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2010 Tax Software

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2010 Tax Software

2010 tax software 1. 2010 tax software   Filing and Paying Business Taxes Table of Contents Introduction Useful Items - You may want to see: Identification NumbersNew EIN. 2010 tax software Employee. 2010 tax software Other payee. 2010 tax software Income TaxDo I Have To File an Income Tax Return? How Do I File? IRS e-file (Electronic Filing) When Is My Tax Return Due? How Do I Pay Income Tax? Self-Employment (SE) TaxHow to become insured under social security. 2010 tax software Earning credits in 2013 and 2014. 2010 tax software Employment Taxes Excise Taxes Information ReturnsWaiver of penalties. 2010 tax software Penalties. 2010 tax software Introduction This chapter explains the business taxes you may have to pay and the forms you may have to file. 2010 tax software It also discusses taxpayer identification numbers. 2010 tax software Table 1-1 lists the benefits of filing electronically. 2010 tax software Table 1-2 lists the federal taxes you may have to pay, their due dates, and the forms you use to report them. 2010 tax software Table 1-3 provides checklists that highlight the typical forms and schedules you may need to file if you ever go out of business. 2010 tax software You may want to get Publication 509, Tax Calendars. 2010 tax software It has tax calendars that tell you when to file returns and make tax payments. 2010 tax software Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) 1040 U. 2010 tax software S. 2010 tax software Individual Income Tax Return 1040-ES Estimated Tax for Individuals Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business Sch SE (Form 1040) Self-Employment Tax See chapter 12 for information about getting publications and forms. 2010 tax software Identification Numbers This section explains three types of taxpayer identification numbers, who needs them, when to use them, and how to get them. 2010 tax software Social security number (SSN). 2010 tax software   Generally, use your SSN as your taxpayer identification number. 2010 tax software You must put this number on each of your individual income tax forms, such as Form 1040 and its schedules. 2010 tax software   To apply for an SSN, use Form SS-5, Application for a Social Security Card. 2010 tax software This form is available at Social Security Administration (SSA) offices or by calling 1-800-772-1213. 2010 tax software It is also available from the SSA website at www. 2010 tax software socialsecurity. 2010 tax software gov. 2010 tax software Individual taxpayer identification number (ITIN). 2010 tax software   The IRS will issue an ITIN if you are a nonresident or resident alien and you do not have and are not eligible to get an SSN. 2010 tax software In general, if you need to obtain an ITIN, you must attach Form W-7, Application for IRS Individual Taxpayer Identification Number, with your signed, original, completed tax return and any other required documentation and mail them to the following address. 2010 tax software  Internal Revenue Service ITIN Operation P. 2010 tax software O. 2010 tax software Box 149342 Austin, TX 78714-9342 The exceptions are covered in detail in the instructions for Form W-7. 2010 tax software If you must include another person's SSN on your return and that person does not have and cannot get an SSN, enter that person's ITIN. 2010 tax software The application is also available in Spanish. 2010 tax software The form is available at IRS. 2010 tax software gov or you can call 1-800-829-3676 to order the form. 2010 tax software    An ITIN is for tax use only. 2010 tax software It does not entitle the holder to social security benefits or change the holder's employment or immigration status. 2010 tax software Employer identification number (EIN). 2010 tax software   You must also have an EIN to use as a taxpayer identification number if you do either of the following. 2010 tax software Pay wages to one or more employees. 2010 tax software File pension or excise tax returns. 2010 tax software   If you must have an EIN, include it along with your SSN on your Schedule C or C-EZ. 2010 tax software   You can apply for an EIN: Online by clicking on the Employer ID Numbers (EINs) link at www. 2010 tax software irs. 2010 tax software gov/businesses/small. 2010 tax software The EIN is issued immediately once the application information is validated. 2010 tax software By telephone at 1-800-829-4933. 2010 tax software By mailing or faxing Form SS-4, Application for Employer Identification Number. 2010 tax software New EIN. 2010 tax software   You may need to get a new EIN if either the form or the ownership of your business changes. 2010 tax software For more information, see Publication 1635, Understanding Your EIN. 2010 tax software When you need identification numbers of other persons. 2010 tax software   In operating your business, you will probably make certain payments you must report on information returns. 2010 tax software These payments are discussed under Information Returns, later in this chapter. 2010 tax software You must give the recipient of these payments (the payee) a statement showing the total amount paid during the year. 2010 tax software You must include the payee's identification number and your identification number on the returns and statements. 2010 tax software Employee. 2010 tax software   If you have employees, you must get an SSN from each of them. 2010 tax software Record the name and SSN of each employee exactly as they are shown on the employee's social security card. 2010 tax software If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. 2010 tax software This may occur if the employee's name was changed due to marriage or divorce. 2010 tax software   Form W-4, Employee's Withholding Allowance Certificate, is completed by each employee so the correct federal income tax can be withheld from their pay. 2010 tax software   If your employee does not have an SSN, he or she should file Form SS-5 with the SSA. 2010 tax software Other payee. 2010 tax software   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. 2010 tax software If you must report payments to an organization, such as a corporation or partnership, you must get its EIN. 2010 tax software   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. 2010 tax software   A payee who does not provide you with an identification number may be subject to backup withholding. 2010 tax software For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. 2010 tax software Income Tax This part explains whether you have to file an income tax return and when you file it. 2010 tax software It also explains how you pay the tax. 2010 tax software Do I Have To File an Income Tax Return? You have to file an income tax return for 2013 if your net earnings from self-employment were $400 or more. 2010 tax software If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions. 2010 tax software How Do I File? File your income tax return on Form 1040 and attach Schedule C or Schedule C-EZ. 2010 tax software Enter the net profit or loss from Schedule C or Schedule C-EZ on page 1 of Form 1040. 2010 tax software Use Schedule C to figure your net profit or loss from your business. 2010 tax software If you operated more than one business as a sole proprietorship, you must attach a separate Schedule C for each business. 2010 tax software You can use the simpler Schedule C-EZ if you operated only one business as a sole proprietorship, you did not have a net loss, and you meet the other requirements listed in Part I of the schedule. 2010 tax software IRS e-file (Electronic Filing) Please click here for the text description of the image. 2010 tax software E-file logo You may be able to file your tax returns electronically using an IRS e-file option. 2010 tax software Table 1-1 lists the benefits of IRS e-file. 2010 tax software IRS e-file uses automation to replace most of the manual steps needed to process paper returns. 2010 tax software As a result, the processing of e-file returns is faster and more accurate than the processing of paper returns. 2010 tax software As with a paper return, you are responsible for making sure your return contains accurate information and is filed on time. 2010 tax software Using e-file does not affect your chances of an IRS examination of your return. 