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Free ez tax 24. Free ez tax   Contributions Table of Contents Introduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. Free ez tax Household items. Free ez tax Deduction more than $500. Free ez tax Form 1098-C. Free ez tax Filing deadline approaching and still no Form 1098-C. Free ez tax Exception 1—vehicle used or improved by organization. Free ez tax Exception 2—vehicle given or sold to needy individual. Free ez tax Deduction $500 or less. Free ez tax Right to use property. Free ez tax Tangible personal property. Free ez tax Future interest. Free ez tax Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. Free ez tax Text message. Free ez tax Credit card. Free ez tax Pay-by-phone account. Free ez tax Stock certificate. Free ez tax Promissory note. Free ez tax Option. Free ez tax Borrowed funds. Free ez tax Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report Introduction This chapter explains how to claim a deduction for your charitable contributions. Free ez tax It discusses the following topics. Free ez tax The types of organizations to which you can make deductible charitable contributions. Free ez tax The types of contributions you can deduct. Free ez tax How much you can deduct. Free ez tax What records you must keep. Free ez tax How to report your charitable contributions. Free ez tax A charitable contribution is a donation or gift to, or for the use of, a qualified organization. Free ez tax It is voluntary and is made without getting, or expecting to get, anything of equal value. Free ez tax Form 1040 required. Free ez tax    To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. Free ez tax The amount of your deduction may be limited if certain rules and limits explained in this chapter apply to you. Free ez tax The limits are explained in detail in Publication 526. Free ez tax Useful Items - You may want to see: Publication 526 Charitable Contributions 561 Determining the Value of Donated Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 8283 Noncash Charitable Contributions Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. Free ez tax Most organizations other than churches and governments must apply to the IRS to become a qualified organization. Free ez tax How to check whether an organization can receive deductible charitable contributions. Free ez tax   You can ask any organization whether it is a qualified organization, and most will be able to tell you. Free ez tax Or go to IRS. Free ez tax gov. Free ez tax Click on “Tools” and then on “Exempt Organizations Select Check” (www. Free ez tax irs. Free ez tax gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). Free ez tax This online tool will enable you to search for qualified organizations. Free ez tax You can also call the IRS to find out if an organization is qualified. Free ez tax Call 1-877-829-5500. Free ez tax People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. Free ez tax Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. Free ez tax gsa. Free ez tax gov/fedrelay. Free ez tax Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. Free ez tax A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). Free ez tax It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Free ez tax Certain organizations that foster national or international amateur sports competition also qualify. Free ez tax War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). Free ez tax Domestic fraternal societies, orders, and associations operating under the lodge system. Free ez tax (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Free ez tax ) Certain nonprofit cemetery companies or corporations. Free ez tax (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. Free ez tax ) The United States or any state, the District of Columbia, a U. Free ez tax S. Free ez tax possession (including Puerto Rico), a political subdivision of a state or U. Free ez tax S. Free ez tax possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. Free ez tax (Your contribution to this type of organization is only deductible if it is to be used solely for public purposes. Free ez tax ) Examples. Free ez tax    The following list gives some examples of qualified organizations. Free ez tax Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. Free ez tax Most nonprofit charitable organizations such as the American Red Cross and the United Way. Free ez tax Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. Free ez tax This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. Free ez tax However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . Free ez tax Nonprofit hospitals and medical research organizations. Free ez tax Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Free ez tax Nonprofit volunteer fire companies. Free ez tax Nonprofit organizations that develop and maintain public parks and recreation facilities. Free ez tax Civil defense organizations. Free ez tax Certain foreign charitable organizations. Free ez tax   Under income tax treaties with Canada, Israel, and Mexico, you may be able to deduct contributions to certain Canadian, Israeli, or Mexican charitable organizations. Free ez tax Generally, you must have income from sources in that country. Free ez tax For additional information on the deduction of contributions to Canadian charities, see Publication 597, Information on the United States–Canada Income Tax Treaty. Free ez tax If you need more information on how to figure your contribution to Mexican and Israeli charities, see Publication 526. Free ez tax Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. Free ez tax A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. Free ez tax The contributions must be made to a qualified organization and not set aside for use by a specific person. Free ez tax If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. Free ez tax See Contributions of Property , later in this chapter. Free ez tax Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. Free ez tax See