requirements. 1040ez form 2013 instructions It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. 1040ez form 2013 instructions The predominant character of the tax is that of an income tax in the U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions sense. 1040ez form 2013 instructions A foreign levy may meet these requirements even if the foreign tax law differs from U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax law. 1040ez form 2013 instructions The foreign law may include in income items that U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions law does not include, or it may allow certain exclusions or deductions that U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions law does not allow. 1040ez form 2013 instructions Specific economic benefit. 1040ez form 2013 instructions   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. 1040ez form 2013 instructions   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. 1040ez form 2013 instructions   However, see the exception discussed later under Pension, unemployment, and disability fund payments . 1040ez form 2013 instructions Economic benefits. 1040ez form 2013 instructions   Economic benefits include the following. 1040ez form 2013 instructions Goods. 1040ez form 2013 instructions Services. 1040ez form 2013 instructions Fees or other payments. 1040ez form 2013 instructions Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. 1040ez form 2013 instructions Discharges of contractual obligations. 1040ez form 2013 instructions   In most cases, the right or privilege merely to engage in business is not an economic benefit. 1040ez form 2013 instructions Dual-capacity taxpayers. 1040ez form 2013 instructions   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. 1040ez form 2013 instructions ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. 1040ez form 2013 instructions    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. 1040ez form 2013 instructions   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. 1040ez form 2013 instructions    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. 1040ez form 2013 instructions For more information about these agreements, see Publication 54. 1040ez form 2013 instructions Soak-up taxes. 1040ez form 2013 instructions   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. 1040ez form 2013 instructions A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. 1040ez form 2013 instructions This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. 1040ez form 2013 instructions Penalties and interest. 1040ez form 2013 instructions   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. 1040ez form 2013 instructions Taxes not based on income. 1040ez form 2013 instructions   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. 1040ez form 2013 instructions Taxes based on assets, such as property taxes, do not qualify for the credit. 1040ez form 2013 instructions Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. 1040ez form 2013 instructions A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. 1040ez form 2013 instructions A tax in lieu of an income tax does not have to be based on realized net income. 1040ez form 2013 instructions A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. 1040ez form 2013 instructions In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. 1040ez form 2013 instructions However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. 1040ez form 2013 instructions The soak-up tax. 1040ez form 2013 instructions The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. 1040ez form 2013 instructions Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. 1040ez form 2013 instructions These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. 1040ez form 2013 instructions Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions gross income. 1040ez form 2013 instructions Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions income under the foreign earned income exclusion or the foreign housing exclusion. 1040ez form 2013 instructions See Publication 54 for more information on the foreign earned income and housing exclusions. 1040ez form 2013 instructions Wages completely excluded. 1040ez form 2013 instructions   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. 1040ez form 2013 instructions Wages partly excluded. 1040ez form 2013 instructions   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. 1040ez form 2013 instructions You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. 1040ez form 2013 instructions   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. 1040ez form 2013 instructions Deductible expenses do not include the foreign housing deduction. 1040ez form 2013 instructions   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). 1040ez form 2013 instructions If the foreign law taxes foreign earned income and some other income (for example, earned income from U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions sources or a type of income not subject to U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You are a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizen and a cash basis taxpayer, employed by Company X and living in Country A. 1040ez form 2013 instructions Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. 1040ez form 2013 instructions To find that part, do the following. 1040ez form 2013 instructions First, find the amount of business expenses allocable to excluded wages and therefore not deductible. 1040ez form 2013 instructions To do this, multiply the otherwise deductible expenses by a fraction. 1040ez form 2013 instructions That fraction is the excluded wages over your foreign earned income. 1040ez form 2013 instructions   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. 1040ez form 2013 instructions To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). 1040ez form 2013 instructions The result is $81,984. 