2010 tax software You can file most commonly used business forms using IRS e-file. 2010 tax software For more information, visit IRS. 2010 tax software gov. 2010 tax software Electronic signatures. 2010 tax software   Paperless filing is easier than you think and it's available to most taxpayers who file electronically—including those first-time filers who were 16 or older at the end of 2013. 2010 tax software If you file electronically using tax preparation software or a tax professional, you will participate in the Self-Select PIN (personal identification number) program. 2010 tax software If you are married filing jointly, you and your spouse will each need to create a PIN and enter these PINs as your electronic signatures. 2010 tax software    To create a PIN, you must know your adjusted gross income (AGI) from your originally filed 2012 income tax return (not from an amended return, Form 1040X, or any math error notice from the IRS). 2010 tax software You will also need to provide your date of birth (DOB). 2010 tax software Make sure your DOB is accurate and matches the information on record with the Social Security Administration before you e-file. 2010 tax software To do this, check your annual Social Security Statement. 2010 tax software   With a Self-Select PIN, there is nothing to sign and nothing to mail—not even your Forms W-2. 2010 tax software For more details on the Self-Select PIN program, visit IRS. 2010 tax software gov. 2010 tax software State returns. 2010 tax software   In most states, you can file an electronic state return simultaneously with your federal return. 2010 tax software For more information, check with your local IRS office, state tax agency, tax professional, or IRS. 2010 tax software gov. 2010 tax software Refunds. 2010 tax software   You can have your refund check mailed to you, or you can have your refund deposited directly to your checking or savings account. 2010 tax software   With e-file, your refund will be issued in half the time as when filing on paper. 2010 tax software Most refunds are issued within 3 weeks. 2010 tax software If you choose Direct Deposit, you can receive your refund in as few as 10 days. 2010 tax software Offset against debts. 2010 tax software   As with a paper return, you may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. 2010 tax software You will be notified if the refund you claimed has been offset against your debts. 2010 tax software Refund inquiries. 2010 tax software   You can check the status of your refund if it has been at least 24 hours (4 weeks if you mailed a paper return) from the date you filed your return. 2010 tax software Be sure to have a copy of your tax return available because you will need to know the filing status, the first social security number shown on the return, and the exact whole-dollar amount of the refund. 2010 tax software To check on your refund, do one of the following. 2010 tax software Go to IRS. 2010 tax software gov and click on Where's My Refund. 2010 tax software Call 1-800-829-4477 for automated refund information, and follow the recorded instructions. 2010 tax software Call 1-800-829-1954 during the hours shown in your form instructions. 2010 tax software Balance due. 2010 tax software   If you owe tax, you must pay it by April 15, 2014, to avoid late-payment penalties and interest. 2010 tax software You can make your payment electronically by scheduling an electronic funds withdrawal from your checking or savings account or by credit card. 2010 tax software Using an Authorized IRS e-file Provider Many tax professionals can electronically file paperless returns for their clients. 2010 tax software You have two options. 2010 tax software You can prepare your return, take it to an authorized IRS e-file provider, and have the provider transmit it electronically to the IRS. 2010 tax software You can have an authorized IRS e-file provider prepare your return and transmit it for you electronically. 2010 tax software You will be asked to complete Form 8879, IRS e-file Signature Authorization, to authorize the provider to enter your self-selected PIN on your return. 2010 tax software Depending on the provider and the specific services requested, a fee may be charged. 2010 tax software To find an authorized IRS e-file provider near you, go to IRS. 2010 tax software gov or look for an “Authorized IRS e-file Provider” sign. 2010 tax software Using Your Personal Computer A computer with Internet access is all you need to file your tax return using IRS e-file. 2010 tax software When you use your personal computer, you can e-file your return from your home any time of the day or night. 2010 tax software Sign your return electronically using a self-selected PIN to complete the process. 2010 tax software There is no signature form to submit or Forms W-2 to send in. 2010 tax software Free Internet filing options. 2010 tax software   More taxpayers can now prepare and e-file their individual income tax returns free using commercial tax preparation software accessible through IRS. 2010 tax software gov or www. 2010 tax software usa. 2010 tax software gov. 2010 tax software The IRS is partnering with the tax software industry to offer free preparation and filing services to a significant number of taxpayers. 2010 tax software Security and privacy certificate programs will assure tax data is safe and secure. 2010 tax software To see if you qualify for these services, visit the Return Preparation and Filing Options page at IRS. 2010 tax software gov. 2010 tax software   If you cannot use the free services, you can buy tax preparation software at various electronics stores or computer and office supply stores. 2010 tax software You can also download software from the Internet or prepare and file your return completely online by using tax preparation software available on the Internet. 2010 tax software Filing Through Employers and Financial Institutions Some businesses offer free e-file to their employees, members, or customers. 2010 tax software Others offer it for a fee. 2010 tax software Ask your employer or financial institution if they offer IRS e-file as an employee, member, or customer benefit. 2010 tax software Free Help With Your Return Free help in preparing your return is available nationwide from IRS-trained volunteers. 2010 tax software The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers, and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 or older with their tax returns. 2010 tax software Some locations offer free electronic filing. 2010 tax software Table 1-1. 2010 tax software Benefits of IRS e-file Accuracy • Your chance of getting an error notice from the IRS is significantly reduced. 2010 tax software Security • Your privacy and security are assured. 2010 tax software Electronic signatures • Create your own personal identification number (PIN) and file a completely paperless return through your tax preparation software or tax professional. 2010 tax software There is nothing to mail. 2010 tax software Proof of acceptance • You receive an electronic acknowledgment within 48 hours that the IRS has accepted your return for processing. 2010 tax software Fast refunds • You get your refund faster with Direct Deposit—in as few as 10 days. 2010 tax software Free Internet filing options • Use IRS. 2010 tax software gov to access commercial tax preparation and e-file services available at no cost to eligible taxpayers. 2010 tax software Electronic payment options • Convenient, safe, and secure electronic payment options are available. 2010 tax software E-file and pay your taxes in a single step. 2010 tax software Schedule an electronic funds withdrawal from your checking or savings account (up to and including April 15, 2014) or pay by credit card. 2010 tax software Federal/State filing • Prepare and file your federal and state tax returns together and double the benefits you get from e-file. 2010 tax software When Is My Tax Return Due? Form 1040 for calendar year 2013 is due by April 15, 2014. 2010 tax software If you use a fiscal year (explained in chapter 2), your return is due by the 15th day of the 4th month after the end of your fiscal year. 2010 tax software If you file late, you may have to pay penalties and interest. 2010 tax software If you cannot file your return on time, use Form 4868, Application for Automatic Extension of Time To File U. 2010 tax software S. 2010 tax software Individual Income Tax Return, to request an automatic 6-month extension. 