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2012 Tax Forms 1040a

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2012 Tax Forms 1040a

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

2012 tax forms 1040a 31. 2012 tax forms 1040a   Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. 2012 tax forms 1040a Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. 2012 tax forms 1040a Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. 2012 tax forms 1040a Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. 2012 tax forms 1040a . 2012 tax forms 1040a  For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). 2012 tax forms 1040a NIIT is a 3. 2012 tax forms 1040a 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. 2012 tax forms 1040a Use Form 8960, Net Investment Income Tax, to figure this tax. 2012 tax forms 1040a For more information on NIIT, go to www. 2012 tax forms 1040a irs. 2012 tax forms 1040a gov and enter “Net Investment Income Tax” in the search box. 2012 tax forms 1040a Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. 2012 tax forms 1040a If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. 2012 tax forms 1040a (See Parent's Election To Report Child's Interest and Dividends , later. 2012 tax forms 1040a ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. 2012 tax forms 1040a (See Tax for Certain Children Who Have Unearned Income , later. 2012 tax forms 1040a ) For these rules, the term “child” includes a legally adopted child and a stepchild. 2012 tax forms 1040a These rules apply whether or not the child is a dependent. 2012 tax forms 1040a Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. 2012 tax forms 1040a The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . 2012 tax forms 1040a Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. 2012 tax forms 1040a Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . 2012 tax forms 1040a Parents are married. 2012 tax forms 1040a   If the child's parents file separate returns, use the return of the parent with the greater taxable income. 2012 tax forms 1040a Parents not living together. 2012 tax forms 1040a   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. 2012 tax forms 1040a If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. 2012 tax forms 1040a   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. 2012 tax forms 1040a Parents are divorced. 2012 tax forms 1040a   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. 2012 tax forms 1040a Custodial parent remarried. 2012 tax forms 1040a   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. 2012 tax forms 1040a Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. 2012 tax forms 1040a Do not use the return of the noncustodial parent. 2012 tax forms 1040a   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. 2012 tax forms 1040a If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. 2012 tax forms 1040a Parents never married. 2012 tax forms 1040a   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. 2012 tax forms 1040a If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. 2012 tax forms 1040a Widowed parent remarried. 2012 tax forms 1040a   If a widow or widower remarries, the new spouse is treated as the child's other parent. 2012 tax forms 1040a The rules explained earlier under Custodial parent remarried apply. 2012 tax forms 1040a Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. 2012 tax forms 1040a If you do, your child will not have to file a return. 2012 tax forms 1040a You can make this election only if all the following conditions are met. 2012 tax forms 1040a Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. 2012 tax forms 1040a Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). 2012 tax forms 1040a The child's gross income was less than $10,000. 2012 tax forms 1040a The child is required to file a return unless you make this election. 2012 tax forms 1040a The child does not file a joint return for the year. 2012 tax forms 1040a No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. 2012 tax forms 1040a No federal income tax was taken out of your child's income under the backup withholding rules. 2012 tax forms 1040a You are the parent whose return must be used when applying the special tax rules for children. 2012 tax forms 1040a (See Which Parent's Return To Use , earlier. 2012 tax forms 1040a ) These conditions are also shown in Figure 31-A. 2012 tax forms 1040a Certain January 1 birthdays. 2012 tax forms 1040a   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. 2012 tax forms 1040a You cannot make this election for such a child unless the child was a full-time student. 2012 tax forms 1040a   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. 2012 tax forms 1040a You cannot make this election for such a child. 2012 tax forms 1040a Full-time student. 2012 tax forms 1040a   A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. 2012 tax forms 1040a A school includes a technical, trade, or mechanical school. 