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Ammend 26. Ammend   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. Ammend Parking fees. Ammend Advertising display on car. Ammend Car pools. Ammend Hauling tools or instruments. Ammend Union members' trips from a union hall. Ammend Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. Ammend Statutory employees. Ammend Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. Ammend  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Ammend Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. Ammend Depreciation limits on cars, trucks, and vans. Ammend  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Ammend For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Ammend For more information, see Depreciation limits in Publication 463. Ammend Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. Ammend An ordinary expense is one that is common and accepted in your trade or business. Ammend A necessary expense is one that is helpful and appropriate for your business. Ammend An expense does not have to be required to be considered necessary. Ammend This chapter explains the following. Ammend What expenses are deductible. Ammend How to report your expenses on your return. Ammend What records you need to prove your expenses. Ammend How to treat any expense reimbursements you may receive. Ammend Who does not need to use this chapter. Ammend   If you are an employee, you will not need to read this chapter if all of the following are true. Ammend You fully accounted to your employer for your work-related expenses. Ammend You received full reimbursement for your expenses. Ammend Your employer required you to return any excess reimbursement and you did so. Ammend There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. Ammend If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. Ammend See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. Ammend    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. Ammend Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. Ammend This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. Ammend It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. Ammend Travel expenses defined. Ammend   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. Ammend   You will find examples of deductible travel expenses in Table 26-1 . Ammend Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Ammend This rest requirement is not satisfied by merely napping in your car. Ammend You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Ammend Example 1. Ammend You are a railroad conductor. Ammend You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Ammend During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Ammend You are considered to be away from home. Ammend Example 2. Ammend You are a truck driver. Ammend You leave your terminal and return to it later the same day. Ammend You get an hour off at your turnaround point to eat. Ammend Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Ammend Members of the Armed Forces. Ammend   If you are a member of the U. Ammend S. Ammend Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Ammend You cannot deduct your expenses for meals and lodging. Ammend You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Ammend If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Ammend    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. Ammend Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Ammend Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Ammend It includes the entire city or general area in which your business or work is located. Ammend If you have more than one regular place of business, your tax home is your main place of business. Ammend See Main place of business or work , later. Ammend If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Ammend See No main place of business or work , later. Ammend If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. Ammend As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Ammend Main place of business or work. Ammend   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. Ammend The total time you ordinarily spend in each place. Ammend The level of your business activity in each place. Ammend Whether your income from each place is significant or insignificant. Ammend Example. Ammend You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Ammend You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Ammend Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Ammend No main place of business or work. Ammend   You may have a tax home even if you do not have a regular or main place of business or work. Ammend Your tax home may be the home where you regularly live. Ammend Factors used to determine tax home. Ammend   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. Ammend You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Ammend You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Ammend You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. Ammend   If you satisfy all three factors, your tax home is the home where you regularly live. Ammend If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Ammend If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Ammend Example. Ammend You are single and live in Boston in an apartment you rent. Ammend You have worked for your employer in Boston for a number of years. Ammend Your employer enrolls you in a 12-month executive training program. Ammend You do not expect to return to work in Boston after you complete your training. Ammend During your training, you do not do any work in Boston. Ammend Instead, you receive classroom and on-the-job training throughout the United States. Ammend You keep your apartment in Boston and return to it frequently. Ammend You use your apartment to conduct your personal business. Ammend You also keep up your community contacts in Boston. Ammend When you complete your training, you are transferred to Los Angeles. Ammend You do not satisfy factor (1) because you did not work in Boston. Ammend You satisfy factor (2) because you had duplicate living expenses. Ammend You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Ammend Therefore, you have a tax home in Boston. Ammend Tax home different from family home. Ammend   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Ammend You also cannot deduct the cost of meals and lodging while at your tax home. Ammend See Example 1 . Ammend   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Ammend See Example 2 . Ammend Example 1. Ammend You are a truck driver and you and your family live in Tucson. Ammend You are employed by a trucking firm that has its terminal in Phoenix. Ammend At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Ammend You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Ammend This is because Phoenix is your tax home. Ammend Example 2. Ammend Your family home is in Pittsburgh, where you work 12 weeks a year. Ammend The rest of the year you work for the same employer in Baltimore. Ammend In Baltimore, you eat in restaurants and sleep in a rooming house. Ammend Your salary is the same whether you are in Pittsburgh or Baltimore. Ammend Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Ammend You cannot deduct any expenses you have for meals and lodging there. Ammend However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Ammend You can deduct the cost of your round trip between Baltimore and Pittsburgh. Ammend You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Ammend Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Ammend It may not be practical to return to your tax home from this other location at the end of each work day. Ammend Temporary assignment vs. Ammend indefinite assignment. Ammend   If your assignment or job away from your main place of work is temporary, your tax home does not change. Ammend You are considered to be away from home for the whole period you are away from your main place of work. Ammend You can deduct your travel expenses if they otherwise qualify for deduction. Ammend Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Ammend   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Ammend An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Ammend   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Ammend You may be able to deduct the cost of relocating to your new tax home as a moving expense. Ammend See Publication 521 for more information. Ammend Exception for federal crime investigations or prosecutions. Ammend   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Ammend This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year, provided you meet the other requirements for deductibility. Ammend   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. Ammend Determining temporary or indefinite. Ammend   You must determine whether your assignment is temporary or indefinite when you start work. Ammend If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Ammend An assignment or job that is initially temporary may become indefinite due to changed circumstances. Ammend A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Ammend Going home on days off. Ammend   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. Ammend You cannot deduct the cost of your meals and lodging there. Ammend However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Ammend You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Ammend   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Ammend In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Ammend Probationary work period. Ammend   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Ammend You cannot deduct any of your expenses for meals and lodging during the probationary period. Ammend What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Ammend You can deduct ordinary and necessary expenses you have when you travel away from home on business. Ammend The type of expense you can deduct depends on the facts and your circumstances. Ammend Table 26-1 summarizes travel expenses you may be able to deduct. Ammend