2010 tax software For calendar year taxpayers, this will extend the tax filing due date until October 15. 2010 tax software Filing an extension does not extend the time to pay your taxes, only the time to file the tax return. 2010 tax software How Do I Pay Income Tax? Federal income tax is a pay-as-you-go tax. 2010 tax software You must pay it as you earn or receive income during the year. 2010 tax software An employee usually has income tax withheld from his or her pay. 2010 tax software If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. 2010 tax software You generally have to make estimated tax payments if you expect to owe taxes, including self-employment tax (discussed later), of $1,000 or more when you file your return. 2010 tax software Use Form 1040-ES to figure and pay the tax. 2010 tax software If you do not have to make estimated tax payments, you can pay any tax due when you file your return. 2010 tax software For more information on estimated tax, see Publication 505, Tax Withholding and Estimated Tax. 2010 tax software What are my payment options?   You can pay your estimated tax electronically using various options. 2010 tax software If you pay electronically, there is no need to mail in Form 1040-ES payment vouchers. 2010 tax software These options include: Paying electronically through the Electronic Federal Tax Payment System (EFTPS). 2010 tax software Paying by authorizing an electronic funds withdrawal when you file Form 1040 electronically. 2010 tax software Paying by credit or debit card over the phone or by Internet. 2010 tax software Other options include crediting an overpayment from your 2013 return to your 2014 estimated tax, or mailing a check or money order with a Form 1040-ES payment voucher. 2010 tax software EFTPS    To enroll in EFTPS, go to www. 2010 tax software eftps. 2010 tax software gov or call 1-800-555-4477. 2010 tax software When you request a new EIN and you will have a tax obligation, you are automatically enrolled in EFTPS. 2010 tax software Benefits of EFTPS: The chance of an error in making your payments is reduced. 2010 tax software You receive immediate confirmation of every transaction. 2010 tax software Penalty for underpayment of tax. 2010 tax software   If you did not pay enough income tax and self-employment tax for 2013 by withholding or by making estimated tax payments, you may have to pay a penalty on the amount not paid. 2010 tax software The IRS will figure the penalty for you and send you a bill. 2010 tax software Or you can use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you have to pay a penalty and to figure the penalty amount. 2010 tax software For more information, see Publication 505. 2010 tax software Self-Employment (SE) Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. 2010 tax software It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. 2010 tax software If you earned income as a statutory employee, you do not pay SE tax on that income. 2010 tax software Social security coverage. 2010 tax software   Social security benefits are available to self-employed persons just as they are to wage earners. 2010 tax software Your payments of SE tax contribute to your coverage under the social security system. 2010 tax software Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. 2010 tax software By not reporting all of your self-employment income, you could cause your social security benefits to be lower when you retire. 2010 tax software How to become insured under social security. 2010 tax software   You must be insured under the social security system before you begin receiving social security benefits. 2010 tax software You are insured if you have the required number of credits (also called quarters of coverage), discussed next. 2010 tax software Earning credits in 2013 and 2014. 2010 tax software   For 2013, you received one credit, up to a maximum of four credits, for each $1,160 ($1,200 for 2014) of income subject to social security taxes. 2010 tax software Therefore, for 2013, if you had income (self-employment and wages) of $4,640 that was subject to social security taxes, you receive four credits ($4,640 ÷ $1,160). 2010 tax software   For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office. 2010 tax software    Making false statements to get or to increase social security benefits may subject you to penalties. 2010 tax software The Social Security Administration (SSA) time limit for posting self-employment income. 2010 tax software   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. 2010 tax software If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. 2010 tax software The SSA will not change its records to increase your self-employment income. 2010 tax software Who must pay self-employment tax. 2010 tax software   You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. 2010 tax software Your net earnings from self-employment (excluding church employee income) were $400 or more. 2010 tax software You had church employee income of $108. 2010 tax software 28 or more. 2010 tax software The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. 2010 tax software SE tax rate. 2010 tax software   For 2013, the SE tax rate on net earnings is 15. 2010 tax software 3% (12. 2010 tax software 4% social security tax plus 2. 2010 tax software 9% Medicare tax). 2010 tax software Maximum earnings subject to SE tax. 2010 tax software   Only the first $113,700 of your combined wages, tips, and net earnings in 2013 is subject to any combination of the 12. 2010 tax software 4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax. 2010 tax software   All your combined wages, tips, and net earnings in 2013 are subject to any combination of the 2. 2010 tax software 9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax. 2010 tax software   If wages and tips you receive as an employee are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $113,700, do not pay the 12. 2010 tax software 4% social security part of the SE tax on any of your net earnings. 2010 tax software However, you must pay the 2. 2010 tax software 9% Medicare part of the SE tax on all your net earnings. 2010 tax software Deduct one-half of your SE tax as an adjustment to income on line 27 of Form 1040. 2010 tax software   More information. 2010 tax software   For information on methods of calculating SE tax, see Chapter 10, Self-Employment Tax. 2010 tax software Table 1-2. 2010 tax software Which Forms Must I File? IF you are liable for: THEN use Form: DUE by:1 Income tax 1040 and Schedule C or C-EZ2 15th day of 4th month after end of  tax year. 2010 tax software Self-employment tax Schedule SE File with Form 1040. 2010 tax software Estimated tax 1040-ES 15th day of 4th, 6th, and 9th months of tax year, and 15th day of 1st month after the end of tax year. 2010 tax software Social security and Medicare taxes and income tax withholding 941 or 944 April 30, July 31, October 31, and January 313. 2010 tax software     See Publication 15. 2010 tax software Providing information on social security and Medicare taxes and income tax withholding W-2 (to employee)  W-2 and W-3 (to the Social Security Administration) January 313. 2010 tax software   Last day of February (March 31 if filing electronically)3. 2010 tax software Federal unemployment (FUTA) tax 940 January 313. 2010 tax software     April 30, July 31, October 31, and January 31, but only if the liability for unpaid tax is more than $500. 2010 tax software Filing information returns for payments to nonemployees and transactions with other persons See Information Returns Forms 1099 – to the recipient by January 31 and to the IRS by February 28 (March 31 if filing electronically). 2010 tax software     Other forms – see the General Instructions for Certain Information Returns. 2010 tax software Excise tax See Excise Taxes See the instructions to the forms. 2010 tax software 1 If a due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday. 2010 tax software For more information, see Publication 509, Tax Calendars. 2010 tax software 2 File a separate schedule for each business. 2010 tax software 3 See the form instructions if you go out of business, change the form of your business, or stop paying wages. 2010 tax software     Employment Taxes If you have employees, you will need to file forms to report employment taxes. 2010 tax software Employment taxes include the following items. 2010 tax software Social security and Medicare taxes. 