1040ez form 2013 instructions Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). 1040ez form 2013 instructions Finally, multiply the foreign tax you paid by the resulting fraction. 1040ez form 2013 instructions   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. 1040ez form 2013 instructions Taxes on Income From Puerto Rico Exempt From U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. 1040ez form 2013 instructions For information on figuring the reduction, see Publication 570. 1040ez form 2013 instructions Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. 1040ez form 2013 instructions For more information on this exclusion, see Publication 570. 1040ez form 2013 instructions Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. 1040ez form 2013 instructions However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. 1040ez form 2013 instructions Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. 1040ez form 2013 instructions However, you can claim an itemized deduction for these taxes. 1040ez form 2013 instructions See Choosing To Take Credit or Deduction , earlier. 1040ez form 2013 instructions Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. 1040ez form 2013 instructions The following countries meet this description for 2013. 1040ez form 2013 instructions Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. 1040ez form 2013 instructions Cuba. 1040ez form 2013 instructions Iran. 1040ez form 2013 instructions Libya (but see Note later). 1040ez form 2013 instructions North Korea. 1040ez form 2013 instructions Sudan. 1040ez form 2013 instructions Syria. 1040ez form 2013 instructions Waiver of denial of the credit. 1040ez form 2013 instructions   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions companies in the sanctioned country. 1040ez form 2013 instructions The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. 1040ez form 2013 instructions Note. 1040ez form 2013 instructions Effective December 10, 2004, the President granted a waiver to Libya. 1040ez form 2013 instructions Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. 1040ez form 2013 instructions Limit on credit. 1040ez form 2013 instructions   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. 1040ez form 2013 instructions You must fill out a separate Form 1116 for this income. 1040ez form 2013 instructions This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions You lived and worked in Iran until August, when you were transferred to Italy. 1040ez form 2013 instructions You paid taxes to each country on the income earned in that country. 1040ez form 2013 instructions You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. 1040ez form 2013 instructions Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. 1040ez form 2013 instructions You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. 1040ez form 2013 instructions Figuring the credit when a sanction ends. 1040ez form 2013 instructions    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. 1040ez form 2013 instructions For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. 1040ez form 2013 instructions Example. 1040ez form 2013 instructions The sanctions against Country X ended on July 31. 1040ez form 2013 instructions On August 19, you receive a distribution from a mutual fund of Country X income. 1040ez form 2013 instructions The fund paid Country X income tax for you on the distribution. 1040ez form 2013 instructions Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. 1040ez form 2013 instructions Amounts for the nonsanctioned period. 1040ez form 2013 instructions   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. 1040ez form 2013 instructions Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. 1040ez form 2013 instructions   Number of nonsanctioned days in year  Number of days in year Example. 1040ez form 2013 instructions You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. 1040ez form 2013 instructions Sanctions against Country X ended on July 11, 2013. 1040ez form 2013 instructions You are unable to determine how much of the income or tax is for the nonsanctioned period. 1040ez form 2013 instructions Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. 1040ez form 2013 instructions You would compute the income for the nonsanctioned period as follows. 1040ez form 2013 instructions 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. 1040ez form 2013 instructions 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. 1040ez form 2013 instructions Further information. 1040ez form 2013 instructions   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. 1040ez form 2013 instructions This Cumulative Bulletin can be found in many libraries and IRS offices. 1040ez form 2013 instructions Table 1. 1040ez form 2013 instructions Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. 1040ez form 2013 instructions Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. 1040ez form 2013 instructions The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). 1040ez form 2013 instructions The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. 1040ez form 2013 instructions If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. 1040ez form 2013 instructions When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. 1040ez form 2013 instructions Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. 1040ez form 2013 instructions Withholding tax. 1040ez form 2013 instructions   For this purpose, withholding tax includes any tax determined on a gross basis. 1040ez form 2013 instructions It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1040ez form 2013 instructions Ex-dividend date. 1040ez form 2013 instructions   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. 1040ez form 2013 instructions Example 1. 1040ez form 2013 instructions You bought common stock from a foreign corporation on November 3. 1040ez form 2013 instructions You sold the stock on November 19. 