Limits on Deductions , later. Free ez tax In addition, the total of your charitable contribution deduction and certain other itemized deductions may be limited. Free ez tax See chapter 29. Free ez tax Table 24-1 gives examples of contributions you can and cannot deduct. Free ez tax Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Free ez tax Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. Free ez tax If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. Free ez tax For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Free ez tax Example 1. Free ez tax You pay $65 for a ticket to a dinner-dance at a church. Free ez tax Your entire $65 payment goes to the church. Free ez tax The ticket to the dinner-dance has a fair market value of $25. Free ez tax When you buy your ticket, you know that its value is less than your payment. Free ez tax To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). Free ez tax You can deduct $40 as a contribution to the church. Free ez tax Example 2. Free ez tax At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. Free ez tax The amount you pay is no more than the fair rental value. Free ez tax You have not made a deductible charitable contribution. Free ez tax Athletic events. Free ez tax   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. Free ez tax   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. Free ez tax Subtract the price of the tickets from your payment. Free ez tax You can deduct 80% of the remaining amount as a charitable contribution. Free ez tax Example 1. Free ez tax You pay $300 a year for membership in a university's athletic scholarship program. Free ez tax The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. Free ez tax You can deduct $240 (80% of $300) as a charitable contribution. Free ez tax Table 24-1. Free ez tax Examples of Charitable Contributions—A Quick Check Use the following lists for a quick check of whether you can deduct a contribution. Free ez tax See the rest of this chapter for more information and additional rules and limits that may apply. Free ez tax Deductible As  Charitable Contributions Not Deductible  As Charitable Contributions Money or property you give to:  Churches, synagogues, temples, mosques, and other religious organizations Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park) Nonprofit schools and hospitals The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc. Free ez tax War veterans groups   Expenses paid for a student living with you, sponsored by a qualified organization  Out-of-pocket expenses when you serve a qualified organization as a volunteer Money or property you give to:  Civic leagues, social and sports clubs, labor unions, and chambers of commerce Foreign organizations (except certain Canadian, Israeli, and Mexican charities) Groups that are run for personal profit Groups whose purpose is to lobby for law changes Homeowners' associations Individuals Political groups or candidates for public office   Cost of raffle, bingo, or lottery tickets  Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups  Tuition  Value of your time or services  Value of blood given to a blood bank    Example 2. Free ez tax The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. Free ez tax You must subtract the usual price of a ticket ($120) from your $300 payment. Free ez tax The result is $180. Free ez tax Your deductible charitable contribution is $144 (80% of $180). Free ez tax Charity benefit events. Free ez tax   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. Free ez tax   If there is an established charge for the event, that charge is the value of your benefit. Free ez tax If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. Free ez tax Whether you use the tickets or other privileges has no effect on the amount you can deduct. Free ez tax However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. Free ez tax    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. Free ez tax If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. Free ez tax Example. Free ez tax You pay $40 to see a special showing of a movie for the benefit of a qualified organization. Free ez tax Printed on the ticket is “Contribution—$40. Free ez tax ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). Free ez tax Membership fees or dues. Free ez tax    You may be able to deduct membership fees or dues you pay to a qualified organization. Free ez tax However, you can deduct only the amount that is more than the value of the benefits you receive. Free ez tax    You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. Free ez tax They are not qualified organizations. Free ez tax Certain membership benefits can be disregarded. Free ez tax   Both you and the organization can disregard the following membership benefits if you receive them in return for an annual payment of $75 or less. Free ez tax Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. Free ez tax Admission, while you are a member, to events open only to members of the organization, if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. Free ez tax 20. Free ez tax Token items. Free ez tax   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. Free ez tax You receive only a small item or other benefit of token value. Free ez tax The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. Free ez tax Written statement. Free ez tax   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. Free ez tax The statement must say that you can deduct only the amount of your payment that is more than the value of the goods or services you received. Free ez tax It must also give you a good faith estimate of the value of those goods or services. Free ez tax   The organization can give you the statement either when it solicits or when it receives the payment from you. Free ez tax Exception. Free ez tax   An organization will not have to give you this statement if one of the following is true. Free ez tax The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. Free ez tax You receive only