2010 tax software Federal income tax withholding. 2010 tax software Federal unemployment (FUTA) tax. 2010 tax software For more information, see Publication 15 (Circular E), Employer's Tax Guide. 2010 tax software That publication explains your tax responsibilities as an employer. 2010 tax software To help you determine whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. 2010 tax software That publication has information to help you determine whether an individual is an independent contractor or an employee. 2010 tax software If you incorrectly classify an employee as an independent contractor, you may be held liable for employment taxes for that worker plus a penalty. 2010 tax software An independent contractor is someone who is self-employed. 2010 tax software You do not generally have to withhold or pay any taxes on payments made to an independent contractor. 2010 tax software Excise Taxes This section identifies some of the excise taxes you may have to pay and the forms you have to file if you do any of the following. 2010 tax software Manufacture or sell certain products. 2010 tax software Operate certain kinds of businesses. 2010 tax software Use various kinds of equipment, facilities, or products. 2010 tax software Receive payment for certain services. 2010 tax software For more information on excise taxes, see Publication 510, Excise Taxes. 2010 tax software Form 720. 2010 tax software   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. 2010 tax software Environmental taxes on the sale or use of ozone-depleting chemicals and imported products containing or manufactured with these chemicals. 2010 tax software Communications and air transportation taxes. 2010 tax software Fuel taxes. 2010 tax software Tax on the first retail sale of heavy trucks, trailers, and tractors. 2010 tax software Manufacturers taxes on the sale or use of a variety of different articles. 2010 tax software Tax on indoor tanning services. 2010 tax software Form 2290. 2010 tax software   There is a federal excise tax on the use of certain trucks, truck tractors, and buses on public highways. 2010 tax software The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. 2010 tax software Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. 2010 tax software For more information, see the Instructions for Form 2290. 2010 tax software Depositing excise taxes. 2010 tax software   If you have to file a quarterly excise tax return on Form 720, you may have to deposit your excise taxes before the return is due. 2010 tax software For details on depositing excise taxes, see the Instructions for Form 720. 2010 tax software Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. 2010 tax software The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. 2010 tax software You must give a copy of each information return you are required to file to the recipient or payer. 2010 tax software In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. 2010 tax software For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. 2010 tax software Form 1099-MISC. 2010 tax software   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your business. 2010 tax software These payments include the following items. 2010 tax software Payments of $600 or more for services performed for your business by people not treated as your employees, such as fees to subcontractors, attorneys, accountants, or directors. 2010 tax software Rent payments of $600 or more, other than rents paid to real estate agents. 2010 tax software Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. 2010 tax software Royalty payments of $10 or more. 2010 tax software Payments to certain crew members by operators of fishing boats. 2010 tax software You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. 2010 tax software Form W-2. 2010 tax software   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. 2010 tax software You can file Form W-2 online. 2010 tax software For more information about Form W-2, see the General Instructions for Forms W-2 and W-3. 2010 tax software Penalties. 2010 tax software   The law provides for the following penalties if you do not file Form 1099-MISC or Form W-2 or do not correctly report the information. 2010 tax software For more information, see the General Instructions for Certain Information Returns. 2010 tax software Failure to file information returns. 2010 tax software This penalty applies if you do not file information returns by the due date, do not include all required information, or report incorrect information. 2010 tax software Failure to furnish correct payee statements. 2010 tax software This penalty applies if you do not furnish a required statement to a payee by the required date, do not include all required information, or report incorrect information. 2010 tax software Waiver of penalties. 2010 tax software   These penalties will not apply if you can show that the failure was due to reasonable cause and not willful neglect. 2010 tax software   In addition, there is no penalty for failure to include all required information, or for including incorrect information, on a de minimis (small) number of information returns if you correct the errors by August 1 of the year the returns are due. 2010 tax software (A de minimis number of returns is the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. 2010 tax software ) Form 8300. 2010 tax software   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction, or two or more related business transactions. 2010 tax software Cash includes U. 2010 tax software S. 2010 tax software and foreign coin and currency. 2010 tax software It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. 2010 tax software Cash does not include a check drawn on an individual's personal account (personal check). 2010 tax software For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). 2010 tax software Penalties. 2010 tax software   There are civil and criminal penalties, including up to 5 years in prison, for not filing Form 8300, filing (or causing the filing of) a false or fraudulent Form 8300, or structuring a transaction to evade reporting requirements. 2010 tax software Table 1-3. 2010 tax software Going Out of Business Checklists (Note. 2010 tax software The following checklists highlight the typical final forms and schedules you may need to file if you ever go out of business. 2010 tax software For more information, see the instructions for the listed forms. 2010 tax software ) IF you are liable for:   THEN you may need to: Income tax □ File Schedule C or C-EZ with your Form 1040 for the year in which you go out of business. 2010 tax software   □ File Form 4797 with your Form 1040 for each year in which you sell or exchange property used in your business or in which the business use of certain section 179 or listed property drops to 50% or less. 2010 tax software   □ File Form 8594 with your Form 1040 if you sold your business. 2010 tax software Self-employment tax □ File Schedule SE with your Form 1040 for the year in which you go out of business. 2010 tax software Employment taxes □ File Form 941 (or Form 944) for the calendar quarter in which you make final wage payments. 2010 tax software Note. 2010 tax software Do not forget to check the box and enter the date final wages were paid on line 15 of Form 941 or line 14 of Form 944. 2010 tax software   □ File Form 940 for the calendar year in which final wages were paid. 2010 tax software Note. 2010 tax software Do not forget to check box d, Final: Business closed or stopped paying wages, under Type of Return. 2010 tax software Information returns □ Provide Forms W-2 to your employees for the calendar year in which you make final wage payments. 2010 tax software Note. 2010 tax software These forms are generally due by the due date of your final Form 941 or Form 944. 2010 tax software   □ File Form W-3 to file Forms W-2. 2010 tax software Note. 2010 tax software These forms are generally due within 1 month after the due date of your final Form 941 or Form 944. 2010 tax software   □ Provide Forms 1099-MISC to each person to whom you have paid at least $600 for services (including parts and materials) during the calendar year in which you go out of business. 2010 tax software   □ File Form 1096 to file Forms 1099-MISC. 2010 tax software Prev  Up  Next   Home   More Online Publications
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Recent Developments for Tax Forms, Instructions, and Publications