1040ez form 2013 instructions You received a dividend on this stock because you owned it on the ex-dividend date of November 5. 1040ez form 2013 instructions To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). 1040ez form 2013 instructions Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. 1040ez form 2013 instructions Example 2. 1040ez form 2013 instructions The facts are the same as in Example 1 except that you sold the stock on November 14. 1040ez form 2013 instructions You held the stock for only 11 days. 1040ez form 2013 instructions You are not entitled to the credit. 1040ez form 2013 instructions Exception. 1040ez form 2013 instructions   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. 1040ez form 2013 instructions See section 901(k)(4) of the Internal Revenue Code for more information. 1040ez form 2013 instructions Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. 1040ez form 2013 instructions When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. 1040ez form 2013 instructions Withholding tax. 1040ez form 2013 instructions   For this purpose, withholding tax includes any tax determined on a gross basis. 1040ez form 2013 instructions It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1040ez form 2013 instructions Exception for dealers. 1040ez form 2013 instructions   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. 1040ez form 2013 instructions See section 901(I)(2) of the Internal Revenue Code for more information. 1040ez form 2013 instructions Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. 1040ez form 2013 instructions A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax purposes but not for foreign tax purposes. 1040ez form 2013 instructions For more information, see Internal Revenue Code section 901(m). 1040ez form 2013 instructions The IRS intends to issue guidance that will explain this provision in greater detail. 1040ez form 2013 instructions Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. 1040ez form 2013 instructions Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. 1040ez form 2013 instructions For details, see Regulations section 1. 1040ez form 2013 instructions 901-3. 1040ez form 2013 instructions Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. 1040ez form 2013 instructions See the instructions for line 12 in the Form 1116 instructions to figure this reduction. 1040ez form 2013 instructions In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. 1040ez form 2013 instructions List of boycotting countries. 1040ez form 2013 instructions   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. 1040ez form 2013 instructions As of November 2013, the following countries are listed. 1040ez form 2013 instructions Iraq. 1040ez form 2013 instructions Kuwait. 1040ez form 2013 instructions Lebanon. 1040ez form 2013 instructions Libya. 1040ez form 2013 instructions Qatar. 1040ez form 2013 instructions Saudi Arabia. 1040ez form 2013 instructions Syria. 1040ez form 2013 instructions United Arab Emirates. 1040ez form 2013 instructions Yemen. 1040ez form 2013 instructions    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. 1040ez form 2013 instructions   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. 1040ez form 2013 instructions The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. 1040ez form 2013 instructions Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. 1040ez form 2013 instructions Public inspection. 1040ez form 2013 instructions   A determination and any related background file is open to public inspection. 1040ez form 2013 instructions However, your identity and certain other information will remain confidential. 1040ez form 2013 instructions Reporting requirements. 1040ez form 2013 instructions   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. 1040ez form 2013 instructions A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. 1040ez form 2013 instructions A partnership in which you are a partner. 1040ez form 2013 instructions A trust you are treated as owning. 1040ez form 2013 instructions Form 5713 required. 1040ez form 2013 instructions   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. 1040ez form 2013 instructions See the Instructions for Form 5713 for information on when and where to file the form. 1040ez form 2013 instructions Penalty for failure to file. 1040ez form 2013 instructions   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. 1040ez form 2013 instructions Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. 1040ez form 2013 instructions The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions tax liability (Form 1040, line 44) divided by your worldwide taxable income. 1040ez form 2013 instructions You may be entitled to carry over to other years taxes reduced under this rule. 1040ez form 2013 instructions See Internal Revenue Code section 907(f). 1040ez form 2013 instructions Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. 1040ez form 2013 instructions Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. 1040ez form 2013 instructions Taxes of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. 1040ez form 2013 instructions If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. 1040ez form 2013 instructions See Penalty for not filing Form 5471 or Form 8865 , later. 1040ez form 2013 instructions U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions persons controlling foreign corporations. 1040ez form 2013 instructions   If you are a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions Persons With Respect To Certain Foreign Corporations. 1040ez form 2013 instructions Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. 1040ez form 2013 instructions U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions persons controlling foreign partnerships. 1040ez form 2013 instructions   If you are a U. 1040ez form 2013 instructions S. 1040ez form 2013 instructions citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file