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2006 tax return software free 4. 2006 tax return software free   Foreign Earned Income and Housing: Exclusion – Deduction Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Who Qualifies for the Exclusions and the Deduction? RequirementsTax Home in Foreign Country Bona Fide Residence Test Physical Presence Test Waiver of Time Requirements U. 2006 tax return software free S. 2006 tax return software free Travel Restrictions Foreign Earned Income Foreign Earned Income ExclusionLimit on Excludable Amount Choosing the Exclusion Foreign Housing Exclusion and DeductionHousing Amount Foreign Housing Exclusion Foreign Housing Deduction Married Couples Form 2555 and Form 2555-EZForm 2555-EZ Form 2555 Topics - This chapter discusses: Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, The requirements that must be met to claim either exclusion or the deduction, How to figure the foreign earned income exclusion, and How to figure the foreign housing exclusion and the foreign housing deduction. 2006 tax return software free Useful Items - You may want to see: Publication 519 U. 2006 tax return software free S. 2006 tax return software free Tax Guide for Aliens 570 Tax Guide for Individuals With Income from U. 2006 tax return software free S. 2006 tax return software free Possessions 596 Earned Income Credit (EIC) Form (and Instructions) 1040X Amended U. 2006 tax return software free S. 2006 tax return software free Individual Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion See chapter 7 for information about getting these publications and forms. 2006 tax return software free Who Qualifies for the Exclusions and the Deduction? If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. 2006 tax return software free If you are a U. 2006 tax return software free S. 2006 tax return software free citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. 2006 tax return software free However, you may qualify to exclude from income up to $97,600 of your foreign earnings. 2006 tax return software free In addition, you can exclude or deduct certain foreign housing amounts. 2006 tax return software free See Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction, later. 2006 tax return software free You also may be entitled to exclude from income the value of meals and lodging provided to you by your employer. 2006 tax return software free See Exclusion of Meals and Lodging, later. 2006 tax return software free Requirements To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements. 2006 tax return software free Your tax home must be in a foreign country. 2006 tax return software free You must have foreign earned income. 2006 tax return software free You must be one of the following. 2006 tax return software free A U. 2006 tax return software free S. 2006 tax return software free citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. 2006 tax return software free A U. 2006 tax return software free S. 2006 tax return software free resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. 2006 tax return software free A U. 2006 tax return software free S. 2006 tax return software free citizen or a U. 2006 tax return software free S. 2006 tax return software free resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. 2006 tax return software free See Publication 519 to find out if you are a U. 2006 tax return software free S. 2006 tax return software free resident alien for tax purposes and whether you keep that alien status when you temporarily work abroad. 2006 tax return software free If you are a nonresident alien married to a U. 2006 tax return software free S. 2006 tax return software free citizen or resident alien, and both you and your spouse choose to treat you as a resident alien, you are a resident alien for tax purposes. 2006 tax return software free For information on making the choice, see the discussion in chapter 1 under Nonresident Alien Spouse Treated as a Resident . 2006 tax return software free Waiver of minimum time requirements. 2006 tax return software free   The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. 2006 tax return software free This is fully explained under Waiver of Time Requirements , later. 2006 tax return software free   See Figure 4-A and information in this chapter to determine if you are eligible to claim either exclusion or the deduction. 2006 tax return software free Tax Home in Foreign Country To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. 2006 tax return software free Bona fide residence and physical presence are explained later. 2006 tax return software free Tax Home Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. 2006 tax return software free Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. 2006 tax return software free Having a “tax home” in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes. 2006 tax return software free If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. 2006 tax return software free If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work. 2006 tax return software free You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. 2006 tax return software free However, your abode is not necessarily in the United States while you are temporarily in the United States. 2006 tax return software free Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. 2006 tax return software free “Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. 2006 tax return software free It does not mean your principal place of business. 2006 tax return software free “Abode” has a domestic rather than a vocational meaning and does not mean the same as “tax home. 2006 tax return software free ” The location of your abode often will depend on where you maintain your economic, family, and personal ties. 2006 tax return software free Example 1. 2006 tax return software free You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. 2006 tax return software free You return to your family residence in the United States during your off periods. 2006 tax return software free You are considered to have an abode in the United States and do not satisfy the tax home test in the foreign country. 2006 tax return software free You cannot claim either of the exclusions or the housing deduction. 2006 tax return software free Example 2. 2006 tax return software free For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. 2006 tax return software free In November of last year, your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. 2006 tax return software free Before you left, you distributed business cards showing your business and home addresses in London. 2006 tax return software free You kept ownership of your home in Toledo but rented it to another family. 2006 tax return software free You placed your car in storage. 2006 tax return software free In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London. 2006 tax return software free Shortly after moving, you leased a car and you and your spouse got British driving licenses. 2006 tax return software free Your entire family got library cards for the local public library. 2006 tax return software free You and your spouse opened bank accounts with a London bank and secured consumer credit. 2006 tax return software free You joined a local business league and both you and your spouse became active in the neighborhood civic association and worked with a local charity. 2006 tax return software free Your abode is in London for the time you live there. 2006 tax return software free You satisfy the tax home test in the foreign country. 2006 tax return software free Please click here for the text description of the image. 2006 tax return software free Figure 4–A Can I Claim the Exclusion or Deduction? Temporary or Indefinite Assignment The location of your tax home often depends on whether your assignment is temporary or indefinite. 2006 tax return software free If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. 2006 tax return software free If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. 2006 tax return software free If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion. 2006 tax return software free If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. 2006 tax return software free If you expect it to last for more than 1 year, it is indefinite. 2006 tax return software free If you expect it to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. 2006 tax return software free Once your expectation changes, it is indefinite. 2006 tax return software free Foreign Country To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. 2006 tax return software free A foreign country includes any territory under the sovereignty of a government other than that of the United States. 2006 tax return software free The term “foreign country” includes the country's airspace and territorial waters, but not international waters and the airspace above them. 2006 tax return software free It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. 2006 tax return software free The term “foreign country” does not include Antarctica or U. 2006 tax return software free S. 2006 tax return software free possessions such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U. 2006 tax return software free S. 2006 tax return software free Virgin Islands, and Johnston Island. 2006 tax return software free For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, the terms “foreign,” “abroad,” and “overseas” refer to areas outside the United States and those areas listed or described in the previous sentence. 2006 tax return software free American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residence or presence in a U. 2006 tax return software free S. 2006 tax return software free possession does not qualify you for the foreign earned income exclusion. 2006 tax return software free You may, however, qualify for an exclusion of your possession income on your U. 2006 tax return software free S. 2006 tax return software free return. 2006 tax return software free American Samoa. 2006 tax return software free   There is a possession exclusion available to individuals who are bona fide residents of American Samoa for the entire tax year. 2006 tax return software free Gross income from sources within American Samoa may be eligible for this exclusion. 2006 tax return software free Income that is effectively connected with the conduct of a trade or business within American Samoa also may be eligible for this exclusion. 2006 tax return software free Use Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, to figure the exclusion. 2006 tax return software free Guam and the Commonwealth of the Northern Mariana Islands. 2006 tax return software free   An exclusion will be available to residents of Guam and the Commonwealth of the Northern Mariana Islands if, and when, new implementation agreements take effect between the United States and those possessions. 2006 tax return software free   For more information, see Publication 570. 2006 tax return software free Puerto Rico and U. 2006 tax return software free S. 2006 tax return software free Virgin Islands Residents of Puerto Rico and the U. 2006 tax return software free S. 2006 tax return software free Virgin Islands cannot claim the foreign earned income exclusion or the foreign housing exclusion. 