items whose value is not substantial as described under Token items , earlier. Free ez tax You receive only membership benefits that can be disregarded, as described earlier. Free ez tax Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. Free ez tax You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization as part of a program of the organization to provide educational opportunities for the student, Is not your relative or dependent, and Is a full-time student in the twelfth or any lower grade at a school in the United States. Free ez tax You can deduct up to $50 a month for each full calendar month the student lives with you. Free ez tax Any month when conditions (1) through (3) are met for 15 days or more counts as a full month. Free ez tax For additional information, see Expenses Paid for Student Living With You in Publication 526. Free ez tax Mutual exchange program. Free ez tax   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. Free ez tax Table 24-2. Free ez tax Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. Free ez tax All of the rules explained in this chapter also apply. Free ez tax See, in particular, Out-of-Pocket Expenses in Giving Services . Free ez tax Question Answer I volunteer 6 hours a week in the office of a qualified organization. Free ez tax The receptionist is paid $10 an hour for the same work. Free ez tax Can I deduct $60 a week for my time?    No, you cannot deduct the value of your time or services. Free ez tax The office is 30 miles from my home. Free ez tax Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. Free ez tax If you don't want to figure your actual costs, you can deduct 14 cents for each mile. Free ez tax I volunteer as a Red Cross nurse's aide at a hospital. Free ez tax Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. Free ez tax I pay a babysitter to watch my children while I volunteer for a qualified organization. Free ez tax Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. Free ez tax (If you have childcare expenses so you can work for pay, see chapter 32. Free ez tax ) Out-of-Pocket Expenses in Giving Services Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. Free ez tax The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. Free ez tax Table 24-2 contains questions and answers that apply to some individuals who volunteer their services. Free ez tax Conventions. Free ez tax   If a qualified organization selects you to attend a convention as its representative, you can deduct unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight in connection with the convention. Free ez tax However, see Travel , later. Free ez tax   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. Free ez tax You also cannot deduct transportation, meals and lodging, and other expenses for your spouse or children. Free ez tax    You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. Free ez tax You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. Free ez tax Uniforms. Free ez tax   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. Free ez tax Foster parents. Free ez tax   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. Free ez tax A qualified organization must select the individuals you take into your home for foster care. Free ez tax    You can deduct expenses that meet both of the following requirements. Free ez tax They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. Free ez tax They are incurred primarily to benefit the qualified organization. Free ez tax   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. Free ez tax For details, see chapter 3. Free ez tax Example. Free ez tax You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. Free ez tax Your unreimbursed expenses are not deductible as charitable contributions. Free ez tax Car expenses. Free ez tax   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, that are directly related to the use of your car in giving services to a charitable organization. Free ez tax You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. Free ez tax    If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. Free ez tax   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. Free ez tax   You must keep reliable written records of your car expenses. Free ez tax For more information, see Car expenses under Records To Keep, later. Free ez tax Travel. Free ez tax   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. Free ez tax This applies whether you pay the expenses directly or indirectly. Free ez tax You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. Free ez tax   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Free ez tax Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. Free ez tax However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. Free ez tax Example 1. Free ez tax You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. Free ez tax You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. Free ez tax You participate in the activities of the group and enjoy your time with them. Free ez tax You oversee the breaking of camp and you transport the group home. Free ez tax You can deduct your travel expenses. Free ez tax Example 2. Free ez tax You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. Free ez tax The project is sponsored by a charitable organization. Free ez tax In most circumstances, you cannot deduct your expenses. Free ez tax Example 3. Free ez tax You work for several hours each morning on an archaeological dig sponsored by a charitable organization. Free ez tax The rest of the day is free for recreation and sightseeing. Free ez tax You cannot take a charitable contribution deduction even though you work very hard during those few hours. Free ez tax Example 4. Free ez tax You spend the entire day attending a charitable organization's regional meeting as a chosen representative. Free ez tax In the evening you go to the theater. Free ez tax You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. Free ez tax Daily allowance (per diem). Free ez tax   