You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Ammend When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Ammend You can use a log, diary, notebook, or any other written record to keep track of your expenses. Ammend The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. Ammend Separating costs. Ammend   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Ammend You must have a reasonable basis for making this allocation. Ammend For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Ammend Travel expenses for another individual. Ammend   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Ammend Employee. Ammend   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Ammend Business associate. Ammend   If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. Ammend A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. Ammend A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Ammend Bona fide business purpose. Ammend   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Ammend Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Ammend Example. Ammend Jerry drives to Chicago on business and takes his wife, Linda, with him. Ammend Linda is not Jerry's employee. Ammend Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Ammend The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Ammend Her expenses are not deductible. Ammend Jerry pays $199 a day for a double room. Ammend A single room costs $149 a day. Ammend He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Ammend If he uses public transportation, he can deduct only his fare. Ammend Table 26-1. Ammend Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. Ammend IF you have expenses for. Ammend . Ammend . Ammend THEN you can deduct the cost of. Ammend . Ammend . Ammend transportation travel by airplane, train, bus, or car between your home and your business destination. Ammend If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Ammend If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. Ammend taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Ammend baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Ammend car operating and maintaining your car when traveling away from home on business. Ammend You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. Ammend If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Ammend lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Ammend Meals include amounts spent for food, beverages, taxes, and related tips. Ammend See Meals and Incidental Expenses for additional rules and limits. Ammend cleaning dry cleaning and laundry. Ammend telephone business calls while on your business trip. Ammend This includes business communication by fax machine or other communication devices. Ammend tips tips you pay for any expenses in this chart. Ammend other other similar ordinary and necessary expenses related to your business travel. Ammend These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Ammend Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. Ammend It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Ammend The meal is business-related entertainment. Ammend Business-related entertainment is discussed under Entertainment Expenses , later. Ammend The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. Ammend Lavish or extravagant. Ammend   You cannot deduct expenses for meals that are lavish or extravagant. Ammend An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Ammend Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Ammend 50% limit on meals. Ammend   You can figure your meal expenses using either of the following methods. Ammend Actual cost. Ammend The standard meal allowance. Ammend Both of these methods are explained below. Ammend But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Ammend   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Ammend If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Ammend The 50% limit is explained later under Entertainment Expenses . Ammend Accountable and nonaccountable plans are discussed later under Reimbursements . Ammend Actual cost. Ammend   You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Ammend If you use this method, you must keep records of your actual cost. Ammend Standard meal allowance. Ammend   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Ammend It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Ammend The set amount varies depending on where and when you travel. Ammend In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Ammend If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Ammend See Recordkeeping , later. Ammend Incidental expenses. Ammend   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Ammend Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Ammend Incidental expenses only method. Ammend   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Ammend The amount of the deduction is $5 a day. Ammend You can use this method only if you did not pay or incur any meal expenses. Ammend You cannot use this method on any day that you use the standard meal allowance. Ammend    Federal employees should refer to the Federal Travel Regulations at  www. Ammend gsa. Ammend gov. Ammend Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Ammend 50% limit may apply. Ammend   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Ammend If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Ammend The 50% limit is explained later under Entertainment Expenses . Ammend Accountable and nonaccountable plans are discussed later under Reimbursements . Ammend There is no optional standard lodging amount similar to the standard meal allowance. Ammend Your allowable lodging expense deduction is your actual cost. Ammend Who can use the standard meal allowance. Ammend   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Ammend   Use of the standard meal allowance for other travel. Ammend    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Ammend You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Ammend You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Ammend Amount of standard meal allowance. Ammend   The standard meal allowance is the federal M&IE rate. Ammend For travel in 2013, the daily rate for most small localities in the United States is $46. Ammend   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Ammend You can find this information (organized by state) on the Internet at www. Ammend gsa. Ammend gov. Ammend Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. Ammend However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. Ammend You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. Ammend   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Ammend If you work in the transportation industry, however, see Special rate for transportation workers , later. Ammend Standard meal allowance for areas outside the continental United States. Ammend    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Ammend The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Ammend S. Ammend Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Ammend The Department of State establishes per diem rates for all other foreign areas. Ammend    You can access per diem rates for non-foreign areas outside the continental United States at: www. Ammend defensetravel. Ammend dod. Ammend mil/site/perdiemCalc. Ammend cfm. Ammend You can access all other foreign per diem rates at www. Ammend state. Ammend gov/travel/. Ammend Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. Ammend Special rate for transportation workers. Ammend   You can use a special standard meal allowance if you work in the transportation industry. Ammend You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Ammend If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). Ammend   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Ammend If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Ammend Travel for days you depart and return. Ammend   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Ammend You can do so by one of two methods. Ammend Method 1: You can claim 3/4 of the standard meal allowance. Ammend Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Ammend Example. Ammend Jen is employed in New Orleans as a convention planner. Ammend In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Ammend She left her home in New Orleans at 10 a. Ammend m. Ammend on Wednesday and arrived in Washington, DC, at 5:30 p. Ammend m. Ammend After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Ammend m. Ammend Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Ammend Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Ammend Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Ammend For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Ammend Travel in the United States The following discussion applies to travel in the United States. Ammend For this purpose, the United States includes only the 50 states and the District of Columbia. Ammend The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Ammend See Part of Trip Outside the United States , later. Ammend Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. Ammend If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. Ammend These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Ammend Example. Ammend You work in Atlanta and take a business trip to New Orleans in May. Ammend On your way home, you stop in Mobile to visit your parents. Ammend You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Ammend If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. Ammend You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. Ammend The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Ammend Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Ammend However, you can deduct any expenses you have while at your destination that are directly related to your business. Ammend A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Ammend The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Ammend Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. Ammend For the part of your trip that is inside the