2012 tax forms 1040a It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. 2012 tax forms 1040a How to make the election. 2012 tax forms 1040a   Make the election by attaching Form 8814 to your Form 1040. 2012 tax forms 1040a (If you make this election, you cannot file Form 1040A or Form 1040EZ. 2012 tax forms 1040a ) Attach a separate Form 8814 for each child for whom you make the election. 2012 tax forms 1040a You can make the election for one or more children and not for others. 2012 tax forms 1040a Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. 2012 tax forms 1040a Rate may be higher. 2012 tax forms 1040a   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. 2012 tax forms 1040a This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. 2012 tax forms 1040a However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. 2012 tax forms 1040a Deductions you cannot take. 2012 tax forms 1040a   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. 2012 tax forms 1040a The additional standard deduction if the child is blind. 2012 tax forms 1040a The deduction for a penalty on an early withdrawal of your child's savings. 2012 tax forms 1040a Itemized deductions (such as your child's investment expenses or charitable contributions). 2012 tax forms 1040a Reduced deductions or credits. 2012 tax forms 1040a   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. 2012 tax forms 1040a Deduction for contributions to a traditional individual retirement arrangement (IRA). 2012 tax forms 1040a Deduction for student loan interest. 2012 tax forms 1040a Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. 2012 tax forms 1040a Credit for child and dependent care expenses. 2012 tax forms 1040a Child tax credit. 2012 tax forms 1040a Education tax credits. 2012 tax forms 1040a Earned income credit. 2012 tax forms 1040a Penalty for underpayment of estimated tax. 2012 tax forms 1040a   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. 2012 tax forms 1040a If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. 2012 tax forms 1040a See chapter 4 for more information. 2012 tax forms 1040a Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. 2012 tax forms 1040a Only the amount over $2,000 is added to your income. 2012 tax forms 1040a The amount over $2,000 is shown on Form 8814, line 6. 2012 tax forms 1040a Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. 2012 tax forms 1040a Include the amount from Form 8814, line 12, on Form 1040, line 21. 2012 tax forms 1040a Enter “Form 8814” on the dotted line next to line 21. 2012 tax forms 1040a If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. 2012 tax forms 1040a Capital gain distributions and qualified dividends. 2012 tax forms 1040a   If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. 2012 tax forms 1040a If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. 2012 tax forms 1040a Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. 2012 tax forms 1040a This tax is added to the tax figured on your income. 2012 tax forms 1040a This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. 2012 tax forms 1040a Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. 2012 tax forms 1040a Check box a on Form 1040, line 44. 2012 tax forms 1040a Figure 31-A. 2012 tax forms 1040a Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. 2012 tax forms 1040a Figure 31–A. 2012 tax forms 1040a Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. 2012 tax forms 1040a If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. 2012 tax forms 1040a Attach the completed form to the child's Form 1040 or Form 1040A. 2012 tax forms 1040a When Form 8615 must be filed. 2012 tax forms 1040a   Form 8615 must be filed for a child if all of the following statements are true. 2012 tax forms 1040a The child's investment income was more than $2,000. 2012 tax forms 1040a The child is required to file a return for 2013. 2012 tax forms 1040a The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. 2012 tax forms 1040a At least one of the child's parents was alive at the end of 2013. 2012 tax forms 1040a The child does not file a joint return for 2013. 2012 tax forms 1040a These conditions are also shown in  Figure 31-B. 2012 tax forms 1040a Earned income. 2012 tax forms 1040a   Earned income includes salaries, wages, tips, and other payments received for personal services performed. 2012 tax forms 1040a It does not include unearned income as defined later in this chapter. 2012 tax forms 1040a Support. 2012 tax forms 1040a   Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. 2012 tax forms 1040a To figure your child's support, count support provided by you, your child, and others. 2012 tax forms 1040a However, a scholarship received by your child is not considered support if your child is a full-time student. 2012 tax forms 1040a See chapter 3 for details about support. 2012 tax forms 1040a Certain January 1 birthdays. 2012 tax forms 1040a   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. 