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. Free ez tax You may be able to deduct any necessary travel expenses that are more than the allowance. Free ez tax Deductible travel expenses. Free ez tax   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. Free ez tax Because these travel expenses are not business-related, they are not subject to the same limits as business-related expenses. Free ez tax For information on business travel expenses, see Travel Expenses in chapter 26. Free ez tax Contributions You Cannot Deduct There are some contributions you cannot deduct, such as those made to specific individuals and those made to nonqualified organizations. Free ez tax (See Contributions to Individuals and Contributions to Nonqualified Organizations , next. Free ez tax ) There are others you can deduct only part of, as discussed later under Contributions From Which You Benefit . Free ez tax Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. Free ez tax Contributions to fraternal societies made for the purpose of paying medical or burial expenses of deceased members. Free ez tax Contributions to individuals who are needy or worthy. Free ez tax You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. Free ez tax But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. Free ez tax Example. Free ez tax You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. Free ez tax However, you cannot deduct contributions earmarked for relief of a particular individual or family. Free ez tax Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. Free ez tax Expenses you paid for another person who provided services to a qualified organization. Free ez tax Example. Free ez tax Your son does missionary work. Free ez tax You pay his expenses. Free ez tax You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. Free ez tax Payments to a hospital that are for a specific patient's care or for services for a specific patient. Free ez tax You cannot deduct these payments even if the hospital is operated by a city, a state, or other qualified organization. Free ez tax Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. Free ez tax Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. Free ez tax Chambers of commerce and other business leagues or organizations (but see chapter 28). Free ez tax Civic leagues and associations. Free ez tax Communist organizations. Free ez tax Country clubs and other social clubs. Free ez tax Most foreign organizations (other than certain Canadian, Israeli, or Mexican charitable organizations). Free ez tax For details, see Publication 526. Free ez tax Homeowners' associations. Free ez tax Labor unions (but see chapter 28). Free ez tax Political organizations and candidates. Free ez tax Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. Free ez tax See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. Free ez tax These contributions include the following. Free ez tax Contributions for lobbying. Free ez tax This includes amounts that you earmark for use in, or in connection with, influencing specific legislation. Free ez tax Contributions to a retirement home for room, board, maintenance, or admittance. Free ez tax Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. Free ez tax Costs of raffles, bingo, lottery, etc. Free ez tax You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. Free ez tax For information on how to report gambling winnings and losses, see Gambling winnings in chapter 12 and Gambling Losses Up to the Amount of Gambling Winnings in chapter 28. Free ez tax Dues to fraternal orders and similar groups. Free ez tax However, see Membership fees or dues , earlier, under Contributions You Can Deduct. Free ez tax Tuition, or amounts you pay instead of tuition. Free ez tax You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. Free ez tax You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. Free ez tax ” Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. Free ez tax Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. Free ez tax The cost of meals you eat while you perform services for a qualified organization unless it is necessary for you to be away from home overnight while performing the services. Free ez tax Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final (but see Adoption Credit in chapter 37, and the instructions for Form 8839, Qualified Adoption Expenses). Free ez tax You also may be able to claim an exemption for the child. Free ez tax See Adopted child in chapter 3. Free ez tax Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property (but see chapter 28). Free ez tax Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Free ez tax However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. Free ez tax See Giving Property That Has Increased in Value , later. Free ez tax For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. Free ez tax Clothing and household items. Free ez tax   You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. Free ez tax Exception. Free ez tax   You can take a deduction for a contribution of an item of clothing or household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. Free ez tax Household items. Free ez tax   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. Free ez tax   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. Free ez tax Cars, boats, and airplanes. Free ez tax    The following rules apply to any donation of a qualified vehicle. Free ez tax A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. Free ez tax Deduction more than $500. Free ez tax   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. Free ez tax If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. Free ez tax Form 1098-C. Free ez tax   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. Free ez tax The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. Free ez tax   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. Free ez tax   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. Free ez tax    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. Free