United States, use the rules for travel in the United States. Ammend Travel outside the United States does not include travel from one point in the United States to another point in the United States. Ammend The following discussion can help you determine whether your trip was entirely within the United States. Ammend Public transportation. Ammend   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Ammend Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Ammend Example. Ammend You fly from New York to Puerto Rico with a scheduled stop in Miami. Ammend You return to New York nonstop. Ammend The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Ammend Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Ammend Private car. Ammend   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. Ammend Example. Ammend You travel by car from Denver to Mexico City and return. Ammend Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Ammend The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Ammend Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Ammend For this purpose, the United States includes only the 50 states and the District of Columbia. Ammend How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Ammend See chapter 1 of Publication 463 for information on luxury water travel. Ammend Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Ammend Travel entirely for business. Ammend   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Ammend Travel considered entirely for business. Ammend   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Ammend Exception 1 - No substantial control. Ammend   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Ammend The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Ammend   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. Ammend    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . Ammend   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Ammend    A self-employed person generally has substantial control over arranging business trips. Ammend Exception 2 - Outside United States no more than a week. Ammend   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Ammend One week means 7 consecutive days. Ammend In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Ammend Exception 3 - Less than 25% of time on personal activities. Ammend   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Ammend For this purpose, count both the day your trip began and the day it ended. Ammend Exception 4 - Vacation not a major consideration. Ammend   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Ammend Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. Ammend You can only deduct the business portion of your cost of getting to and from your destination. Ammend You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. Ammend These travel allocation rules are discussed in chapter 1 of Publication 463. Ammend You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. Ammend In those cases, you can deduct the total cost of getting to and from your destination. Ammend Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Ammend If you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Ammend Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Ammend You cannot deduct the travel expenses for your family. Ammend If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Ammend Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Ammend You can deduct your travel expenses only if your attendance is connected to your own trade or business. Ammend Convention agenda. Ammend   The convention agenda or program generally shows the purpose of the convention. Ammend You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Ammend The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Ammend Conventions held outside the North American area. Ammend    See chapter 1 of Publication 463 for information on conventions held outside the North American area. Ammend Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Ammend You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. Ammend Directly-related test. Ammend Associated test. Ammend Both of these tests are explained in chapter 2 of Publication 463. Ammend The amount you can deduct for entertainment expenses may be limited. Ammend Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Ammend This limit is discussed next. Ammend 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Ammend (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Ammend See Individuals subject to “hours of service” limits , later. Ammend ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Ammend Figure 26-A summarizes the general rules explained in this section. Ammend The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Ammend Included expenses. Ammend   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Ammend However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Ammend Application of 50% limit. Ammend   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. Ammend   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Ammend It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. Ammend It also applies to the cost of meals included in deductible educational expenses. Ammend When to apply the 50% limit. Ammend   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Ammend You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. Ammend Example 1. Ammend You spend $200 for a business-related meal. Ammend If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Ammend Your deduction cannot be more than $45 (. Ammend 50 × $90). Ammend Example 2. Ammend You purchase two tickets to a concert and give them to a client. Ammend You purchased the tickets through a ticket agent. Ammend You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Ammend Your deduction cannot be more than $80 (. Ammend 50 × $160). Ammend Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Ammend Figure 26-A can help you determine if the 50% limit applies to you. Ammend Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Ammend Employee's reimbursed expenses. Ammend   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Ammend Accountable plans are discussed later under Reimbursements . Ammend Individuals subject to “hours of service” limits. Ammend   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Ammend The percentage is 80%. Ammend   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Ammend Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Ammend Interstate truck operators and bus drivers who are under Department of Transportation regulations. Ammend Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Ammend Certain merchant mariners who are under Coast Guard regulations. Ammend Other exceptions. Ammend   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. Ammend These are discussed in Publication 463. Ammend Figure 26-A. Ammend Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Ammend See Exceptions to the 50% Limit . Ammend Please click here for the text description of the image. Ammend Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Ammend Entertainment. Ammend    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Ammend Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. Ammend A meal as a form of entertainment. Ammend   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Ammend A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Ammend To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Ammend You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Ammend Separating costs. Ammend   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Ammend You must have a reasonable basis for making this allocation. Ammend For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Ammend Taking turns paying for meals or entertainment. Ammend   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Ammend Lavish or extravagant expenses. Ammend   You cannot deduct expenses for entertainment that are lavish or extravagant. Ammend An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Ammend Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Ammend Trade association meetings. Ammend    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Ammend These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Ammend Entertainment tickets. Ammend   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Ammend For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Ammend What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Ammend Club dues and membership fees. Ammend   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Ammend This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities. Ammend   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Ammend You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Ammend Entertainment facilities. Ammend   Generally, you cannot deduct any expense for the use of an entertainment facility. Ammend This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Ammend   An entertainment facility is any property you own, rent, or use for entertainment. Ammend Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Ammend Out-of-pocket expenses. Ammend   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Ammend These are not expenses for the use of an entertainment facility. Ammend However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. Ammend Additional information. Ammend   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. Ammend Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. Ammend This section explains the limits and rules for deducting the costs of gifts. Ammend $25 limit. Ammend   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. Ammend A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. Ammend   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. Ammend This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. Ammend   If you and your spouse both give gifts, both of you are treated as one taxpayer. Ammend It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. Ammend If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. Ammend Incidental