2006 tax return software free Puerto Rico. 2006 tax return software free   Generally, if you are a U. 2006 tax return software free S. 2006 tax return software free citizen who is a bona fide resident of Puerto Rico for the entire tax year, you are not subject to U. 2006 tax return software free S. 2006 tax return software free tax on income from Puerto Rican sources. 2006 tax return software free This does not include amounts paid for services performed as an employee of the United States. 2006 tax return software free However, you are subject to U. 2006 tax return software free S. 2006 tax return software free tax on your income from sources outside Puerto Rico. 2006 tax return software free In figuring your U. 2006 tax return software free S. 2006 tax return software free tax, you cannot deduct expenses allocable to income not subject to tax. 2006 tax return software free Bona Fide Residence Test You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. 2006 tax return software free You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either: A U. 2006 tax return software free S. 2006 tax return software free citizen, or A U. 2006 tax return software free S. 2006 tax return software free resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. 2006 tax return software free You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. 2006 tax return software free If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. 2006 tax return software free The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test. 2006 tax return software free Bona fide residence. 2006 tax return software free   To meet the bona fide residence test, you must have established a bona fide residence in a foreign country. 2006 tax return software free   Your bona fide residence is not necessarily the same as your domicile. 2006 tax return software free Your domicile is your permanent home, the place to which you always return or intend to return. 2006 tax return software free Example. 2006 tax return software free You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland. 2006 tax return software free The fact that you go to Scotland does not automatically make Scotland your bona fide residence. 2006 tax return software free If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in Scotland. 2006 tax return software free But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. 2006 tax return software free You are clearly not a resident of Scotland in the first instance. 2006 tax return software free However, in the second, you are a resident because your stay in Scotland appears to be permanent. 2006 tax return software free If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence. 2006 tax return software free Determination. 2006 tax return software free   Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. 2006 tax return software free   To meet the bona fide residence test, you must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. 2006 tax return software free The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. 2006 tax return software free IRS cannot make this determination until you file Form 2555. 2006 tax return software free Statement to foreign authorities. 2006 tax return software free   You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities: Hold that you are not subject to their income tax laws as a resident, or Have not made a final decision on your status. 2006 tax return software free Special agreements and treaties. 2006 tax return software free   An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. 2006 tax return software free Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities. 2006 tax return software free Example 1. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen employed in the United Kingdom by a U. 2006 tax return software free S. 2006 tax return software free employer under contract with the U. 2006 tax return software free S. 2006 tax return software free Armed Forces. 2006 tax return software free You are not subject to the North Atlantic Treaty Status of Forces Agreement. 2006 tax return software free You may be a bona fide resident of the United Kingdom. 2006 tax return software free Example 2. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen in the United Kingdom who qualifies as an “employee” of an armed service or as a member of a “civilian component” under the North Atlantic Treaty Status of Forces Agreement. 2006 tax return software free You are not a bona fide resident of the United Kingdom. 2006 tax return software free Example 3. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen employed in Japan by a U. 2006 tax return software free S. 2006 tax return software free employer under contract with the U. 2006 tax return software free S. 2006 tax return software free Armed Forces. 2006 tax return software free You are subject to the agreement of the Treaty of Mutual Cooperation and Security between the United States and Japan. 2006 tax return software free Being subject to the agreement does not make you a bona fide resident of Japan. 2006 tax return software free Example 4. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen employed as an “official” by the United Nations in Switzerland. 2006 tax return software free You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. 2006 tax return software free This does not prevent you from being a bona fide resident of Switzerland. 2006 tax return software free Effect of voting by absentee ballot. 2006 tax return software free   If you are a U. 2006 tax return software free S. 2006 tax return software free citizen living abroad, you can vote by absentee ballot in any election held in the United States without risking your status as a bona fide resident of a foreign country. 2006 tax return software free   However, if you give information to the local election officials about the nature and length of your stay abroad that does not match the information you give for the bona fide residence test, the information given in connection with absentee voting will be considered in determining your status, but will not necessarily be conclusive. 2006 tax return software free Uninterrupted period including entire tax year. 2006 tax return software free   To meet the bona fide residence test, you must reside in a foreign country or countries for an uninterrupted period that includes an entire tax year. 2006 tax return software free An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. 2006 tax return software free   During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. 2006 tax return software free To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country. 2006 tax return software free Example 1. 2006 tax return software free You arrived with your family in Lisbon, Portugal, on November 1, 2011. 2006 tax return software free Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. 2006 tax return software free You immediately established residence there. 2006 tax return software free You spent April of 2012 at a business conference in the United States. 2006 tax return software free Your family stayed in Lisbon. 2006 tax return software free Immediately following the conference, you returned to Lisbon and continued living there. 2006 tax return software free On January 1, 2013, you completed an uninterrupted period of residence for a full tax year (2012), and you meet the bona fide residence test. 2006 tax return software free Example 2. 2006 tax return software free Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, 2012. 2006 tax return software free You would not meet the bona fide residence test because your bona fide residence in the foreign country, although it lasted more than a year, did not include a full tax year. 2006 tax return software free You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test (discussed later). 2006 tax return software free Bona fide resident for part of a year. 2006 tax return software free   Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. 2006 tax return software free Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years. 2006 tax return software free Example. 2006 tax return software free You were a bona fide resident of Singapore from March 1, 2011, through September 14, 2013. 2006 tax return software free On September 15, 2013, you returned to the United States. 2006 tax return software free Since you were a bona fide resident of a foreign country for all of 2012, you were also a bona fide resident of a foreign country from March 1, 2011, through the end of 2011 and from January 1, 2013, through September 14, 2013. 2006 tax return software free Reassignment. 2006 tax return software free   If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances. 2006 tax return software free Example 1. 2006 tax return software free You were a resident of Pakistan from October 1, 2012, through November 30, 2013. 2006 tax return software free On December 1, 2013, you and your family returned to the United States to wait for an assignment to another foreign country. 2006 tax return software free Your household goods also were returned to the United States. 2006 tax return software free Your foreign residence ended on November 30, 2013, and did not begin again until after you were assigned to another foreign country and physically entered that country. 2006 tax return software free Since you were not a bona fide resident of a foreign country for the entire tax year of 2012 or 2013 you do not meet the bona fide residence test in either year. 2006 tax return software free You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test, discussed later. 2006 tax return software free Example 2. 2006 tax return software free Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. 2006 tax return software free On December 1, 2013, you and your family returned to the United States for a month's vacation. 2006 tax return software free On January 2, 2014, you arrived in Turkey for your new assignment. 2006 tax return software free Because you did not interrupt your bona fide residence abroad, you meet the bona fide residence test. 2006 tax return software free Physical Presence Test You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. 2006 tax return software free The 330 days do not have to be consecutive. 2006 tax return software free Any U. 2006 tax return software free S. 2006 tax return software free citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction. 2006 tax return software free The physical presence test is based only on how long you stay in a foreign country or countries. 2006 tax return software free This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad. 2006 tax return software free 330 full days. 2006 tax return software free   Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. 2006 tax return software free You can count days you spent abroad for any reason. 2006 tax return software free You do not have to be in a foreign country only for employment purposes. 2006 tax return software free You can be on vacation. 2006 tax return software free   You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. 2006 tax return software free Exception. 2006 tax return software free   You can be physically present in a foreign country or countries for less than 330 full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest. 2006 tax return software free See Waiver of Time Requirements, later. 2006 tax return software free Full day. 2006 tax return software free   A full day is a period of 24 consecutive hours, beginning at midnight. 