ez tax But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. Free ez tax Filing deadline approaching and still no Form 1098-C. Free ez tax   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. Free ez tax Request an automatic 6-month extension of time to file your return. Free ez tax You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Free ez tax S. Free ez tax Individual Income Tax Return. Free ez tax  For more information, see Automatic Extension in chapter 1. Free ez tax File the return on time without claiming the deduction for the qualified vehicle. Free ez tax After receiving the Form 1098-C, file an amended return, Form 1040X, claiming the deduction. Free ez tax Attach Copy B of Form 1098-C (or other statement) to the amended return. Free ez tax For more information about amended returns, see Amended Returns and Claims for Refund in chapter 1. Free ez tax Exceptions. Free ez tax   There are two exceptions to the rules just described for deductions of more than $500. Free ez tax Exception 1—vehicle used or improved by organization. Free ez tax   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. Free ez tax But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Free ez tax The Form 1098-C (or other statement) will show whether this exception applies. Free ez tax Exception 2—vehicle given or sold to needy individual. Free ez tax   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. Free ez tax But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Free ez tax The Form 1098-C (or other statement) will show whether this exception applies. Free ez tax   This exception does not apply if the organization sells the vehicle at auction. Free ez tax In that case, you cannot deduct the vehicle's fair market value. Free ez tax Example. Free ez tax Anita donates a used car to a qualified organization. Free ez tax She bought it 3 years ago for $9,000. Free ez tax A used car guide shows the fair market value for this type of car is $6,000. Free ez tax However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. Free ez tax Neither exception 1 nor exception 2 applies. Free ez tax If Anita itemizes her deductions, she can deduct $2,900 for her donation. Free ez tax She must attach Form 1098-C and Form 8283 to her return. Free ez tax Deduction $500 or less. Free ez tax   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. Free ez tax But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Free ez tax   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. Free ez tax The statement must contain the information and meet the tests for an acknowledgment described under Deductions of At Least $250 But Not More Than $500 under Records To Keep, later. Free ez tax Partial interest in property. Free ez tax   Generally, you cannot deduct a charitable contribution of less than your entire interest in property. Free ez tax Right to use property. Free ez tax   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. Free ez tax For exceptions and more information, see Partial Interest in Property Not in Trust in Publication 561. Free ez tax Future interests in tangible personal property. Free ez tax   You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. Free ez tax Tangible personal property. Free ez tax   This is any property, other than land or buildings, that can be seen or touched. Free ez tax It includes furniture, books, jewelry, paintings, and cars. Free ez tax Future interest. Free ez tax   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. Free ez tax Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. Free ez tax Publication 561 contains a more complete discussion. Free ez tax Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Free ez tax Used clothing and household items. Free ez tax   The fair market value of used clothing and household goods is usually far less than what you paid for them when they were new. Free ez tax   For used clothing, you should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. Free ez tax See Household Goods in Publication 561 for information on the valuation of household goods, such as furniture, appliances, and linens. Free ez tax Example. Free ez tax Dawn Greene donated a coat to a thrift store operated by her church. Free ez tax She paid $300 for the coat 3 years ago. Free ez tax Similar coats in the thrift store sell for $50. Free ez tax The fair market value of the coat is $50. Free ez tax Dawn's donation is limited to $50. Free ez tax Cars, boats, and airplanes. Free ez tax   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. Free ez tax Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. Free ez tax The guides may be published monthly or seasonally and for different regions of the country. Free ez tax These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Free ez tax The prices are not “official” and these publications are not considered an appraisal of any specific donated property. Free ez tax But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Free ez tax   You can also find used car pricing information on the Internet. Free ez tax Example. Free ez tax You donate a used car in poor condition to a local high school for use by students studying car repair. Free ez tax A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Free ez tax However, the guide shows the price for a private party sale of the car is only $750. Free ez tax The fair market value of the car is considered to be $750. Free ez tax Large quantities. Free ez tax   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. Free ez tax Giving Property That Has Decreased in Value If you contribute property with a fair market value that is less than your basis in it, your deduction is limited to its fair market value. Free ez tax You cannot claim a deduction for the difference between the property's basis and its fair market value. Free ez tax Giving Property That Has Increased in Value If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. Free ez tax Your basis in property is generally what you paid