costs. Ammend   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. Ammend   A cost is incidental only if it does not add substantial value to the gift. Ammend For example, the cost of customary gift wrapping is an incidental cost. Ammend However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. Ammend Exceptions. Ammend   The following items are not considered gifts for purposes of the $25 limit. Ammend An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. Ammend Examples include pens, desk sets, and plastic bags and cases. Ammend Signs, display racks, or other promotional material to be used on the business premises of the recipient. Ammend Gift or entertainment. Ammend   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Ammend However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. Ammend    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Ammend You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. Ammend    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Ammend You cannot choose, in this case, to treat the cost of the tickets as a gift expense. Ammend Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . Ammend These expenses include the cost of transportation by air, rail, bus, taxi, etc. Ammend , and the cost of driving and maintaining your car. Ammend Transportation expenses include the ordinary and necessary costs of all of the following. Ammend Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. Ammend (Tax home is defined earlier under Travel Expenses . Ammend ) Visiting clients or customers. Ammend Going to a business meeting away from your regular workplace. Ammend Getting from your home to a temporary workplace when you have one or more regular places of work. Ammend These temporary workplaces can be either within the area of your tax home or outside that area. Ammend Transportation expenses do not include expenses you have while traveling away from home overnight. Ammend Those expenses are travel expenses, discussed earlier. Ammend However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Ammend See Car Expenses , later. Ammend Illustration of transportation expenses. Ammend    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. Ammend You may want to refer to it when deciding whether you can deduct your transportation expenses. Ammend Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Ammend However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. Ammend Temporary work location. Ammend   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Ammend   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Ammend   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Ammend   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Ammend It will not be treated as temporary after the date you determine it will last more than 1 year. Ammend   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Ammend You may have deductible travel expenses as discussed earlier in this chapter. Ammend No regular place of work. Ammend   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Ammend   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Ammend   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Ammend These are nondeductible commuting expenses. Ammend Two places of work. Ammend   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Ammend However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Ammend   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Ammend You cannot deduct them. Ammend Armed Forces reservists. Ammend   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Ammend You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. Ammend   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Ammend In this case, your transportation generally is a nondeductible commuting expense. Ammend However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Ammend   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Ammend   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Ammend These expenses are discussed earlier under Travel Expenses . Ammend   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to income rather than as an itemized deduction. Ammend See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. Ammend Commuting expenses. Ammend   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Ammend These costs are personal commuting expenses. Ammend You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Ammend You cannot deduct commuting expenses even if you work during the commuting trip. Ammend Example. Ammend You sometimes use your cell phone to make business calls while commuting to and from work. Ammend Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Ammend These activities do not change the trip from personal to business. Ammend You cannot deduct your commuting expenses. Ammend Parking fees. Ammend   Fees you pay to park your car at your place of business are nondeductible commuting expenses. Ammend You can, however, deduct business-related parking fees when visiting a customer or client. Ammend Advertising display on car. Ammend   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Ammend If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Ammend Car pools. Ammend   You cannot deduct the cost of using your car in a nonprofit car pool. Ammend Do not include payments you receive from the passengers in your income. Ammend These payments are considered reimbursements of your expenses. Ammend However, if you operate a car pool for a profit, you must include payments from passengers in your income. Ammend You can then deduct your car expenses (using the rules in this chapter). Ammend Hauling tools or instruments. Ammend   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Ammend However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Ammend Union members' trips from a union hall. Ammend   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Ammend Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Ammend Office in the home. Ammend   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Ammend (See chapter 28 for information on determining if your home office qualifies as a principal place of business. Ammend ) Figure 26-B. Ammend When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. Ammend (Do not use this chart if your home is your principal place of business. Ammend See Office in the home . Ammend ) Please click here for the text description of the image. Ammend Figure 26-B. Ammend Local Transportation Examples of deductible transportation. Ammend   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Ammend Example 1. Ammend You regularly work in an office in the city where you live. Ammend Your employer sends you to a 1-week training session at a different office in the same city. Ammend You travel directly from your home to the training location and return each day. Ammend You can deduct the cost of your daily round-trip transportation between your home and the training location. Ammend Example 2. Ammend Your principal place of business is in your home. Ammend You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Ammend Example 3. Ammend You have no regular office, and you do not have an office in your home. Ammend In this case, the location of your first business contact inside the metropolitan area is considered your office. Ammend Transportation expenses between your home and this first contact are nondeductible commuting expenses. Ammend Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Ammend While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. Ammend With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. Ammend Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. Ammend You generally can use one of the two following methods to figure your deductible expenses. Ammend Standard mileage rate. Ammend Actual car expenses. Ammend If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Ammend See Leasing a car under Actual Car Expenses, later. Ammend In this chapter, “car” includes a van, pickup, or panel truck. Ammend Rural mail carriers. Ammend   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. Ammend Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. Ammend   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Ammend You must complete Form 2106 and attach it to your Form 1040. Ammend   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Ammend It is given as an equipment maintenance allowance (EMA) to employees of the U. Ammend S. Ammend Postal Service. Ammend It is at the rate contained in the 1991 collective bargaining agreement. Ammend Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Ammend See your employer for information on your reimbursement. Ammend If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Ammend Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Ammend For 2013, the standard mileage rate for business use is 56½ cents per mile. Ammend If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. Ammend You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Ammend See Reimbursements under How To Report, later. Ammend Choosing the standard mileage rate. Ammend   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Ammend Then in later years, you can choose to use either the standard mileage rate or actual expenses. Ammend   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Ammend   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Ammend You cannot revoke the choice. Ammend However, in a later year, you can switch from the standard mileage rate to the actual expenses method. Ammend If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Ammend Example. Ammend Larry is an employee who occasionally uses his own car for business purposes. Ammend He purchased the car in 2011, but he did not claim any unreimburse
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The Ammend