2006 tax return software free Travel. 2006 tax return software free    When you leave the United States to go directly to a foreign country or when you return directly to the United States from a foreign country, the time you spend on or over international waters does not count toward the 330-day total. 2006 tax return software free Example. 2006 tax return software free You leave the United States for France by air on June 10. 2006 tax return software free You arrive in France at 9:00 a. 2006 tax return software free m. 2006 tax return software free on June 11. 2006 tax return software free Your first full day of physical presence in France is June 12. 2006 tax return software free Passing over foreign country. 2006 tax return software free   If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the 330-day total is the day following the day you leave the United States. 2006 tax return software free Example. 2006 tax return software free You leave the United States by air at 9:30 a. 2006 tax return software free m. 2006 tax return software free on June 10 to travel to Kenya. 2006 tax return software free You pass over western Africa at 11:00 p. 2006 tax return software free m. 2006 tax return software free on June 10 and arrive in Kenya at 12:30 a. 2006 tax return software free m. 2006 tax return software free on June 11. 2006 tax return software free Your first full day in a foreign country is June 11. 2006 tax return software free Change of location. 2006 tax return software free   You can move about from one place to another in a foreign country or to another foreign country without losing full days. 2006 tax return software free If any part of your travel is not within any foreign country and takes less than 24 hours, you are considered to be in a foreign country during that part of travel. 2006 tax return software free Example 1. 2006 tax return software free You leave Ireland by air at 11:00 p. 2006 tax return software free m. 2006 tax return software free on July 6 and arrive in Sweden at 5:00 a. 2006 tax return software free m. 2006 tax return software free on July 7. 2006 tax return software free Your trip takes less than 24 hours and you lose no full days. 2006 tax return software free Example 2. 2006 tax return software free You leave Norway by ship at 10:00 p. 2006 tax return software free m. 2006 tax return software free on July 6 and arrive in Portugal at 6:00 a. 2006 tax return software free m. 2006 tax return software free on July 8. 2006 tax return software free Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. 2006 tax return software free If you remain in Portugal, your next full day in a foreign country is July 9. 2006 tax return software free In United States while in transit. 2006 tax return software free   If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. 2006 tax return software free You are treated as traveling over areas not within any foreign country. 2006 tax return software free    Please click here for the text description of the image. 2006 tax return software free Figure 4-B How to figure the 12-month period. 2006 tax return software free   There are four rules you should know when figuring the 12-month period. 2006 tax return software free Your 12-month period can begin with any day of the month. 2006 tax return software free It ends the day before the same calendar day, 12 months later. 2006 tax return software free Your 12-month period must be made up of consecutive months. 2006 tax return software free Any 12-month period can be used if the 330 days in a foreign country fall within that period. 2006 tax return software free You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. 2006 tax return software free You can choose the 12-month period that gives you the greatest exclusion. 2006 tax return software free In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another. 2006 tax return software free Example 1. 2006 tax return software free You are a construction worker who works on and off in a foreign country over a 20-month period. 2006 tax return software free You might pick up the 330 full days in a 12-month period only during the middle months of the time you work in the foreign country because the first few and last few months of the 20-month period are broken up by long visits to the United States. 2006 tax return software free Example 2. 2006 tax return software free You work in New Zealand for a 20-month period from January 1, 2012, through August 31, 2013, except that you spend 28 days in February 2012 and 28 days in February 2013 on vacation in the United States. 2006 tax return software free You are present in New Zealand for at least 330 full days during each of the following two 12-month periods: January 1, 2012 – December 31, 2012 and September 1, 2012 – August 31, 2013. 2006 tax return software free By overlapping the 12-month periods in this way, you meet the physical presence test for the whole 20-month period. 2006 tax return software free See Figure 4-B, on the previous page. 2006 tax return software free Waiver of Time Requirements Both the bona fide residence test and the physical presence test contain minimum time requirements. 2006 tax return software free The minimum time requirements can be waived, however, if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. 2006 tax return software free You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions. 2006 tax return software free To qualify for the waiver, you must actually have your tax home in the foreign country and be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver. 2006 tax return software free Early in 2014, the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for 2013 and the effective dates. 2006 tax return software free If you left one of the countries on or after the date listed for each country, you can meet the bona fide residence test or physical presence test for 2013 without meeting the minimum time requirement. 2006 tax return software free However, in figuring your exclusion, the number of your qualifying days of bona fide residence or physical presence includes only days of actual residence or presence within the country. 2006 tax return software free U. 2006 tax return software free S. 2006 tax return software free Travel Restrictions If you are present in a foreign country in violation of U. 2006 tax return software free S. 2006 tax return software free law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of the law. 2006 tax return software free Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. 2006 tax return software free Your housing expenses within that country (or outside that country for housing your spouse or dependents) while you are in violation of the law cannot be included in figuring your foreign housing amount. 2006 tax return software free For 2013, the only country to which travel restrictions applied was Cuba. 2006 tax return software free The restrictions applied for the entire year. 2006 tax return software free However, individuals working at the U. 2006 tax return software free S. 2006 tax return software free Naval Base at Guantanamo Bay in Cuba are not in violation of U. 2006 tax return software free S. 2006 tax return software free law. 2006 tax return software free Personal service income earned by individuals at the base is eligible for the foreign earned income exclusion provided the other requirements are met. 2006 tax return software free Foreign Earned Income To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. 2006 tax return software free Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements. 2006 tax return software free Your tax home is in a foreign country. 2006 tax return software free You meet either the bona fide residence test or the physical presence test. 2006 tax return software free To determine whether your tax home is in a foreign country, see Tax Home in Foreign Country, earlier. 2006 tax return software free To determine whether you meet either the bona fide residence test or the physical presence test, see Bona Fide Residence Test and Physical Presence Test, earlier. 2006 tax return software free Foreign earned income does not include the following amounts. 2006 tax return software free The value of meals and lodging that you exclude from your income because the meals and lodging were furnished for the convenience of your employer. 2006 tax return software free Pension or annuity payments you receive, including social security benefits (see Pensions and annuities, later). 2006 tax return software free Pay you receive as an employee of the U. 2006 tax return software free S. 2006 tax return software free Government. 2006 tax return software free (See U. 2006 tax return software free S. 2006 tax return software free Government Employees, later. 2006 tax return software free ) Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract. 2006 tax return software free Any unallowable moving expense deduction that you choose to recapture as explained under Moving Expense Attributable to Foreign Earnings in 2 Years in chapter 5. 2006 tax return software free Payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income. 2006 tax return software free Earned income. 2006 tax return software free   This is pay for personal services performed, such as wages, salaries, or professional fees. 2006 tax return software free The list that follows classifies many types of income into three categories. 2006 tax return software free The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category, or partly into both. 2006 tax return software free For more information on earned and unearned income, see Earned and Unearned Income, later. 2006 tax return software free Earned Income Unearned Income Variable Income Salaries and wages Dividends Business profits Commissions Interest Royalties Bonuses Capital gains Rents Professional fees Gambling winnings Scholarships and fellowships Tips Alimony     Social security benefits     Pensions     Annuities     In addition to the types of earned income listed, certain noncash income and allowances or reimbursements are considered earned income. 2006 tax return software free Noncash income. 2006 tax return software free   The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car is earned income. 2006 tax return software free Allowances or reimbursements. 2006 tax return software free   Earned income includes allowances or reimbursements you receive, such as the following amounts. 2006 tax return software free    Cost-of-living allowances. 2006 tax return software free Overseas differential. 2006 tax return software free Family allowance. 2006 tax return software free Reimbursement for education or education allowance. 2006 tax return software free Home leave allowance. 2006 tax return software free Quarters allowance. 2006 tax return software free Reimbursement for moving or moving allowance (unless excluded from income as discussed later in Reimbursement of employee expenses under Earned and Unearned Income). 2006 tax return software free Source of Earned Income The source of your earned income is the place where you perform the services for which you received the income. 2006 tax return software free Foreign earned income is income you receive for working in a foreign country. 2006 tax return software free Where or how you are paid has no effect on the source of the income. 