Note to Users of Form 1042 --27-MAR-2014
 

Correction to Instructions for Form 706-NA --07-MAR-2014
 

Retiring Form 5300 (Schedule Q), Elective Determination Requests, and the Instructions -- 28-FEB-2014
 

Correction to 2013 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 -- 20-FEB-2014
 

Clarification for Form 8879, IRS e-file Signature Authorization --13-FEB-2014
 

Update to Fax Numbers for Filing Form 2848 --13-FEB-2014
 

Reminder for Employers: No Federal Income Tax Withholding on Disability Payments for Injuries Incurred as a Direct Result of a Terrorist Attack Directed Against the United States -- 04-FEB-2014
 

The Form 706-D and the Instructions for Form 706-D are Retired. The Information will not be included in another product. -- 03-FEB-2014
 

The Publication 5500 Filing Reminder is Obsolete -- 03-FEB-2014
 

Change: Schedule D-1 (Form 1041) Will No Longer be Revised or Used, Beginning with Tax Year 2013 -- 24-JAN-2014
 

Correction to 2013 Instructions for Schedule H (Form 990) -- 23-JAN-2014
 

Important Information Regarding Additional Medicare Tax -- 23-JAN-2014
 

Personal Exemption Update for Qualified Disability Trusts Subject to Phaseout for 2013 Form 1041-ES, Estimated Income Tax for Estates and Trusts -- 13-JAN-2014
 

Final Release of 2013 Original Issue Discount (OID) Tables -- 10-JAN-2014
 

Corrections to the 2013 Instructions for Form 1116, Foreign Tax Credit (Individual, Estate, or Trust)--10 JAN 2014
 

Correction to 2013 Schedule K-1 (Form 1041), Beneficiary’s Share of Income, Deductions, Credits, etc. -- 8-JAN-2014
 

Corrections to Publication 1212 (Rev. December 2013), Guide to Original Issue Discount (OID) Instruments, Examples 5 and 6 -- 08-JAN-2014
 

Correction to 2013 Instructions for Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return -- 07-JAN-14
 

Correction to 2013 Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return -- 07-JAN-2014
 

Update to the Instructions for Form 9465, Installment Agreement Request (Rev. December 2013) -- 06-JAN-2014
 

Correction to 2013 Instructions for Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return -- 31-DEC-2013
 

Correction to 2013 Schedule I (Form 1041), Alternative Minimum Tax - Estates and Trusts -- 22-DEC-2013
 

Update for Filers of Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States -- 16-DEC-2013
 

Update to Publication 555, Community Property -- 13-DEC-2013
 

Correction to Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return -- 03-DEC-2013
 

Corrections to 2013 Instructions for Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return (Nov-12-2013) -- 25-NOV-2013
 

Change to the 2014 Specific Instructions for Form 1099-C, Box 2. Amount of Debt Discharged -- 07-NOV-13


Change to the 2013 Instructions for Form 1099-R for reporting certain distributions from nonqualified plans -- 06-NOV-13
 

Correction to 2013 Instructions for Schedule R (Form 990) -- 06-NOV-13
 

Form 5884-B, New Hire Retention Credit, is identified as a historical form and cannot be used with a current year federal tax return -- 5-NOV-2013
 

Additional Instructions for 2012 Form 8949, Sales and Other Dispositions of Capital Assets -- 27-AUG-2013
 

Update to 2012 Instructions for Form 990-T -- 12-AUG-2013
 

Update to 2012 Instructions for Form 990-EZ -- 12-AUG-2013
 

Changes to the 2013 Form 1096, Box 5 Reporting Instructions for Form 1099-B -- 09-AUG-2013
 

Change to Filing Address for Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding -- 22-MAY-2013
 

Clarification for Form 1024, Application for Recognition of Exemption Under Section 501(a) (Rev. September 1998) -- 02-MAY-2013
 