Ammend 7. Ammend   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Ammend Custodian account for your child. Ammend Penalty for failure to supply SSN. Ammend Reporting backup withholding. Ammend Savings account with parent as trustee. Ammend Interest not reported on Form 1099-INT. Ammend Nominees. Ammend Incorrect amount. Ammend Information reporting requirement. Ammend Taxable InterestInterest subject to penalty for early withdrawal. Ammend Money borrowed to invest in certificate of deposit. Ammend U. Ammend S. Ammend Savings Bonds Education Savings Bond Program U. Ammend S. Ammend Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Ammend How To Report Interest IncomeSchedule B (Form 1040A or 1040). Ammend Reporting tax-exempt interest. Ammend U. Ammend S. Ammend savings bond interest previously reported. Ammend Reminder Foreign-source income. Ammend  If you are a U. Ammend S. Ammend citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Ammend S. Ammend law. Ammend This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Ammend Introduction This chapter discusses the following topics. Ammend Different types of interest income. Ammend What interest is taxable and what interest is nontaxable. Ammend When to report interest income. Ammend How to report interest income on your tax return. Ammend In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Ammend Exceptions to this rule are discussed later in this chapter. Ammend You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Ammend See Money borrowed to invest in certificate of deposit , later, and chapter 28. Ammend Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Ammend S. Ammend Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Ammend S. Ammend Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Ammend Recordkeeping. Ammend You should keep a list showing sources and interest amounts received during the year. Ammend Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Ammend Tax on unearned income of certain children. Ammend    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Ammend If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Ammend If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Ammend   Some parents can choose to include the child's interest and dividends on the parent's return. Ammend If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Ammend   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Ammend Beneficiary of an estate or trust. Ammend   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Ammend You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Ammend , from the fiduciary. Ammend Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Ammend Social security number (SSN). Ammend   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. Ammend This includes payers of interest. Ammend If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Ammend SSN for joint account. Ammend   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. Ammend (For information on who owns the funds in a joint account, see Joint accounts , later. Ammend ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Ammend This is because only one name and SSN can be shown on Form 1099. Ammend   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Ammend 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. Ammend Custodian account for your child. Ammend   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. Ammend For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Ammend Penalty for failure to supply SSN. Ammend   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Ammend See Failure to supply SSN under Penalties in chapter 1. Ammend Backup withholding also may apply. Ammend Backup withholding. Ammend   Your interest income is generally not subject to regular withholding. Ammend However, it may be subject to backup withholding to ensure that income tax is collected on the income. Ammend Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Ammend   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Ammend For more information, see Backup Withholding in chapter 4. Ammend Reporting backup withholding. Ammend   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Ammend The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Ammend ” Joint accounts. Ammend   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Ammend Income from property given to a child. Ammend   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. Ammend   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. Ammend Savings account with parent as trustee. Ammend   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. Ammend The savings account legally belongs to the child. Ammend The parents are not legally permitted to use any of the funds to support the child. Ammend Form 1099-INT. Ammend   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. Ammend This form shows you the interest you received during the year. Ammend Keep this form for your records. Ammend You do not have to attach it to your tax return. Ammend   Report on your tax return the total interest income you receive for the tax year. Ammend Interest not reported on Form 1099-INT. Ammend   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Ammend For example, you may receive distributive shares of interest from partnerships or S corporations. Ammend This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Ammend , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Ammend Nominees. Ammend   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. Ammend   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Ammend Incorrect amount. Ammend   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. Ammend The new Form 1099-INT you receive will be marked “Corrected. Ammend ” Form 1099-OID. Ammend   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Ammend For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Ammend Exempt-interest dividends. Ammend   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. Ammend (However, see Information reporting requirement , next. Ammend ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Ammend You do not reduce your basis for distributions that are exempt-interest dividends. Ammend Information reporting requirement. Ammend   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Ammend This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Ammend Note. Ammend Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Ammend See Alternative Minimum Tax (AMT) in chapter 30 for more information. Ammend Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Ammend Interest on VA dividends. Ammend   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Ammend This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Ammend Individual retirement arrangements (IRAs). Ammend   Interest on a Roth IRA generally is not taxable. Ammend Interest on a traditional IRA is tax deferred. Ammend You generally do not include it in your income until you make withdrawals from the IRA. Ammend See chapter 17. Ammend Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Ammend The following are some sources of taxable interest. Ammend Dividends that are actually interest. Ammend   Certain distributions commonly called dividends are actually interest. Ammend 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. Ammend  The “dividends” will be shown as interest income on Form 1099-INT. Ammend Money market funds. Ammend   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Ammend Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Ammend Certificates of deposit and other deferred interest accounts. Ammend   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. Ammend 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. Ammend The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Ammend If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Ammend Interest subject to penalty for early withdrawal. Ammend   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Ammend You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Ammend See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Ammend Money borrowed to invest in certificate of deposit. Ammend   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. Ammend You must report the total interest you earn on the certificate in your income. Ammend If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Ammend See Interest Expenses in chapter 3 of Publication 550. Ammend Example. Ammend 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. Ammend 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. Ammend The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Ammend The bank also gives you a statement showing that you paid $310 interest for 2013. Ammend You must include the $575 in your income. Ammend If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Ammend Gift for opening account. Ammend   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. Ammend   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Ammend For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Ammend The value is determined by the cost to the financial institution. Ammend Example. Ammend You open a savings account at your local bank and deposit $800. Ammend The account earns $20 interest. Ammend You also receive a $15 calculator. Ammend 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. Ammend You must report $35 interest income on your tax return. Ammend Interest on insurance dividends. Ammend   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. Ammend 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. Ammend Prepaid insurance premiums. Ammend   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. Ammend U. Ammend S. Ammend obligations. Ammend   Interest on U. Ammend S. Ammend obligations, such as U. Ammend S. Ammend Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Ammend Interest on tax refunds. Ammend   Interest you receive on tax refunds is taxable income. Ammend Interest on condemnation award. Ammend   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Ammend Installment sale payments. Ammend   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. Ammend That interest is taxable when you receive it. Ammend If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Ammend See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Ammend Interest