2006 tax return software free For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. 2006 tax return software free Example. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen, a bona fide resident of Canada, and working as a mining engineer. 2006 tax return software free Your salary is $76,800 per year. 2006 tax return software free You also receive a $6,000 cost-of-living allowance, and a $6,000 education allowance. 2006 tax return software free Your employment contract did not indicate that you were entitled to these allowances only while outside the United States. 2006 tax return software free Your total income is $88,800. 2006 tax return software free You work a 5-day week, Monday through Friday. 2006 tax return software free After subtracting your vacation, you have a total of 240 workdays in the year. 2006 tax return software free You worked in the United States during the year for 6 weeks (30 workdays). 2006 tax return software free The following shows how to figure the part of your income that is for work done in Canada during the year. 2006 tax return software free   Number of days worked in Canada during the year (210) × Total income ($88,800) = $77,700     Number of days of work during the year for which payment was made (240)   Your foreign source earned income is $77,700. 2006 tax return software free Earned and Unearned Income Earned income was defined earlier as pay for personal services performed. 2006 tax return software free Some types of income are not easily identified as earned or unearned income. 2006 tax return software free Some of these types of income are further explained here. 2006 tax return software free Income from a sole proprietorship or partnership. 2006 tax return software free   Income from a business in which capital investment is an important part of producing the income may be unearned income. 2006 tax return software free If you are a sole proprietor or partner and your personal services are also an important part of producing the income, the part of the income that represents the value of your personal services will be treated as earned income. 2006 tax return software free Capital a factor. 2006 tax return software free   If capital investment is an important part of producing income, no more than 30% of your share of the net profits of the business is earned income. 2006 tax return software free   If you have no net profits, the part of your gross profit that represents a reasonable allowance for personal services actually performed is considered earned income. 2006 tax return software free Because you do not have a net profit, the 30% limit does not apply. 2006 tax return software free Example 1. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen and meet the bona fide residence test. 2006 tax return software free You invest in a partnership based in Cameroon that is engaged solely in selling merchandise outside the United States. 2006 tax return software free You perform no services for the partnership. 2006 tax return software free At the end of the tax year, your share of the net profits is $80,000. 2006 tax return software free The entire $80,000 is unearned income. 2006 tax return software free Example 2. 2006 tax return software free Assume that in Example 1 you spend time operating the business. 2006 tax return software free Your share of the net profits is $80,000; 30% of your share of the profits is $24,000. 2006 tax return software free If the value of your services for the year is $15,000, your earned income is limited to the value of your services, $15,000. 2006 tax return software free Capital not a factor. 2006 tax return software free   If capital is not an income-producing factor and personal services produce the business income, the 30% rule does not apply. 2006 tax return software free The entire amount of business income is earned income. 2006 tax return software free Example. 2006 tax return software free You and Lou Green are management consultants and operate as equal partners in performing services outside the United States. 2006 tax return software free Because capital is not an income- producing factor, all the income from the partnership is considered earned income. 2006 tax return software free Income from a corporation. 2006 tax return software free   The salary you receive from a corporation is earned income only if it represents a reasonable allowance as compensation for work you do for the corporation. 2006 tax return software free Any amount over what is considered a reasonable salary is unearned income. 2006 tax return software free Example 1. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen and an officer and stockholder of a corporation in Honduras. 2006 tax return software free You perform no work or service of any kind for the corporation. 2006 tax return software free During the tax year you receive a $10,000 “salary” from the corporation. 2006 tax return software free The $10,000 clearly is not for personal services and is unearned income. 2006 tax return software free Example 2. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen and work full time as secretary-treasurer of your corporation. 2006 tax return software free During the tax year you receive $100,000 as salary from the corporation. 2006 tax return software free If $80,000 is a reasonable allowance as pay for the work you did, then $80,000 is earned income. 2006 tax return software free Stock options. 2006 tax return software free   You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan. 2006 tax return software free   If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income. 2006 tax return software free   However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. 2006 tax return software free It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option. 2006 tax return software free Any part of the earned income that is due to work you did outside the United States is foreign earned income. 2006 tax return software free   See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of stock options. 2006 tax return software free Pensions and annuities. 2006 tax return software free    For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. 2006 tax return software free Royalties. 2006 tax return software free   Royalties from the leasing of oil and mineral lands and patents generally are a form of rent or dividends and are unearned income. 2006 tax return software free   Royalties received by a writer are earned income if they are received: For the transfer of property rights of the writer in the writer's product, or Under a contract to write a book or series of articles. 2006 tax return software free Rental income. 2006 tax return software free   Generally, rental income is unearned income. 2006 tax return software free If you perform personal services in connection with the production of rent, up to 30% of your net rental income can be considered earned income. 2006 tax return software free Example. 2006 tax return software free Larry Smith, a U. 2006 tax return software free S. 2006 tax return software free citizen living in Australia, owns and operates a rooming house in Sydney. 2006 tax return software free If he is operating the rooming house as a business that requires capital and personal services, he can consider up to 30% of net rental income as earned income. 2006 tax return software free On the other hand, if he just owns the rooming house and performs no personal services connected with its operation, except perhaps making minor repairs and collecting rents, none of his net income from the house is considered earned income. 2006 tax return software free It is all unearned income. 2006 tax return software free Professional fees. 2006 tax return software free   If you are engaged in a professional occupation (such as a doctor or lawyer), all fees received in the performance of these services are earned income. 2006 tax return software free Income of an artist. 2006 tax return software free   Income you receive from the sale of paintings you created is earned income. 2006 tax return software free Scholarships and fellowships. 2006 tax return software free   Any portion of a scholarship or fellowship grant that is paid to you for teaching, research or other services is considered earned income if you must include it in your gross income. 2006 tax return software free If the payer of the grant is required to provide you with a Form W-2, Wage and Tax Statement, these amounts will be listed as wages. 2006 tax return software free    Certain scholarship and fellowship income may be exempt under other provisions. 2006 tax return software free See Publication 970, Tax Benefits for Education, chapter 1. 2006 tax return software free Use of employer's property or facilities. 2006 tax return software free   If you receive fringe benefits in the form of the right to use your employer's property or facilities, the fair market value of that right is earned income. 2006 tax return software free Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all the necessary facts. 2006 tax return software free Example. 2006 tax return software free You are privately employed and live in Japan all year. 2006 tax return software free You are paid a salary of $6,000 a month. 2006 tax return software free You live rent-free in a house provided by your employer that has a fair rental value of $3,000 a month. 2006 tax return software free The house is not provided for your employer's convenience. 2006 tax return software free You report on the calendar-year, cash basis. 2006 tax return software free You received $72,000 salary from foreign sources plus $36,000 fair rental value of the house, or a total of $108,000 of earned income. 2006 tax return software free Reimbursement of employee expenses. 2006 tax return software free   If you are reimbursed under an accountable plan (defined below) for expenses you incur on your employer's behalf and you have adequately accounted to your employer for the expenses, do not include the reimbursement for those expenses in your earned income. 2006 tax return software free   The expenses for which you are reimbursed are not considered allocable (related) to your earned income. 2006 tax return software free If expenses and reimbursement are equal, there is nothing to allocate to excluded income. 2006 tax return software free If expenses are more than the reimbursement, the unreimbursed expenses are considered to have been incurred in producing earned income and must be divided between your excluded and included income in determining the amount of unreimbursed expenses you can deduct. 2006 tax return software free (See chapter 5. 2006 tax return software free ) If the reimbursement is more than the expenses, no expenses remain to be divided between excluded and included income and the excess reimbursement must be included in earned income. 2006 tax return software free   These rules do not apply to the following individuals. 2006 tax return software free Straight-commission salespersons. 2006 tax return software free Employees who have arrangements with their employers under which taxes are not withheld on a percentage of the commissions because the employers consider that percentage to be attributable to the employees' expenses. 2006 tax return software free Accountable plan. 2006 tax return software free   An accountable plan is a reimbursement or allowance arrangement that includes all three of the following rules. 