Page Last Reviewed or Updated: 31-Mar-2014

The 2010 Tax Software

2010 tax software 23. 2010 tax software   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. 2010 tax software Mortgage proceeds used for business or investment. 2010 tax software Introduction This chapter discusses what interest expenses you can deduct. 2010 tax software Interest is the amount you pay for the use of borrowed money. 2010 tax software The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). 2010 tax software Home mortgage interest, including certain points and mortgage insurance premiums. 2010 tax software Investment interest. 2010 tax software This chapter explains these deductions. 2010 tax software It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. 2010 tax software Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. 2010 tax software Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 2010 tax software The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 2010 tax software You can deduct home mortgage interest if all the following conditions are met. 2010 tax software You file Form 1040 and itemize deductions on Schedule A (Form 1040). 2010 tax software The mortgage is a secured debt on a qualified home in which you have an ownership interest. 2010 tax software (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. 2010 tax software The term “qualified home” means your main home or second home. 2010 tax software For details, see Publication 936. 2010 tax software )  Both you and the lender must intend that the loan be repaid. 2010 tax software Amount Deductible In most cases, you can deduct all of your home mortgage interest. 2010 tax software How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 2010 tax software Fully deductible interest. 2010 tax software   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. 2010 tax software (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. 2010 tax software )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 2010 tax software Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). 2010 tax software Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). 2010 tax software The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 2010 tax software   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. 2010 tax software    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. 2010 tax software Figure 23-A. 2010 tax software Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. 2010 tax software Figure 23-A. 2010 tax software Is My Interest Fully Deductible? Limits on deduction. 2010 tax software   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. 2010 tax software If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. 2010 tax software Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 2010 tax software It also describes certain special situations that may affect your deduction. 2010 tax software Late payment charge on mortgage payment. 2010 tax software   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. 2010 tax software Mortgage prepayment penalty. 2010 tax software   If you pay off your home mortgage early, you may have to pay a penalty. 2010 tax software You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. 2010 tax software Sale of home. 2010 tax software   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. 2010 tax software Example. 2010 tax software John and Peggy Harris sold their home on May 7. 2010 tax software Through April 30, they made home mortgage interest payments of $1,220. 2010 tax software The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. 2010 tax software Their mortgage interest deduction is $1,270 ($1,220 + $50). 2010 tax software Prepaid interest. 2010 tax software   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. 2010 tax software You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 2010 tax software However, there is an exception that applies to points, discussed later. 2010 tax software Mortgage interest credit. 2010 tax software   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. 2010 tax software Figure the credit on Form 8396, Mortgage Interest Credit. 2010 tax software If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 2010 tax software   For more information on the credit, see chapter 37. 2010 tax software Ministers' and military housing allowance. 2010 tax software   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. 2010 tax software Hardest Hit Fund and Emergency Homeowners' Loan Programs. 2010 tax software   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. 2010 tax software You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. 2010 tax software You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. 2010 tax software If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). 2010 tax software However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. 2010 tax software Mortgage assistance payments under section 235 of the National Housing Act. 2010 tax software   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. 2010 tax software You cannot deduct the interest that is paid for you. 2010 tax software No other effect on taxes. 2010 tax software   Do not include these mortgage assistance payments in your income. 2010 tax software Also, do not use these payments to reduce other deductions, such as real estate taxes. 2010 tax software Divorced or separated individuals. 2010 tax software   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. 2010 tax software See the discussion of Payments for jointly-owned home in chapter 18. 2010 tax software Redeemable ground rents. 2010 tax software   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 2010 tax software   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 2010 tax software For more information, see Publication 936. 2010 tax software Nonredeemable ground rents. 2010 tax software   Payments on a nonredeemable ground rent are not mortgage interest. 2010 tax software You can deduct them as rent if they are a business expense or if they are for rental property. 2010 tax software Reverse mortgages. 2010 tax software   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. 2010 tax software With a reverse mortgage, you retain title to your home. 2010 tax software Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. 2010 tax software Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 2010 tax software Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. 2010 tax software Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. 2010 tax software Rental payments. 2010 tax software   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 2010 tax software This is true even if the settlement papers call them interest. 2010 tax software You cannot deduct these payments as home mortgage interest. 2010 tax software Mortgage proceeds invested in tax-exempt securities. 2010 tax software   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. 2010 tax software “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. 2010 tax software Refunds of interest. 2010 tax software   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. 2010 tax software If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. 2010 tax software However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 2010 tax software This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 2010 tax software    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. 2010 tax software For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 2010 tax software   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. 2010 tax software Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 2010 tax software Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 2010 tax software A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 2010 tax software See Points paid by the seller , later. 2010 tax software General Rule You generally cannot deduct the full amount of points in the year paid. 2010 tax software Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 2010 tax software See Deduction Allowed Ratably , next. 2010 tax software For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 2010 tax software Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. 2010 tax software You use the cash method of accounting. 2010 tax software This means you report income in the year you receive it and deduct expenses in the year you pay them. 2010 tax software Most individuals use this method. 2010 tax software Your loan is secured by a home. 2010 tax software (The home does not need to be your main home. 2010 tax software ) Your loan period is not more than 30 years. 2010 tax software If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. 2010 tax software Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. 2010 tax software Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 2010 tax software (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. 2010 tax software ) Your loan is secured by your main home. 2010 tax software (Your main home is the one you ordinarily live in most of the time. 2010 tax software ) Paying points is an established business practice in the area where the loan was made. 2010 tax software The points paid were not more than the points generally charged in that area. 2010 tax software You use the cash method of accounting. 2010 tax software This means you report income in the year you receive it and deduct expenses in the year you pay them. 2010 tax software (If you want more information about this method, see Accounting Methods in chapter 1. 2010 tax software ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. 2010 tax software The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 2010 tax software The funds you provided are not required to have been applied to the points. 2010 tax software They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 2010 tax software You cannot have borrowed these funds from your lender or mortgage broker. 2010 tax software You use your loan to buy or build your main home. 2010 tax software The points were computed as a percentage of the principal amount of the mortgage. 