for it. Free ez tax See chapter 13 if you need more information about basis. Free ez tax Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. Free ez tax Ordinary income property. Free ez tax   Property is ordinary income property if you would have recognized ordinary income or short-term capital gain had you sold it at fair market value on the date it was contributed. Free ez tax Examples of ordinary income property are inventory, works of art created by the donor, manuscripts prepared by the donor, and capital assets (defined in chapter 14) held 1 year or less. Free ez tax Amount of deduction. Free ez tax   The amount you can deduct for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. Free ez tax Generally, this rule limits the deduction to your basis in the property. Free ez tax Example. Free ez tax You donate stock you held for 5 months to your church. Free ez tax The fair market value of the stock on the day you donate it is $1,000, but you paid only $800 (your basis). Free ez tax Because the $200 of appreciation would be short-term capital gain if you sold the stock, your deduction is limited to $800 (fair market value minus the appreciation). Free ez tax Capital gain property. Free ez tax   Property is capital gain property if you would have recognized long-term capital gain had you sold it at fair market value on the date of the contribution. Free ez tax It includes capital assets held more than 1 year, as well as certain real property and depreciable property used in your trade or business and, generally, held more than 1 year. Free ez tax Amount of deduction — general rule. Free ez tax   When figuring your deduction for a contribution of capital gain property, you generally can use the fair market value of the property. Free ez tax Exceptions. Free ez tax   In certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. Free ez tax Generally, this means reducing the fair market value to the property's cost or other basis. Free ez tax Bargain sales. Free ez tax   A bargain sale of property is a sale or exchange for less than the property's fair market value. Free ez tax A bargain sale to a qualified organization is partly a charitable contribution and partly a sale or exchange. Free ez tax A bargain sale may result in a taxable gain. Free ez tax More information. Free ez tax   For more information on donating appreciated property, see Giving Property That Has Increased in Value in Publication 526. Free ez tax When To Deduct You can deduct your contributions only in the year you actually make them in cash or other property (or in a later carryover year, as explained later under Carryovers ). Free ez tax This applies whether you use the cash or an accrual method of accounting. Free ez tax Time of making contribution. Free ez tax   Usually, you make a contribution at the time of its unconditional delivery. Free ez tax Checks. Free ez tax   A check you mail to a charity is considered delivered on the date you mail it. Free ez tax Text message. Free ez tax   Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. Free ez tax Credit card. Free ez tax    Contributions charged on your credit card are deductible in the year you make the charge. Free ez tax Pay-by-phone account. Free ez tax    Contributions made through a pay-by-phone account are considered delivered on the date the financial institution pays the amount. Free ez tax Stock certificate. Free ez tax   A properly endorsed stock certificate is considered delivered on the date of mailing or other delivery to the charity or to the charity's agent. Free ez tax However, if you give a stock certificate to your agent or to the issuing corporation for transfer to the name of the charity, your contribution is not delivered until the date the stock is transferred on the books of the corporation. Free ez tax Promissory note. Free ez tax   If you issue and deliver a promissory note to a charity as a contribution, it is not a contribution until you make the note payments. Free ez tax Option. Free ez tax    If you grant a charity an option to buy real property at a bargain price, it is not a contribution until the organization exercises the option. Free ez tax Borrowed funds. Free ez tax   If you contribute borrowed funds, you can deduct the contribution in the year you deliver the funds to the charity, regardless of when you repay the loan. Free ez tax Limits on Deductions The amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI). Free ez tax Your deduction may be further limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to. Free ez tax If your total contributions for the year are 20% or less of your AGI, these limits do not apply to you. Free ez tax The limits are discussed in detail under Limits on Deductions in Publication 526. Free ez tax A higher limit applies to certain qualified conservation contributions. Free ez tax See Publication 526 for details. Free ez tax Carryovers You can carry over any contributions you cannot deduct in the current year because they exceed your adjusted-gross-income limits. Free ez tax You can deduct the excess in each of the next 5 years until it is used up, but not beyond that time. Free ez tax For more information, see Carryovers in Publication 526. Free ez tax Records To Keep You must keep records to prove the amount of the contributions you make during the year. Free ez tax The kind of records you must keep depends on the amount of your contributions and whether they are: Cash contributions, Noncash contributions, or Out-of-pocket expenses when donating your services. Free ez tax Note. Free ez tax An organization generally must give you a written statement if it receives a payment from you that is more than $75 and is partly a contribution and partly for goods or services. Free ez tax (See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. Free ez tax ) Keep the statement for your records. Free ez tax It may satisfy all or part of the recordkeeping requirements explained in the following discussions. Free ez tax Cash Contributions Cash contributions