2006 tax return software free The expenses covered under the plan must have a business connection. 2006 tax return software free The employee must adequately account to the employer for these expenses within a reasonable period of time. 2006 tax return software free The employee must return any excess reimbursement or allowance within a reasonable period of time. 2006 tax return software free Reimbursement of moving expenses. 2006 tax return software free   Reimbursement of moving expenses may be earned income. 2006 tax return software free You must include as earned income: Any reimbursements of, or payments for, nondeductible moving expenses, Reimbursements that are more than your deductible expenses and that you do not return to your employer, Any reimbursements made (or treated as made) under a nonaccountable plan (any plan that does not meet the rules listed above for an accountable plan), even if they are for deductible expenses, and Any reimbursement of moving expenses you deducted in an earlier year. 2006 tax return software free This section discusses reimbursements that must be included in earned income. 2006 tax return software free Publication 521, Moving Expenses, discusses additional rules that apply to moving expense deductions and reimbursements. 2006 tax return software free   The rules for determining when the reimbursement is considered earned or where the reimbursement is considered earned may differ somewhat from the general rules previously discussed. 2006 tax return software free   Although you receive the reimbursement in one tax year, it may be considered earned for services performed, or to be performed, in another tax year. 2006 tax return software free You must report the reimbursement as income on your return in the year you receive it, even if it is considered earned during a different year. 2006 tax return software free Move from U. 2006 tax return software free S. 2006 tax return software free to foreign country. 2006 tax return software free   If you move from the United States to a foreign country, your moving expense reimbursement is generally considered pay for future services to be performed at the new location. 2006 tax return software free The reimbursement is considered earned solely in the year of the move if you qualify for the exclusion for a period that includes at least 120 days during that tax year. 2006 tax return software free   If you are neither a bona fide resident of nor physically present in a foreign country or countries for a period that includes 120 days during the year of the move, a portion of the reimbursement is considered earned in the year of the move and a portion is considered earned in the year following the year of the move. 2006 tax return software free To figure the amount earned in the year of the move, multiply the reimbursement by a fraction. 2006 tax return software free The numerator (top number) is the number of days in your qualifying period that fall within the year of the move, and the denominator (bottom number) is the total number of days in the year of the move. 2006 tax return software free   The difference between the total reimbursement and the amount considered earned in the year of the move is the amount considered earned in the year following the year of the move. 2006 tax return software free The part earned in each year is figured as shown in the following example. 2006 tax return software free Example. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen working in the United States. 2006 tax return software free You were told in October 2012 that you were being transferred to a foreign country. 2006 tax return software free You arrived in the foreign country on December 15, 2012, and you are a bona fide resident for the remainder of 2012 and all of 2013. 2006 tax return software free Your employer reimbursed you $2,000 in January 2013 for the part of the moving expense that you were not allowed to deduct. 2006 tax return software free Because you did not qualify for the exclusion under the bona fide residence test for at least 120 days in 2012 (the year of the move), the reimbursement is considered pay for services performed in the foreign country for both 2012 and 2013. 2006 tax return software free You figure the part of the reimbursement for services performed in the foreign country in 2012 by multiplying the total reimbursement by a fraction. 2006 tax return software free The fraction is the number of days during which you were a bona fide resident in 2012 (the year of the move) divided by 366. 2006 tax return software free The remaining part of the reimbursement is for services performed in the foreign country in 2013. 2006 tax return software free This computation is used only to determine when the reimbursement is considered earned. 2006 tax return software free You would include the amount of the reimbursement in income in 2013, the year you received it. 2006 tax return software free Move between foreign countries. 2006 tax return software free   If you move between foreign countries, any moving expense reimbursement that you must include in income will be considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days in the year of the move. 2006 tax return software free Move to U. 2006 tax return software free S. 2006 tax return software free   If you move to the United States, the moving expense reimbursement that you must include in income is generally considered to be U. 2006 tax return software free S. 2006 tax return software free source income. 2006 tax return software free   However, if under either an agreement between you and your employer or a statement of company policy that is reduced to writing before your move to the foreign country, your employer will reimburse you for your move back to the United States regardless of whether you continue to work for the employer, the includible reimbursement is considered compensation for past services performed in the foreign country. 2006 tax return software free The includible reimbursement is considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days during that year. 2006 tax return software free Otherwise, you treat the includible reimbursement as received for services performed in the foreign country in the year of the move and the year immediately before the year of the move. 2006 tax return software free   See the discussion under Move from U. 2006 tax return software free S. 2006 tax return software free to foreign country , earlier, to figure the amount of the includible reimbursement considered earned in the year of the move. 2006 tax return software free The amount earned in the year before the year of the move is the difference between the total includible reimbursement and the amount earned in the year of the move. 2006 tax return software free Example. 2006 tax return software free You are a U. 2006 tax return software free S. 2006 tax return software free citizen employed in a foreign country. 2006 tax return software free You retired from employment with your employer on March 31, 2013, and returned to the United States after having been a bona fide resident of the foreign country for several years. 2006 tax return software free A written agreement with your employer entered into before you went abroad provided that you would be reimbursed for your move back to the United States. 2006 tax return software free In April 2013, your former employer reimbursed you $4,000 for the part of the cost of your move back to the United States that you were not allowed to deduct. 2006 tax return software free Because you were not a bona fide resident of a foreign country or countries for a period that included at least 120 days in 2013 (the year of the move), the includible reimbursement is considered pay for services performed in the foreign country for both 2013 and 2012. 2006 tax return software free You figure the part of the moving expense reimbursement for services performed in the foreign country for 2013 by multiplying the total includible reimbursement by a fraction. 2006 tax return software free The fraction is the number of days of foreign residence during the year (90) divided by the number of days in the year (365). 2006 tax return software free The remaining part of the includible reimbursement is for services performed in the foreign country in 2012. 2006 tax return software free You report the amount of the includible reimbursement in 2013, the year you received it. 2006 tax return software free    In this example, if you met the physical presence test for a period that included at least 120 days in 2013, the moving expense reimbursement would be considered earned entirely in the year of the move. 2006 tax return software free Storage expense reimbursements. 2006 tax return software free   If you are reimbursed for storage expenses, the reimbursement is for services you perform during the period of time for which the storage expenses are incurred. 2006 tax return software free U. 2006 tax return software free S. 2006 tax return software free Government Employees For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. 2006 tax return software free This includes amounts paid from both appropriated and nonappropriated funds. 2006 tax return software free The following organizations (and other organizations similarly organized and operated under United States Army, Navy, or Air Force regulations) are integral parts of the Armed Forces, agencies, or instrumentalities of the United States. 2006 tax return software free United States Armed Forces exchanges. 2006 tax return software free Commissioned and noncommissioned officers' messes. 2006 tax return software free Armed Forces motion picture services. 2006 tax return software free Kindergartens on foreign Armed Forces installations. 2006 tax return software free Amounts paid by the United States or its agencies to persons who are not their employees may qualify for exclusion or deduction. 2006 tax return software free If you are a U. 2006 tax return software free S. 2006 tax return software free Government employee paid by a U. 2006 tax return software free S. 2006 tax return software free agency that assigned you to a foreign government to perform specific services for which the agency is reimbursed by the foreign government, your pay is from the U. 2006 tax return software free S. 2006 tax return software free Government and does not qualify for exclusion or deduction. 2006 tax return software free If you have questions about whether you are an employee or an independent contractor, get Publication 15-A, Employer's Supplemental Tax Guide. 2006 tax return software free American Institute in Taiwan. 2006 tax return software free   Amounts paid by the American Institute in Taiwan are not foreign earned income for purposes of the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. 2006 tax return software free If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U. 2006 tax return software free S. 2006 tax return software free tax up to the amount that equals tax-exempt allowances received by civilian employees of the U. 2006 tax return software free S. 2006 tax return software free Government. 2006 tax return software free Allowances. 