2010 tax software The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 2010 tax software The points may be shown as paid from either your funds or the seller's. 2010 tax software Figure 23-B. 2010 tax software Are My Points Fully Deductible This Year? Please click here for the text description of the image. 2010 tax software Figure 23-B. 2010 tax software Are My Points Fully Deductible This Year? Note. 2010 tax software If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. 2010 tax software Home improvement loan. 2010 tax software   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. 2010 tax software Second home. 2010 tax software You cannot fully deduct in the year paid points you pay on loans secured by your second home. 2010 tax software You can deduct these points only over the life of the loan. 2010 tax software Refinancing. 2010 tax software   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 2010 tax software This is true even if the new mortgage is secured by your main home. 2010 tax software   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 2010 tax software You can deduct the rest of the points over the life of the loan. 2010 tax software Example 1. 2010 tax software In 1998, Bill Fields got a mortgage to buy a home. 2010 tax software In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 2010 tax software The mortgage is secured by his home. 2010 tax software To get the new loan, he had to pay three points ($3,000). 2010 tax software Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. 2010 tax software Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 2010 tax software The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 2010 tax software Bill's first payment on the new loan was due July 1. 2010 tax software He made six payments on the loan in 2013 and is a cash basis taxpayer. 2010 tax software Bill used the funds from the new mortgage to repay his existing mortgage. 2010 tax software Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. 2010 tax software He cannot deduct all of the points in 2013. 2010 tax software He can deduct two points ($2,000) ratably over the life of the loan. 2010 tax software He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 2010 tax software The other point ($1,000) was a fee for services and is not deductible. 2010 tax software Example 2. 2010 tax software The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. 2010 tax software Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 2010 tax software His deduction is $500 ($2,000 × 25%). 2010 tax software Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 2010 tax software This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 2010 tax software The total amount Bill deducts in 2013 is $550 ($500 + $50). 2010 tax software Special Situations This section describes certain special situations that may affect your deduction of points. 2010 tax software Original issue discount. 2010 tax software   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. 2010 tax software This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 2010 tax software Amounts charged for services. 2010 tax software   Amounts charged by the lender for specific services connected to the loan are not interest. 2010 tax software Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 2010 tax software You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 2010 tax software Points paid by the seller. 2010 tax software   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 2010 tax software Treatment by seller. 2010 tax software   The seller cannot deduct these fees as interest. 2010 tax software But they are a selling expense that reduces the amount realized by the seller. 2010 tax software See chapter 15 for information on selling your home. 2010 tax software Treatment by buyer. 2010 tax software    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. 2010 tax software If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 2010 tax software If any of those tests are not met, the buyer deducts the points over the life of the loan. 2010 tax software   For information about basis, see chapter 13. 2010 tax software Funds provided are less than points. 2010 tax software   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. 2010 tax software In addition, you can deduct any points paid by the seller. 2010 tax software Example 1. 2010 tax software When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 2010 tax software You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 2010 tax software Of the $1,000 charged for points, you can deduct $750 in the year paid. 2010 tax software You spread the remaining $250 over the life of the mortgage. 2010 tax software Example 2. 2010 tax software The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. 2010 tax software In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 2010 tax software You spread the remaining $250 over the life of the mortgage. 2010 tax software You must reduce the basis of your home by the $1,000 paid by the seller. 2010 tax software Excess points. 2010 tax software   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. 2010 tax software You must spread any additional points over the life of the mortgage. 2010 tax software Mortgage ending early. 2010 tax software   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. 2010 tax software However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 2010 tax software Instead, deduct the remaining balance over the term of the new loan. 2010 tax software    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 2010 tax software Example. 2010 tax software Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 2010 tax software He deducts $200 points per year. 2010 tax software Through 2012, Dan has deducted $2,200 of the points. 2010 tax software Dan prepaid his mortgage in full in 2013. 2010 tax software He can deduct the remaining $800 of points in 2013. 2010 tax software Limits on deduction. 2010 tax software   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . 2010 tax software See Publication 936 for details. 2010 tax software Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 2010 tax software The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. 2010 tax software Qualified mortgage insurance. 2010 tax software   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 2010 tax software   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 2010 tax software If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 2010 tax software These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 2010 tax software Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 2010 tax software Special rules for prepaid mortgage insurance. 2010 tax software   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 2010 tax software You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. 2010 tax software No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 2010 tax software This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 2010 tax software See the Example below. 2010 tax software Example. 2010 tax software Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 2010 tax software Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 2010 tax software Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. 2010 tax software Ryan's adjusted gross income (AGI) for 2012 is $76,000. 2010 tax software Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. 2010 tax software For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. 2010 tax software In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). 2010 tax software Limit on deduction. 2010 tax software   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. 2010 tax software See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. 2010 tax software If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 2010 tax software Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. 2010 tax software You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. 2010 tax software A governmental unit is a person for purposes of furnishing the statement. 2010 tax software The statement for each year should be sent to you by January 31 of the following year. 2010 tax software A copy of this form will also be sent to the IRS. 2010 tax software The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. 2010 tax software However, it should not show any interest that was paid for you by a government agency. 2010 tax software As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 2010 tax software However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 2010 tax software See Points , earlier, to determine whether you can deduct points not shown on Form 1098. 2010 tax software Prepaid interest on Form 1098. 2010 tax software   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. 2010 tax software However, you cannot deduct the prepaid amount for January 2014 in 2013. 2010 tax software (See Prepaid interest , earlier. 2010 tax software ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 2010 tax software You will include the interest for January 2014 with the other interest you pay for 2014. 2010 tax software See How To Report , later. 2010 tax software Refunded interest. 2010 tax software   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. 2010 tax software See Refunds of interest , earlier. 2010 tax software Mortgage insurance premiums. 2010 tax software   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. 2010 tax software See Mortgage Insurance Premiums, earlier. 2010 tax software Investment Interest This section discusses interest expenses you may be able to deduct as an investor. 2010 tax software If you borrow money to buy property you hold for investment, the interest you pay is investment interest. 2010 tax software You can deduct investment interest subject to the limit discussed later. 2010 tax software However, you cannot deduct interest you incurred to produce tax-exempt income. 2010 tax software Nor can you deduct interest expenses on straddles. 2010 tax software Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. 2010 tax software Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. 