2012 tax forms 1040a Figure 31-B. 2012 tax forms 1040a Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. 2012 tax forms 1040a Figure 31-B. 2012 tax forms 1040a Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. 2012 tax forms 1040a . 2012 tax forms 1040a . 2012 tax forms 1040a THEN, at the end of 2013, the child is considered to be. 2012 tax forms 1040a . 2012 tax forms 1040a . 2012 tax forms 1040a January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. 2012 tax forms 1040a The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. 2012 tax forms 1040a  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. 2012 tax forms 1040a  ***Do not use Form 8615 for this child. 2012 tax forms 1040a Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. 2012 tax forms 1040a (If the parents filed a joint return, enter the name and social security number listed first on the joint return. 2012 tax forms 1040a ) On line C, check the box for the parent's filing status. 2012 tax forms 1040a See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. 2012 tax forms 1040a Parent with different tax year. 2012 tax forms 1040a   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. 2012 tax forms 1040a Parent's return information not known timely. 2012 tax forms 1040a   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. 2012 tax forms 1040a   You can use any reasonable estimate. 2012 tax forms 1040a This includes using information from last year's return. 2012 tax forms 1040a If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. 2012 tax forms 1040a    When you get the correct information, file an amended return on Form 1040X, Amended U. 2012 tax forms 1040a S. 2012 tax forms 1040a Individual Income Tax Return. 2012 tax forms 1040a   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. 2012 tax forms 1040a S. 2012 tax forms 1040a Individual Income Tax Return. 2012 tax forms 1040a Extensions are discussed in chapter 1. 2012 tax forms 1040a Step 1. 2012 tax forms 1040a Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. 2012 tax forms 1040a To do that, use Form 8615, Part I. 2012 tax forms 1040a Line 1 (unearned income). 2012 tax forms 1040a   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. 2012 tax forms 1040a Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. 2012 tax forms 1040a Form 1040EZ cannot be used if Form 8615 must be filed. 2012 tax forms 1040a   If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. 2012 tax forms 1040a   However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. 2012 tax forms 1040a Unearned income defined. 2012 tax forms 1040a   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. 2012 tax forms 1040a It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. 2012 tax forms 1040a Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). 2012 tax forms 1040a Nontaxable income. 2012 tax forms 1040a   For this purpose, unearned income includes only amounts the child must include in total income. 2012 tax forms 1040a Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. 2012 tax forms 1040a Income from property received as a gift. 2012 tax forms 1040a   A child's unearned income includes all income produced by property belonging to the child. 2012 tax forms 1040a This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. 2012 tax forms 1040a   A child's unearned income includes income produced by property given as a gift to the child. 2012 tax forms 1040a This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. 2012 tax forms 1040a Example. 2012 tax forms 1040a Amanda Black, age 13, received the following income. 2012 tax forms 1040a Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. 2012 tax forms 1040a Amanda's unearned income is $2,100. 2012 tax forms 1040a This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). 2012 tax forms 1040a Her wages are earned (not unearned) income because they are received for work actually done. 2012 tax forms 1040a Her tax-exempt interest is not included because it is nontaxable. 2012 tax forms 1040a Trust income. 2012 tax forms 1040a   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. 2012 tax forms 1040a   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. 2012 tax forms 1040a Line 2 (deductions). 2012 tax forms 1040a   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. 2012 tax forms 1040a   If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. 2012 tax forms 1040a Directly connected. 2012 tax forms 1040a   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. 2012 tax forms 1040a These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. 2012 tax forms 1040a   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). 2012 tax forms 1040a Only the amount greater than 2% of the child's adjusted gross income can be deducted. 2012 tax forms 1040a See chapter 28 for more information. 2012 tax forms 1040a Example 1. 2012 tax forms 1040a Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. 2012 tax forms 1040a His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. 