2006 tax return software free   Cost-of-living and foreign-area allowances paid under certain acts of Congress to U. 2006 tax return software free S. 2006 tax return software free civilian officers and employees stationed in Alaska and Hawaii or elsewhere outside the 48 contiguous states and the District of Columbia can be excluded from gross income. 2006 tax return software free Post differentials are wages that must be included in gross income, regardless of the act of Congress under which they are paid. 2006 tax return software free More information. 2006 tax return software free   Publication 516, U. 2006 tax return software free S. 2006 tax return software free Government Civilian Employees Stationed Abroad, has more information for U. 2006 tax return software free S. 2006 tax return software free Government employees abroad. 2006 tax return software free Exclusion of Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. 2006 tax return software free The meals are furnished: On the business premises of your employer, and For the convenience of your employer. 2006 tax return software free The lodging is furnished: On the business premises of your employer, For the convenience of your employer, and As a condition of your employment. 2006 tax return software free If these conditions are met, do not include the value of the meals or lodging in your income, even if a law or your employment contract says that they are provided as compensation. 2006 tax return software free Amounts you do not include in income because of these rules are not foreign earned income. 2006 tax return software free If you receive a Form W-2, excludable amounts should not be included in the total reported in box 1 as wages. 2006 tax return software free Family. 2006 tax return software free   Your family, for this purpose, includes only your spouse and your dependents. 2006 tax return software free Lodging. 2006 tax return software free   The value of lodging includes the cost of heat, electricity, gas, water, sewer service, and similar items needed to make the lodging fit to live in. 2006 tax return software free Business premises of employer. 2006 tax return software free   Generally, the business premises of your employer is wherever you work. 2006 tax return software free For example, if you work as a housekeeper, meals and lodging provided in your employer's home are provided on the business premises of your employer. 2006 tax return software free Similarly, meals provided to cowhands while herding cattle on land leased or owned by their employer are considered provided on the premises of their employer. 2006 tax return software free Convenience of employer. 2006 tax return software free   Whether meals or lodging are provided for your employer's convenience must be determined from all the facts and circumstances. 2006 tax return software free Meals furnished at no charge are considered provided for your employer's convenience if there is a good business reason for providing them, other than to give you more pay. 2006 tax return software free   On the other hand, if your employer provides meals to you or your family as a means of giving you more pay, and there is no other business reason for providing them, their value is extra income to you because they are not furnished for the convenience of your employer. 2006 tax return software free Condition of employment. 2006 tax return software free   Lodging is provided as a condition of employment if you must accept the lodging to properly carry out the duties of your job. 2006 tax return software free You must accept lodging to properly carry out your duties if, for example, you must be available for duty at all times or you could not perform your duties if the lodging was not furnished. 2006 tax return software free Foreign camps. 2006 tax return software free   If the lodging is in a camp located in a foreign country, the camp is considered part of your employer's business premises. 2006 tax return software free The camp must be: Provided for your employer's convenience because the place where you work is in a remote area where satisfactory housing is not available to you on the open market within a reasonable commuting distance, Located as close as reasonably possible in the area where you work, and Provided in a common area or enclave that is not available to the general public for lodging or accommodations and that normally houses at least ten employees. 2006 tax return software free Foreign Earned Income Exclusion If your tax home is in a foreign country and you meet the bona fide residence test or the physical presence test, you can choose to exclude from your income a limited amount of your foreign earned income. 2006 tax return software free Foreign earned income was defined earlier in this chapter. 2006 tax return software free You also can choose to exclude from your income a foreign housing amount. 2006 tax return software free This is explained later under Foreign Housing Exclusion. 2006 tax return software free If you choose to exclude a foreign housing amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. 2006 tax return software free Your foreign earned income exclusion is limited to your foreign earned income minus your foreign housing exclusion. 2006 tax return software free If you choose to exclude foreign earned income, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. 2006 tax return software free This includes any expenses, losses, and other normally deductible items allocable to the excluded income. 2006 tax return software free For more information about deductions and credits, see chapter 5 . 2006 tax return software free Limit on Excludable Amount You may be able to exclude up to $97,600 of your foreign earned income in 2013. 2006 tax return software free You cannot exclude more than the smaller of: $97,600, or Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later). 2006 tax return software free If both you and your spouse work abroad and each of you meets either the bona fide residence test or the physical presence test, you can each choose the foreign earned income exclusion. 2006 tax return software free You do not both need to meet the same test. 2006 tax return software free Together, you and your spouse can exclude as much as $195,200. 2006 tax return software free Paid in year following work. 2006 tax return software free   Generally, you are considered to have earned income in the year in which you do the work for which you receive the income, even if you work in one year but are not paid until the following year. 2006 tax return software free If you report your income on a cash basis, you report the income on your return for the year you receive it. 2006 tax return software free If you work one year, but are not paid for that work until the next year, the amount you can exclude in the year you are paid is the amount you could have excluded in the year you did the work if you had been paid in that year. 2006 tax return software free For an exception to this general rule, see Year-end payroll period, later. 2006 tax return software free Example. 2006 tax return software free You were a bona fide resident of Brazil for all of 2012 and 2013. 2006 tax return software free You report your income on the cash basis. 2006 tax return software free In 2012, you were paid $84,200 for work you did in Brazil during that year. 2006 tax return software free You excluded all of the $84,200 from your income in 2012. 2006 tax return software free In 2013, you were paid $117,300 for your work in Brazil. 2006 tax return software free $18,800 was for work you did in 2012 and $98,500 was for work you did in 2013. 2006 tax return software free You can exclude $10,900 of the $18,800 from your income in 2013. 2006 tax return software free This is the $95,100 maximum exclusion in 2012 minus the $84,200 actually excluded that year. 2006 tax return software free You must include the remaining $7,900 in income in 2013 because you could not have excluded that income in 2012 if you had received it that year. 2006 tax return software free You can exclude $97,600 of the $98,500 you were paid for work you did in 2013 from your 2013 income. 2006 tax return software free Your total foreign earned income exclusion for 2013 is $108,500 ($10,900 for work you did in 2012 and $97,600 for work you did in 2013). 2006 tax return software free You would include in your 2013 income $8,800 ($7,900 for the work you did in 2012 and $900 for the work you did in 2013). 2006 tax return software free Year-end payroll period. 2006 tax return software free   There is an exception to the general rule that income is considered earned in the year you do the work for which you receive the income. 2006 tax return software free If you are a cash-basis taxpayer, any salary or wage payment you receive after the end of the year in which you do the work for which you receive the pay is considered earned entirely in the year you receive it if all four of the following apply. 2006 tax return software free The period for which the payment is made is a normal payroll period of your employer that regularly applies to you. 2006 tax return software free The payroll period includes the last day of your tax year (December 31 if you figure your taxes on a calendar-year basis). 2006 tax return software free The payroll period is not longer than 16 days. 2006 tax return software free The payday comes at the same time in relation to the payroll period that it would normally come and it comes before the end of the next payroll period. 2006 tax return software free Example. 2006 tax return software free You are paid twice a month. 2006 tax return software free For the normal payroll period that begins on the first of the month and ends on the fifteenth of the month, you are paid on the sixteenth day of the month. 2006 tax return software free For the normal payroll period that begins on the sixteenth of the month and ends on the last day of the month, you are paid on the first day of the following month. 2006 tax return software free Because all of the above conditions are met, the pay you received on January 1, 2013, is considered earned in 2013. 2006 tax return software free Income earned over more than 1 year. 2006 tax return software free   Regardless of when you actually receive income, you must apply it to the year in which you earned it in figuring your excludable amount for that year. 2006 tax return software free For example, a bonus may be based on work you did over several years. 2006 tax return software free You determine the amount of the bonus that is considered earned in a particular year in two steps. 2006 tax return software free Divide the bonus by the number of calendar months in the period when you did the work that resulted in the bonus. 2006 tax return software free Multiply the result of (1) by the number of months you did the work during the year. 2006 tax return software free This is the amount that is subject to the exclusion limit for that tax year. 2006 tax return software free Income received more than 1 year after it was earned. 2006 tax return software free   You cannot exclude income you receive after the end of the year following the year you do the work to earn it. 2006 tax return software free Example. 2006 tax return software free   You were a bona fide resident of Sweden for 2011, 2012, and 2013. 2006 tax return software free You report your income on the cash basis. 2006 tax return software free In 2011, you were paid $69,000 for work you did in Sweden that year and in 2012 you were paid $74,000 for that year's work in Sweden. 