2010 tax software It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). 2010 tax software Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). 2010 tax software Partners, shareholders, and beneficiaries. 2010 tax software   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. 2010 tax software Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. 2010 tax software Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. 2010 tax software The allocation is not affected by the use of property that secures the debt. 2010 tax software Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. 2010 tax software You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. 2010 tax software The interest carried over is treated as investment interest paid or accrued in that next year. 2010 tax software You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. 2010 tax software Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. 2010 tax software Investment income. 2010 tax software    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). 2010 tax software Investment income does not include Alaska Permanent Fund dividends. 2010 tax software It also does not include qualified dividends or net capital gain unless you choose to include them. 2010 tax software Choosing to include qualified dividends. 2010 tax software   Investment income generally does not include qualified dividends, discussed in chapter 8. 2010 tax software However, you can choose to include all or part of your qualified dividends in investment income. 2010 tax software   You make this choice by completing Form 4952, line 4g, according to its instructions. 2010 tax software   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. 2010 tax software Choosing to include net capital gain. 2010 tax software   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). 2010 tax software However, you can choose to include all or part of your net capital gain in investment income. 2010 tax software    You make this choice by completing Form 4952, line 4g, according to its instructions. 2010 tax software   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. 2010 tax software    Before making either choice, consider the overall effect on your tax liability. 2010 tax software Compare your tax if you make one or both of these choices with your tax if you do not. 2010 tax software Investment income of child reported on parent's return. 2010 tax software    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. 2010 tax software If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. 2010 tax software Child's qualified dividends. 2010 tax software   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. 2010 tax software However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. 2010 tax software   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). 2010 tax software Child's Alaska Permanent Fund dividends. 2010 tax software   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. 2010 tax software To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. 2010 tax software Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. 2010 tax software Subtract the result from the amount on Form 8814, line 12. 2010 tax software Child's capital gain distributions. 2010 tax software    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. 2010 tax software However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. 2010 tax software   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). 2010 tax software Investment expenses. 2010 tax software   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. 2010 tax software Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. 2010 tax software Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. 2010 tax software Losses from passive activities. 2010 tax software   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). 2010 tax software See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. 2010 tax software Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. 2010 tax software Exception to use of Form 4952. 2010 tax software   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. 2010 tax software Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. 2010 tax software You do not have any other deductible investment expenses. 2010 tax software You have no carryover of investment interest expense from 2012. 2010 tax software If you meet all of these tests, you can deduct all of your investment interest. 2010 tax software More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. 2010 tax software Items You Cannot Deduct Some interest payments are not deductible. 2010 tax software Certain expenses similar to interest also are not deductible. 2010 tax software Nondeductible expenses include the following items. 2010 tax software Personal interest (discussed later). 2010 tax software Service charges (however, see Other Expenses (Line 23) in chapter 28). 2010 tax software Annual fees for credit cards. 2010 tax software Loan fees. 2010 tax software Credit investigation fees. 2010 tax software Interest to purchase or carry tax-exempt securities. 2010 tax software Penalties. 2010 tax software   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. 2010 tax software Personal Interest Personal interest is not deductible. 2010 tax software Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. 2010 tax software It includes the following items. 2010 tax software Interest on car loans (unless you use the car for business). 2010 tax software Interest on federal, state, or local income tax. 2010 tax software Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. 2010 tax software Late payment charges by a public utility. 2010 tax software You may be able to deduct interest you pay on a qualified student loan. 2010 tax software For details, see Publication 970, Tax Benefits for Education. 2010 tax software Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. 2010 tax software However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. 2010 tax software You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. 2010 tax software You do this by tracing disbursements of the debt proceeds to specific uses. 2010 tax software For details on how to do this, see chapter 4 of Publication 535. 2010 tax software How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. 2010 tax software Where you deduct your interest expense generally depends on how you use the loan proceeds. 2010 tax software See Table 23-1 for a summary of where to deduct your interest expense. 2010 tax software Home mortgage interest and points. 2010 tax software   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 2010 tax software If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. 2010 tax software Attach a statement explaining the difference and print “See attached” next to line 10. 2010 tax software    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 2010 tax software If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. 2010 tax software The seller must give you this number and you must give the seller your TIN. 2010 tax software A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 2010 tax software Failure to meet any of these requirements may result in a $50 penalty for each failure. 2010 tax software The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. 2010 tax software See Social Security Number (SSN) in chapter 1 for more information about TINs. 2010 tax software    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. 2010 tax software   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 2010 tax software More than one borrower. 2010 tax software   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. 2010 tax software Show how much of the interest each of you paid, and give the name and address of the person who received the form. 2010 tax software Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 2010 tax software Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 2010 tax software   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. 2010 tax software You should let each of the other borrowers know what his or her share is. 2010 tax software Mortgage proceeds used for business or investment. 2010 tax software    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. 2010 tax software It shows where to deduct the part of your excess interest that is for those activities. 2010 tax software Investment interest. 2010 tax software    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. 2010 tax software Amortization of bond premium. 2010 tax software   There are various ways to treat the premium you pay to buy taxable bonds. 2010 tax software See Bond Premium Amortization in Publication 550. 2010 tax software Income-producing rental or royalty interest. 2010 tax software   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). 2010 tax software Example. 2010 tax software You rent out part of your home and borrow money to make repairs. 2010 tax software You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). 2010 tax software Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. 2010 tax software Table 23-1. 2010 tax software Where To Deduct Your Interest Expense IF you have . 2010 tax software . 2010 tax software . 2010 tax software THEN deduct it on . 2010 tax software . 2010 tax software . 2010 tax software AND for more information go to . 2010 tax software . 2010 tax software . 2010 tax software deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. 2010 tax software deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. 2010 tax software deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. 2010 tax software deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. 2010 tax software deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. 2010 tax software deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. 2010 tax software deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. 2010 tax software deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. 2010 tax software deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. 2010 tax software personal interest not deductible. 2010 tax software Prev  Up  Next   Home   More Online Publications