2012 tax forms 1040a Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. 2012 tax forms 1040a Example 2. 2012 tax forms 1040a Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. 2012 tax forms 1040a She has no other income. 2012 tax forms 1040a She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. 2012 tax forms 1040a Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). 2012 tax forms 1040a The amount on line 2 is $2,050. 2012 tax forms 1040a This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. 2012 tax forms 1040a Line 3. 2012 tax forms 1040a   Subtract line 2 from line 1 and enter the result on this line. 2012 tax forms 1040a If zero or less, do not complete the rest of the form. 2012 tax forms 1040a However, you must still attach Form 8615 to the child's tax return. 2012 tax forms 1040a Figure the tax on the child's taxable income in the normal manner. 2012 tax forms 1040a Line 4 (child's taxable income). 2012 tax forms 1040a   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. 2012 tax forms 1040a   However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. 2012 tax forms 1040a 929. 2012 tax forms 1040a Line 5 (net unearned income). 2012 tax forms 1040a   A child's net unearned income cannot be more than his or her taxable income. 2012 tax forms 1040a Enter on Form 8615, line 5, the smaller of line 3 or line 4. 2012 tax forms 1040a This is the child's net unearned income. 2012 tax forms 1040a   If zero or less, do not complete the rest of the form. 2012 tax forms 1040a However, you must still attach Form 8615 to the child's tax return. 2012 tax forms 1040a Figure the tax on the child's taxable income in the normal manner. 2012 tax forms 1040a Step 2. 2012 tax forms 1040a Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. 2012 tax forms 1040a The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. 2012 tax forms 1040a When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. 2012 tax forms 1040a For example, do not refigure the medical expense deduction. 2012 tax forms 1040a Figure the tentative tax on Form 8615, lines 6 through 13. 2012 tax forms 1040a Note. 2012 tax forms 1040a If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. 2012 tax forms 1040a Line 6 (parent's taxable income). 2012 tax forms 1040a   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. 2012 tax forms 1040a   If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. 2012 tax forms 1040a Line 7 (net unearned income of other children). 2012 tax forms 1040a   If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. 2012 tax forms 1040a Do not include the amount from line 5 of the Form 8615 being completed. 2012 tax forms 1040a Example. 2012 tax forms 1040a Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. 2012 tax forms 1040a The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. 2012 tax forms 1040a Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). 2012 tax forms 1040a Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). 2012 tax forms 1040a Other children's information not available. 2012 tax forms 1040a   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. 2012 tax forms 1040a See Parent's return information not known timely , earlier. 2012 tax forms 1040a Line 11 (tentative tax). 2012 tax forms 1040a   Subtract line 10 from line 9 and enter the result on this line. 2012 tax forms 1040a This is the tentative tax. 2012 tax forms 1040a   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. 2012 tax forms 1040a Also skip the discussion for lines 12a and 12b that follows. 2012 tax forms 1040a Lines 12a and 12b (dividing the tentative tax). 2012 tax forms 1040a   If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net unearned income. 2012 tax forms 1040a This is done on lines 12a, 12b, and 13. 2012 tax forms 1040a Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. 2012 tax forms 1040a Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. 2012 tax forms 1040a Example. 2012 tax forms 1040a In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. 2012 tax forms 1040a The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). 2012 tax forms 1040a The decimal on line 12b is  . 2012 tax forms 1040a 333, figured as follows and rounded to three places. 2012 tax forms 1040a   $800 = . 2012 tax forms 1040a 333     $2,400   Step 3. 2012 tax forms 1040a Figuring the Child's Tax (Form 8615, Part III) The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. 2012 tax forms 1040a This is the child's tax. 2012 tax forms 1040a It is figured on Form 8615, lines 14 through 18. 2012 tax forms 1040a Alternative minimum tax. 2012 tax forms 1040a   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. 2012 tax forms 1040a See Alternative Minimum Tax (AMT) in chapter 30. 2012 tax forms 1040a    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. 2012 tax forms 1040a For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. 2012 tax forms 1040a Prev  Up  Next   Home   More Online Publications