on annuity contract. Ammend   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Ammend Usurious interest. Ammend   Usurious interest is interest charged at an illegal rate. Ammend This is taxable as interest unless state law automatically changes it to a payment on the principal. Ammend Interest income on frozen deposits. Ammend   Exclude from your gross income interest on frozen deposits. Ammend 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 where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Ammend   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). Ammend 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 in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Ammend   The interest you exclude is treated as credited to your account in the following year. Ammend You must include it in income in the year you can withdraw it. Ammend Example. Ammend $100 of interest was credited on your frozen deposit during the year. Ammend You withdrew $80 but could not withdraw any more as of the end of the year. Ammend You must include $80 in your income and exclude $20 from your income for the year. Ammend You must include the $20 in your income for the year you can withdraw it. Ammend Bonds traded flat. Ammend   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. Ammend The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Ammend When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Ammend Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Ammend See Bonds Sold Between Interest Dates , later, for more information. Ammend Below-market loans. Ammend   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Ammend See Below-Market Loans in chapter 1 of Publication 550 for more information. Ammend U. Ammend S. Ammend Savings Bonds This section provides tax information on U. Ammend S. Ammend savings bonds. Ammend It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Ammend For other information on U. Ammend S. Ammend savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Ammend O. Ammend Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Ammend O. Ammend Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Ammend O. Ammend Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Ammend treasurydirect. Ammend gov/indiv/indiv. Ammend htm. Ammend Accrual method taxpayers. Ammend   If you use an accrual method of accounting, you must report interest on U. Ammend S. Ammend savings bonds each year as it accrues. Ammend You cannot postpone reporting interest until you receive it or until the bonds mature. Ammend Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Ammend Cash method taxpayers. Ammend   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Ammend S. Ammend savings bonds when you receive it. Ammend The cash method of accounting is explained in chapter 1 under Accounting Methods. Ammend But see Reporting options for cash method taxpayers , later. Ammend Series HH bonds. Ammend    These bonds were issued at face value. Ammend Interest is paid twice a year by direct deposit to your bank account. Ammend If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Ammend   Series HH bonds were first offered in 1980 and last offered in August 2004. Ammend Before 1980, series H bonds were issued. Ammend Series H bonds are treated the same as series HH bonds. Ammend If you are a cash method taxpayer, you must report the interest when you receive it. Ammend   Series H bonds have a maturity period of 30 years. Ammend Series HH bonds mature in 20 years. Ammend The last series H bonds matured in 2009. Ammend Series EE and series I bonds. Ammend   Interest on these bonds is payable when you redeem the bonds. Ammend The difference between the purchase price and the redemption value is taxable interest. Ammend Series EE bonds. Ammend   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Ammend   Before July 1980, series E bonds were issued. Ammend 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. Ammend Paper series EE and series E bonds are issued at a discount. Ammend The face value is payable to you at maturity. Ammend Electronic series EE bonds are issued at their face value. Ammend The face value plus accrued interest is payable to you at maturity. Ammend As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Ammend   Owners of paper series EE bonds can convert them to electronic bonds. Ammend These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Ammend Series I bonds. Ammend   Series I bonds were first offered in 1998. Ammend These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Ammend The face value plus all accrued interest is payable to you at maturity. Ammend Reporting options for cash method taxpayers. Ammend   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. Ammend Method 1. Ammend Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Ammend (However, see Savings bonds traded , later. Ammend )  Note. Ammend Series EE bonds issued in 1983 matured in 2013. Ammend If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Ammend The last series E bonds were issued in 1980 and matured in 2010. Ammend If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Ammend Method 2. Ammend Choose to report the increase in redemption value as interest each year. Ammend You must use the same method for all series EE, series E, and series I bonds you own. Ammend If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Ammend    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Ammend To learn how, see Education Savings Bond Program, later. Ammend Change from method 1. Ammend   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. Ammend In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Ammend   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. Ammend Change from method 2. Ammend   To change from method 2 to method 1, you must request permission from the IRS. Ammend Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Ammend You have typed or printed the following number at the top: “131. Ammend ” It includes your name and social security number under “131. Ammend ” It includes the year of change (both the beginning and ending dates). Ammend It identifies the savings bonds for which you are requesting this change. Ammend 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. Ammend   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Ammend   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. Ammend On the statement, type or print “Filed pursuant to section 301. Ammend 9100-2. Ammend ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Ammend    By the date you file the original statement with your return, you must also send a signed copy to the address below. Ammend   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Ammend O. Ammend Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Ammend   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, Application for Change in Accounting Method. Ammend In that case, follow the form instructions for an automatic change. Ammend No user fee is required. Ammend Co-owners. Ammend   If a U. Ammend S. Ammend 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. Ammend One co-owner's funds used. Ammend    If you used your funds to buy the bond, you must pay the tax on the interest. Ammend This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Ammend 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. Ammend The co-owner who redeemed the bond is a “nominee. Ammend ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Ammend Both co-owners' funds used. Ammend   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. Ammend Community property. Ammend   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. Ammend If you file separate returns, each of you generally must report one-half of the bond interest. Ammend For more information about community property, see Publication 555. Ammend Table 7-1. Ammend   These rules are also shown in Table 7-1. Ammend Ownership transferred. Ammend   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. Ammend But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Ammend   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Ammend Purchased jointly. Ammend   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. Ammend 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. Ammend This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Ammend   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Ammend But the new co-owner will report only his or her share of the interest earned after the transfer. Ammend   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. Ammend    Table 7-1. Ammend Who Pays the Tax on U. Ammend S. Ammend Savings Bond Interest IF . Ammend . Ammend . Ammend THEN the interest must be reported by . Ammend . Ammend . Ammend you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Ammend 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. Ammend 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. Ammend you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Ammend If you file separate returns, both you and your spouse generally report one-half of the interest. Ammend Example 1. Ammend You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Ammend The bond was issued to you and your spouse as co-owners. Ammend You both postpone reporting interest on the bond. Ammend You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Ammend At that time neither you nor your spouse has to report the interest earned to the date of reissue. Ammend Example 2. Ammend You bought a $1,000 series EE savings bond entirely with your own funds. Ammend The bond was issued to you and your spouse as co-owners. Ammend You both postpone reporting interest on the bond. Ammend You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Ammend You must report half the interest earned to the date of reissue. Ammend Transfer to a trust. Ammend   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. Ammend 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. Ammend 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. Ammend   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. Ammend