2006 tax return software free You excluded all the income on your 2011 and 2012 returns. 2006 tax return software free   In 2013, you were paid $92,000; $82,000 for your work in Sweden during 2013, and $10,000 for work you did in Sweden in 2011. 2006 tax return software free You cannot exclude any of the $10,000 for work done in 2011 because you received it after the end of the year following the year in which you earned it. 2006 tax return software free You must include the $10,000 in income. 2006 tax return software free You can exclude all of the $82,000 received for work you did in 2013. 2006 tax return software free Community income. 2006 tax return software free   The maximum exclusion applies separately to the earnings of spouses. 2006 tax return software free Ignore any community property laws when you figure your limit on the foreign earned income exclusion. 2006 tax return software free Part-year exclusion. 2006 tax return software free   If the period for which you qualify for the foreign earned income exclusion includes only part of the year, you must adjust the maximum limit based on the number of qualifying days in the year. 2006 tax return software free The number of qualifying days is the number of days in the year within the period on which you both: Have your tax home in a foreign country, and Meet either the bona fide residence test or the physical presence test. 2006 tax return software free   For this purpose, you can count as qualifying days all days within a period of 12 consecutive months once you are physically present and have your tax home in a foreign country for 330 full days. 2006 tax return software free To figure your maximum exclusion, multiply the maximum excludable amount for the year by the number of your qualifying days in the year, and then divide the result by the number of days in the year. 2006 tax return software free Example. 2006 tax return software free You report your income on the calendar-year basis and you qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2013. 2006 tax return software free You can exclude a maximum of 75/365 of $97,600, or $20,055, of your foreign earned income for 2013. 2006 tax return software free If you qualify under the bona fide residence test for all of 2014, you can exclude your foreign earned income up to the 2014 limit. 2006 tax return software free Physical presence test. 2006 tax return software free   Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. 2006 tax return software free If you qualify for the foreign earned income exclusion under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year. 2006 tax return software free Example. 2006 tax return software free You are physically present and have your tax home in a foreign country for a 16-month period from June 1, 2012, through September 30, 2013, except for 16 days in December 2012 when you were on vacation in the United States. 2006 tax return software free You figure the maximum exclusion for 2012 as follows. 2006 tax return software free Beginning with June 1, 2012, count forward 330 full days. 2006 tax return software free Do not count the 16 days you spent in the United States. 2006 tax return software free The 330th day, May 12, 2013, is the last day of a 12-month period. 2006 tax return software free Count backward 12 months from May 11, 2013, to find the first day of this 12-month period, May 12, 2012. 2006 tax return software free This 12-month period runs from May 12, 2012, through May 11, 2013. 2006 tax return software free Count the total days during 2012 that fall within this 12-month period. 2006 tax return software free This is 234 days (May 12, 2012 – December 31, 2012). 2006 tax return software free Multiply $95,100 (the maximum exclusion for 2012) by the fraction 234/366 to find your maximum exclusion for 2012 ($60,802). 2006 tax return software free You figure the maximum exclusion for 2013 in the opposite manner. 2006 tax return software free Beginning with your last full day, September 30, 2013, count backward 330 full days. 2006 tax return software free Do not count the 16 days you spent in the United States. 2006 tax return software free That day, October 20, 2012, is the first day of a 12-month period. 2006 tax return software free Count forward 12 months from October 20, 2012, to find the last day of this 12-month period, October 19, 2013. 2006 tax return software free This 12-month period runs from October 20, 2012, through October 19, 2013. 2006 tax return software free Count the total days during 2013 that fall within this 12-month period. 2006 tax return software free This is 292 days (January 1, 2013 – October 19, 2013). 2006 tax return software free Multiply $97,600, the maximum limit, by the fraction 292/365 to find your maximum exclusion for 2013 ($78,080). 2006 tax return software free Choosing the Exclusion The foreign earned income exclusion is voluntary. 2006 tax return software free You can choose the exclusion by completing the appropriate parts of Form 2555. 2006 tax return software free When You Can Choose the Exclusion Your initial choice of the exclusion on Form 2555 or Form 2555-EZ generally must be made with one of the following returns. 2006 tax return software free A return filed by the due date (including any extensions). 2006 tax return software free A return amending a timely-filed return. 2006 tax return software free Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid. 2006 tax return software free A return filed within 1 year from the original due date of the return (determined without regard to any extensions). 2006 tax return software free Filing after the above periods. 2006 tax return software free   You can choose the exclusion on a return filed after the periods described above if you owe no federal income tax after taking into account the exclusion. 2006 tax return software free If you owe federal income tax after taking into account the exclusion, you can choose the exclusion on a return filed after the periods described earlier if you file before the IRS discovers that you failed to choose the exclusion. 2006 tax return software free Whether or not you owe federal income tax after taking the exclusion into account, if you file your return after the periods described earlier, you must type or legibly print at the top of the first page of the Form 1040 “Filed pursuant to section 1. 2006 tax return software free 911-7(a)(2)(i)(D). 2006 tax return software free ” If you owe federal income tax after taking into account the foreign earned income exclusion and the IRS discovered that you failed to choose the exclusion, you may still be able to choose the exclusion. 2006 tax return software free You must request a private letter ruling under Income Tax Regulation 301. 2006 tax return software free 9100-3 and Revenue Procedure 2013-1, 2013-1 I. 2006 tax return software free R. 2006 tax return software free B. 2006 tax return software free 1, available at www. 2006 tax return software free irs. 2006 tax return software free gov/irb/2013-01_IRB/ar06. 2006 tax return software free html. 2006 tax return software free Effect of Choosing the Exclusion Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it. 2006 tax return software free Foreign tax credit or deduction. 2006 tax return software free  
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2006 tax return software free Publication 970 - Additional Material Table of Contents AppendicesAppendix A. 2006 tax return software free Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. 2006 tax return software free Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. 2006 tax return software free Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. 2006 tax return software free It is intended only as a guide. 2006 tax return software free Look in this publication for more complete information. 2006 tax return software free   Appendix A. 2006 tax return software free Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). 2006 tax return software free Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. 2006 tax return software free Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. 2006 tax return software free Sean enrolled as a full-time graduate student in August 2013 at California State College. 2006 tax return software free He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. 2006 tax return software free His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. 2006 tax return software free Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. 2006 tax return software free In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. 2006 tax return software free California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. 2006 tax return software free California State College reports amounts billed in 2013 instead of amounts paid during 2013. 2006 tax return software free In completing Form 8863, the Joneses use the amounts they paid. 2006 tax return software free Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. 2006 tax return software free Dave and Valerie figure their education credits by completing Form 8863. 2006 tax return software free They begin Form 8863 on page 2 before completing Part I on page 1. 2006 tax return software free Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. 2006 tax return software free The Joneses decide to complete Part III for Carey first, as shown later. 2006 tax return software free They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. 2006 tax return software free The Joneses complete a separate Part III for their son Sean. 2006 tax return software free They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. 2006 tax return software free They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. 2006 tax return software free Once they have completed Part III for each student, they figure their credits. 2006 tax return software free The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. 2006 tax return software free They enter the amount from line 8, $1,000, on line 66 of their Form 1040. 2006 tax return software free The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). 2006 tax return software free They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. 2006 tax return software free They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. 2006 tax return software free The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. 2006 tax return software free The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. 2006 tax return software free They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. 2006 tax return software free This image is too large to be displayed in the current screen. 2006 tax return software free Please click the link to view the image. 2006 tax return software free Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 2006 tax return software free Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. 2006 tax return software free Less adjustments:     a. 2006 tax return software free Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 2006 tax return software free Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 2006 tax return software free Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 2006 tax return software free Total adjustments (add lines 2a, 2b, and 2c) 0 4. 2006 tax return software free Adjusted qualified education expenses. 