include those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. Free ez tax You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following. Free ez tax A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Free ez tax Bank records may include: A canceled check, A bank or credit union statement, or A credit card statement. Free ez tax A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution. Free ez tax The payroll deduction records described next. Free ez tax Payroll deductions. Free ez tax   If you make a contribution by payroll deduction, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization. Free ez tax If your employer withheld $250 or more from a single paycheck, see Contributions of $250 or More , next. Free ez tax Contributions of $250 or More You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records. Free ez tax If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions. Free ez tax Amount of contribution. Free ez tax   In figuring whether your contribution is $250 or more, do not combine separate contributions. Free ez tax For example, if you gave your church $25 each week, your weekly payments do not have to be combined. Free ez tax Each payment is a separate contribution. Free ez tax   If contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution. Free ez tax   If you made a payment that is partly for goods and services, as described earlier under Contributions From Which You Benefit , your contribution is the amount of the payment that is more than the value of the goods and services. Free ez tax Acknowledgment. Free ez tax   The acknowledgment must meet these tests. Free ez tax It must be written. Free ez tax It must include: The amount of cash you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), A description and good faith estimate of the value of any goods or services described in (b) (other than intangible religious benefits), and A statement that the only benefit you received was an intangible religious benefit, if that was the case. Free ez tax The acknowledgment does not need to describe or estimate the value of an intangible religious benefit. Free ez tax An intangible religious benefit is a benefit that generally is not sold in commercial transactions outside a donative (gift) context. Free ez tax An example is admission to a religious ceremony. Free ez tax You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. Free ez tax   If the acknowledgment does not show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. Free ez tax If the acknowledgment shows the date of the contribution and meets the other tests just described, you do not need any other records. Free ez tax Payroll deductions. Free ez tax   If you make a contribution by payroll deduction and your employer withholds $250 or more from a single paycheck, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld as a contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization and states the organization does not provide goods or services in return for any contribution made to it by payroll deduction. Free ez tax A single pledge card may be kept for all contributions made by payroll deduction regardless of amount as long as it contains all the required information. Free ez tax   If the pay stub, Form W-2, pledge card, or other document does not show the date of the contribution, you must have another document that does show the date of the contribution. Free ez tax If the pay stub, Form W-2, pledge card, or other document shows the date of the contribution, you do not need any other records except those just described in (1) and (2). Free ez tax Noncash Contributions For a contribution not made in cash, the records you must keep depend on whether your deduction for the contribution is: Less than $250, At least $250 but not more than $500, Over $500 but not more than $5,000, or Over $5,000. Free ez tax Amount of deduction. Free ez tax   In figuring whether your deduction is $500 or more, combine your claimed deductions for all similar items of property donated to any charitable organization during the year. Free ez tax   If you received goods or services in return, as described earlier in Contributions From Which You Benefit , reduce your contribution by the value of those goods or services. Free ez tax If you figure your deduction by reducing the fair market value of the donated property by its appreciation, as described earlier in Giving Property That Has Increased in Value , your contribution is the reduced amount. Free ez tax Deductions of Less Than $250 If you make any noncash contribution, you must get and keep a receipt from the charitable organization showing: The name of the charitable organization, The date and location of the charitable contribution, and A reasonably detailed description of the property. Free ez tax A letter or other written communication from the charitable organization acknowledging receipt of the contribution and containing the information in (1), (2), and (3) will serve as a receipt. Free ez tax You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity's unattended drop site). Free ez tax Additional records. Free ez tax   You must also keep reliable written records for each item of contributed property. Free ez tax Your written records must include the following information. Free ez tax The name and address of the organization to which you contributed. Free ez tax The date and location of the contribution. Free ez tax A description of the property in detail reasonable under the circumstances. Free ez tax For a security, keep the name of the issuer, the type of security, and whether it is regularly traded on a stock exchange or in an over-the-counter market. Free ez tax The fair market value of the property at the time of the contribution and how you figured the fair market value. Free ez tax If it was determined by appraisal, keep a signed copy of the appraisal. Free ez tax The cost or other basis of the property, if you must reduce its fair market value by appreciation. Free ez tax Your records