See Savings bonds traded , later. Ammend Decedents. Ammend   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. Ammend This is explained in chapter 1 of Publication 550. Ammend Savings bonds traded. Ammend   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. Ammend (You cannot trade series I bonds for series HH bonds. Ammend After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Ammend ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Ammend 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. Ammend 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. Ammend Example. Ammend You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Ammend You reported the $223 as taxable income on your tax return. Ammend At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Ammend You hold the series HH bonds until maturity, when you receive $2,500. Ammend You must report $300 as interest income in the year of maturity. Ammend This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Ammend (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Ammend ) Choice to report interest in year of trade. Ammend   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Ammend If you made this choice, it is treated as a change from method 1. Ammend See Change from method 1 under Series EE and series I bonds, earlier. Ammend Form 1099-INT for U. Ammend S. Ammend savings bonds interest. Ammend   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. Ammend 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. Ammend However, your Form 1099-INT may show more interest than you have to include on your income tax return. Ammend For example, this may happen if any of the following are true. Ammend You chose to report the increase in the redemption value of the bond each year. Ammend The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Ammend You received the bond from a decedent. Ammend 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. Ammend Ownership of the bond was transferred. Ammend The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Ammend You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Ammend The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Ammend (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Ammend ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Ammend 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. Ammend (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Ammend , for the year of distribution. Ammend )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Ammend Publication 550 includes examples showing how to report these amounts. Ammend    Interest on U. Ammend S. Ammend savings bonds is exempt from state and local taxes. Ammend The Form 1099-INT you receive will indicate the amount that is for U. Ammend S. Ammend savings bond interest in box 3. Ammend 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. Ammend S. Ammend savings bonds during the year if you pay qualified higher educational expenses during the same year. Ammend This exclusion is known as the Education Savings Bond Program. Ammend You do not qualify for this exclusion if your filing status is married filing separately. Ammend Form 8815. Ammend   Use Form 8815 to figure your exclusion. Ammend Attach the form to your Form 1040 or Form 1040A. Ammend Qualified U. Ammend S. Ammend savings bonds. Ammend   A qualified U. Ammend S. Ammend savings bond is a series EE bond issued after 1989 or a series I bond. Ammend The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Ammend You must be at least 24 years old before the bond's issue date. Ammend 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. Ammend    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. Ammend Beneficiary. Ammend   You can designate any individual (including a child) as a beneficiary of the bond. Ammend Verification by IRS. Ammend   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Ammend Qualified expenses. Ammend   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. Ammend   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Ammend   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. Ammend Eligible educational institutions. Ammend   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 U. Ammend S. Ammend Department of Education. Ammend Reduction for certain benefits. Ammend   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Ammend Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Ammend Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Ammend Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Ammend Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Ammend Any expense used in figuring the American Opportunity and lifetime learning credits. Ammend Amount excludable. Ammend   If the total proceeds (interest and principal) from the qualified U. Ammend S. Ammend 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. Ammend If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Ammend   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Ammend The numerator of the fraction is the qualified higher educational expenses you paid during the year. Ammend The denominator of the fraction is the total proceeds you received during the year. Ammend Example. Ammend In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Ammend S. Ammend savings bond they bought in April 1997. Ammend They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Ammend In 2013, they paid $4,000 of their daughter's college tuition. Ammend They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Ammend They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Ammend They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Ammend Modified adjusted gross income limit. Ammend   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Ammend You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Ammend   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Ammend   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Ammend If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Ammend   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Ammend Recordkeeping. Ammend If you claim the interest exclusion, you must keep a written record of the qualified U. Ammend S. Ammend savings bonds you redeem. Ammend Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Ammend You can use Form 8818 to record this information. Ammend You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Ammend U. Ammend S. Ammend Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Ammend S. Ammend Government. Ammend Taxation of interest. Ammend   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Ammend You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Ammend   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Ammend Treasury bills. Ammend   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Ammend They are generally issued at a discount in the amount of $100 and multiples of $100. Ammend The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Ammend Generally, you report this interest income when the bill is paid at maturity. Ammend If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Ammend Treasury notes and bonds. Ammend   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Ammend Maturity periods for Treasury bonds are longer than 10 years. Ammend Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Ammend Generally, you report this interest for the year paid. Ammend For more information, see U. Ammend S. Ammend Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Ammend For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Ammend O. Ammend Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Ammend treasurydirect. Ammend gov/indiv/indiv. Ammend htm. Ammend For information on series EE, series I, and series HH savings bonds, see U. Ammend S. Ammend Savings Bonds , earlier. Ammend Treasury inflation-protected securities (TIPS). Ammend   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Ammend For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Ammend Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Ammend You must report that part of the sales price as interest income for the year of sale. Ammend If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Ammend When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Ammend See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Ammend Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Ammend But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Ammend For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Ammend Annuity. Ammend   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Ammend See chapter 10 for information on pension and annuity income from nonqualified plans. Ammend State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Ammend Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Ammend Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Ammend For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Ammend Information reporting requirement. Ammend   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Ammend This is an information reporting requirement only. Ammend It does not change tax-exempt interest to taxable interest. Ammend Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Ammend You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Ammend A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Ammend OID is the difference between the stated redemption price at maturity and the issue price. Ammend All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Ammend Zero coupon bonds are one example of these instruments. Ammend The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Ammend See Discount on Short-Term Obligations in chapter 1 of Publication 550. Ammend De minimis OID. Ammend   You can treat the discount as zero if it is less than one-fourth of 1% (. Ammend 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Ammend This small discount is known as “de minimis” OID. Ammend Example 1. Ammend You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Ammend One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Ammend