2006 tax return software free Subtract line 3 from line 1. 2006 tax return software free If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. 2006 tax return software free Please click the link to view the image. 2006 tax return software free Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 2006 tax return software free Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. 2006 tax return software free Less adjustments:     a. 2006 tax return software free Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 2006 tax return software free Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 2006 tax return software free Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 2006 tax return software free Total adjustments (add lines 2a, 2b, and 2c) 0 4. 2006 tax return software free Adjusted qualified education expenses. 2006 tax return software free Subtract line 3 from line 1. 2006 tax return software free If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. 2006 tax return software free Enter the amount from Form 8863, line 18 1. 2006 tax return software free 1,190 2. 2006 tax return software free Enter the amount from Form 8863, line 9 2. 2006 tax return software free 1,500 3. 2006 tax return software free Add lines 1 and 2 3. 2006 tax return software free 2,690 4. 2006 tax return software free Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. 2006 tax return software free 1,000 5. 2006 tax return software free Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. 2006 tax return software free 0 6. 2006 tax return software free Subtract line 5 from line 4 6. 2006 tax return software free 1,000 7. 2006 tax return software free   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. 2006 tax return software free 1,000 This image is too large to be displayed in the current screen. 2006 tax return software free Please click the link to view the image. 2006 tax return software free Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. 2006 tax return software free Please click the link to view the image. 2006 tax return software free Carey Jones page 2 This image is too large to be displayed in the current screen. 2006 tax return software free Please click the link to view the image. 2006 tax return software free Filled-in Form 8863 Jones page 2 Appendix B. 2006 tax return software free Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. 2006 tax return software free See the text for definitions and details. 2006 tax return software free Do not rely on this chart alone. 2006 tax return software free    Caution:You generally cannot claim more than one benefit for the same education expense. 2006 tax return software free   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. 2006 tax return software free    40% of the credit may be refundable (limited to $1,000 per student). 2006 tax return software free Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. 2006 tax return software free , that must be paid to the educational institution, etc. 2006 tax return software free , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. 2006 tax return software free   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. 2006 tax return software free Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. 2006 tax return software free For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. 2006 tax return software free For each term listed below that has more than one definition, the definition for each education benefit is listed. 2006 tax return software free Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 2006 tax return software free If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 2006 tax return software free Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. 2006 tax return software free They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. 2006 tax return software free For information on a specific benefit, see the appropriate chapter in this publication. 2006 tax return software free Candidate for a degree:   A student who meets either of the following requirements. 2006 tax return software free Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. 2006 tax return software free Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. 2006 tax return software free Eligible educational institution:    American opportunity credit. 2006 tax return software free Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2006 tax return software free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2006 tax return software free Coverdell education savings account (ESA). 2006 tax return software free Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2006 tax return software free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2006 tax return software free Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. 2006 tax return software free Education savings bond program. 2006 tax return software free Same as American opportunity credit in this category. 2006 tax return software free IRA, early distributions from. 2006 tax return software free Same as American opportunity credit in this category. 2006 tax return software free Lifetime learning credit. 2006 tax return software free Same as American opportunity credit in this category. 2006 tax return software free Qualified tuition program (QTP). 2006 tax return software free Same as American opportunity credit in this category. 2006 tax return software free Scholarships and fellowships. 2006 tax return software free An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 2006 tax return software free Student loan, cancellation of. 2006 tax return software free Same as Scholarships and fellowships in this category. 2006 tax return software free Student loan interest deduction. 2006 tax return software free Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2006 tax return software free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2006 tax return software free Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. 2006 tax return software free Tuition and fees deduction. 2006 tax return software free Same as American opportunity credit in this category. 2006 tax return software free Eligible student:    American opportunity credit. 2006 tax return software free A student who meets all of the following requirements for the tax year for which the credit is being determined. 2006 tax return software free Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. 2006 tax return software free Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). 2006 tax return software free For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. 2006 tax return software free Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. 2006 tax return software free Lifetime learning credit. 2006 tax return software free A student who is enrolled in one or more courses at an eligible educational institution. 2006 tax return software free Student loan interest deduction. 2006 tax return software free A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. 2006 tax return software free Tuition and fees deduction. 2006 tax return software free A student who is enrolled in one or more courses at an eligible educational institution. 2006 tax return software free Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. 2006 tax return software free Modified adjusted gross income (MAGI):    American opportunity credit. 2006 tax return software free Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2006 tax return software free Coverdell education savings account (ESA). 2006 tax return software free Same as American opportunity credit in this category. 2006 tax return software free Education savings bond program. 2006 tax return software free Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. 2006 tax return software free Lifetime learning credit. 2006 tax return software free Same as American opportunity credit in this category. 2006 tax return software free Student loan interest deduction. 2006 tax return software free Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2006 tax return software free Tuition and fees deduction. 2006 tax return software free Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2006 tax return software free Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. 2006 tax return software free Qualified education expenses:   See pertinent chapter for specific items. 2006 tax return software free    American opportunity credit. 2006 tax return software free Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. 2006 tax return software free Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. 2006 tax return software free Does not include expenses for room and board. 2006 tax return software free Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. 2006 tax return software free Coverdell education savings account (ESA). 2006 tax return software free Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. 2006 tax return software free Many specialized expenses included for K–12. 2006 tax return software free Also includes expenses for special needs services and contribution to qualified tuition program (QTP). 2006 tax return software free Education savings bond program. 2006 tax return software free Tuition and fees required to enroll at or attend an eligible educational institution. 2006 tax return software free Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). 2006 tax return software free Does not include expenses for room and board. 2006 tax return software free Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. 2006 tax return software free IRA, early distributions from. 2006 tax return software free Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 2006 tax return software free Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. 2006 tax return software free Lifetime learning credit. 2006 tax return software free Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 2006 tax return software free Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 2006 tax return software free Does not include expenses for room and board. 2006 tax return software free Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. 2006 tax return software free Qualified tuition program (QTP). 2006 tax return software free Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 2006 tax return software free Includes expenses for special needs services and computer access. 2006 tax return software free Scholarships and fellowships. 2006 tax return software free Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 2006 tax return software free Course-related items must be required of all students in the course of instruction. 2006 tax return software free Student loan interest deduction. 2006 tax return software free Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). 2006 tax return software free Tuition and fees deduction. 2006 tax return software free Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 2006 tax return software free Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 2006 tax return software free Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. 2006 tax return software free To include as tax on your current year's return an amount allowed as a credit in a prior year. 2006 tax return software free Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. 2006 tax return software free Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. 2006 tax return software free Prev  Up  Next   Home   More Online Publications