Because the $20 discount is less than $25, the OID is treated as zero. Ammend (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Ammend ) Example 2. Ammend The facts are the same as in Example 1, except that the bond was issued at $950. Ammend The OID is $50. Ammend Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Ammend Debt instrument bought after original issue. Ammend   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Ammend If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Ammend See Market Discount Bonds in chapter 1 of Publication 550. Ammend Exceptions to reporting OID. Ammend   The OID rules discussed in this chapter do not apply to the following debt instruments. Ammend Tax-exempt obligations. Ammend (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Ammend U. Ammend S. Ammend savings bonds. Ammend Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Ammend Obligations issued by an individual before March 2, 1984. Ammend Loans between individuals if all the following are true. Ammend The lender is not in the business of lending money. Ammend The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Ammend Avoiding any federal tax is not one of the principal purposes of the loan. Ammend Form 1099-OID. Ammend   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Ammend Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Ammend It also will show, in box 2, the stated interest you must include in your income. Ammend A copy of Form 1099-OID will be sent to the IRS. Ammend Do not file your copy with your return. Ammend Keep it for your records. Ammend   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Ammend But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Ammend Form 1099-OID not received. Ammend   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Ammend gov that list total OID on certain debt instruments and have information that will help you figure OID. Ammend For the latest OID tables, go to www. Ammend irs. Ammend gov and enter “OID tables” in the Search box. Ammend If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Ammend Nominee. Ammend   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Ammend Refiguring OID shown on Form 1099-OID. Ammend   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Ammend You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Ammend The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Ammend For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Ammend Refiguring periodic interest shown on Form 1099-OID. Ammend   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Ammend Certificates of deposit (CDs). Ammend   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Ammend   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Ammend , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Ammend Bearer CDs. Ammend   CDs issued after 1982 generally must be in registered form. Ammend Bearer CDs are CDs not in registered form. Ammend They are not issued in the depositor's name and are transferable from one individual to another. Ammend   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Ammend More information. Ammend   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Ammend When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Ammend Cash method. Ammend   Most individual taxpayers use the cash method. Ammend If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Ammend However, there are special rules for reporting the discount on certain debt instruments. Ammend See U. Ammend S. Ammend Savings Bonds and Original Issue Discount (OID) , earlier. Ammend Example. Ammend On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Ammend You are not in the business of lending money. Ammend The note stated that principal and interest would be due on August 31, 2013. Ammend In 2013, you received $2,508. Ammend 80 ($2,000 principal and $508. Ammend 80 interest). Ammend If you use the cash method, you must include in income on your 2013 return the $508. Ammend 80 interest you received in that year. Ammend Constructive receipt. Ammend   You constructively receive income when it is credited to your account or made available to you. Ammend You do not need to have physical possession of it. Ammend For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Ammend This is true even if they are not yet entered in your passbook. Ammend   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Ammend Accrual method. Ammend   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Ammend Interest is earned over the term of the debt instrument. Ammend Example. Ammend If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Ammend You would report the interest as follows: 2011, $80; 2012, $249. Ammend 60; and 2013, $179. Ammend 20. Ammend Coupon bonds. Ammend   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Ammend It does not matter when you mail the coupon for payment. Ammend How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Ammend You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Ammend Instead, you must use Form 1040A or Form 1040. Ammend Form 1040A. Ammend   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Ammend Your taxable interest income is more than $1,500. Ammend You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Ammend You received interest from a seller-financed mortgage, and the buyer used the property as a home. Ammend You received a Form 1099-INT for U. Ammend S. Ammend savings bond interest that includes amounts you reported before 2013. Ammend You received, as a nominee, interest that actually belongs to someone else. Ammend You received a Form 1099-INT for interest on frozen deposits. Ammend You are reporting OID in an amount less than the amount shown on Form 1099-OID. Ammend You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Ammend You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Ammend List each payer's name and the amount of interest income received from each payer on line 1. Ammend If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Ammend   You cannot use Form 1040A if you must use Form 1040, as described next. Ammend Form 1040. Ammend   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Ammend Schedule B (Form 1040A or 1040). Ammend   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Ammend Your taxable interest income is more than $1,500. Ammend You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Ammend You received interest from a seller-financed mortgage, and the buyer used the property as a home. Ammend You received a Form 1099-INT for U. Ammend S. Ammend savings bond interest that includes amounts you reported before 2013. Ammend You received, as a nominee, interest that actually belongs to someone else. Ammend You received a Form 1099-INT for interest on frozen deposits. Ammend You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Ammend You are reporting OID in an amount less than the amount shown on Form 1099-OID. Ammend Statement (2) in the preceding list under Form 1040 is true. Ammend In Part I, line 1, list each payer's name and the amount received from each. Ammend If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Ammend Reporting tax-exempt interest. Ammend   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Ammend Add these amounts to any other tax-exempt interest you received. Ammend Report the total on line 8b of Form 1040A or 1040. Ammend   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Ammend Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Ammend   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Ammend These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Ammend Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Ammend    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Ammend Form 1099-INT. Ammend   Your taxable interest income, except for interest from U. Ammend S. Ammend savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Ammend Add this amount to any other taxable interest income you received. Ammend You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Ammend Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Ammend Your identifying number may be truncated on any paper Form 1099-INT you receive. Ammend   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Ammend See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Ammend   Box 3 of Form 1099-INT shows the interest income you received from U. Ammend S. Ammend savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Ammend Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Ammend If part of the amount shown in box 3 was previously included in your interest income, see U. Ammend S. Ammend savings bond interest previously reported , later. Ammend   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Ammend Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Ammend   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Ammend See chapter 28 for more information about investment expenses. Ammend   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Ammend You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Ammend To take the credit, you may have to file Form 1116, Foreign Tax Credit. Ammend For more information, see Publication 514, Foreign Tax Credit for Individuals. Ammend U. Ammend S. Ammend savings bond interest previously reported. Ammend   If you received a Form 1099-INT for U. Ammend S. Ammend savings bond interest, the form may show interest you do not have to report. Ammend See Form 1099-INT for U. Ammend S. Ammend savings bonds interest , earlier, under U. Ammend S. Ammend Savings Bonds. Ammend   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Ammend Then follow these steps. Ammend Several lines above line 2, enter a subtotal of all interest listed on line 1. Ammend Below the subtotal enter “U. Ammend S. Ammend Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Ammend Subtract these amounts from the subtotal and enter the result on line 2. Ammend More information. Ammend   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. Ammend Prev  Up  Next   Home   More Online Publications