should also include the amount of the reduction and how you figured it. Free ez tax The amount you claim as a deduction for the tax year as a result of the contribution, if you contribute less than your entire interest in the property during the tax year. Free ez tax Your records must include the amount you claimed as a deduction in any earlier years for contributions of other interests in this property. Free ez tax They must also include the name and address of each organization to which you contributed the other interests, the place where any such tangible property is located or kept, and the name of any person in possession of the property, other than the organization to which you contributed it. Free ez tax The terms of any conditions attached to the contribution of property. Free ez tax Deductions of At Least $250 But Not More Than $500 If you claim a deduction of at least $250 but not more than $500 for a noncash charitable contribution, you must get and keep an acknowledgment of your contribution from the qualified organization. Free ez tax If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that shows your total contributions. Free ez tax The acknowledgment must contain the information in items (1) through (3) under Deductions of Less Than $250 , earlier, and your written records must include the information listed in that discussion under Additional records . Free ez tax The acknowledgment must also meet these tests. Free ez tax It must be written. Free ez tax It must include: A description (but not necessarily the value) of any property you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), and A description and good faith estimate of the value of any goods or services described in (b). Free ez tax If the only benefit you received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so and does not need to describe or estimate the value of the benefit. Free ez tax You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. Free ez tax Deductions Over $500 You are required to give additional information if you claim a deduction over $500 for noncash charitable contributions. Free ez tax See Records To Keep in Publication 526 for more information. Free ez tax Out-of-Pocket Expenses If you give services to a qualified organization and have unreimbursed out-of-pocket expenses related to those services, the following two rules apply. Free ez tax You must have adequate records to prove the amount of the expenses. Free ez tax If any of your unreimbursed out-of-pocket expenses, considered separately, are $250 or more (for example, you pay $250 or more for an airline ticket to attend a convention of a qualified organization as a chosen representative), you must get an acknowledgment from the qualified organization that contains: A description of the services you provided, A statement of whether or not the organization provided you any goods or services to reimburse you for the expenses you incurred, A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided to reimburse you, and A statement that the only benefit you received was an intangible religious benefit, if that was the case. Free ez tax The acknowledgment does not need to describe or estimate the value of an intangible religious benefit (defined earlier under Acknowledgment ). Free ez tax You must get the acknowledgment on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. Free ez tax Car expenses. Free ez tax   If you claim expenses directly related to use of your car in giving services to a qualified organization, you must keep reliable written records of your expenses. Free ez tax Whether your records are considered reliable depends on all the facts and circumstances. Free ez tax Generally, they may be considered reliable if you made them regularly and at or near the time you had the expenses. Free ez tax   For example, your records might show the name of the organization you were serving and the dates you used your car for a charitable purpose. Free ez tax If you use the standard mileage rate of 14 cents a mile, your records must show the miles you drove your car for the charitable purpose. Free ez tax If you deduct your actual expenses, your records must show the costs of operating the car that are directly related to a charitable purpose. Free ez tax   See Car expenses under Out-of-Pocket Expenses in Giving Services, earlier, for the expenses you can deduct. Free ez tax How To Report Report your charitable contributions on Schedule A (Form 1040). Free ez tax If your total deduction for all noncash contributions for the year is over $500, you must also file Form 8283. Free ez tax See How To Report in Publication 526 for more information. Free ez tax Prev  Up  Next   Home   More Online Publications
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Governmental Plans Updates

Governmental Plans Update - April 24, 2013

Determination letters for governmental plans - issues not addressed
Favorable letters don’t address employer pick-up contributions or qualified governmental excess benefit arrangements

Governmental Plans Update - November 29, 2012

Governmental Plans Update - April 18, 2012

Guidance on Normal Retirement Age Rules for Governmental Plans
Notice 2012-29 announces guidance under consideration that would affect NRA rules and extend the effective date of the 2007 regulations.

Governmental Plans Update - April 16, 2012

Register Now for the May 3 Governmental Plan Town Hall Meeting
Reserve your space now for the May 3, 2012, governmental plan town hall meeting in Cleveland, Ohio. Take advantage of this opportunity to provide your feedback on draft proposed standards for defining the term "governmental plan" under IRC section 414(d).

Governmental Plans Update - February 24, 2012

Meetings on Possible Governmental Plan Guidance
Two town hall meetings and one phone forum to discuss proposed drafts of the general guidance on possible standards for determining if a retirement plan is a governmental plan under IRC section 414(d).

Governmental Plans Update - February 6, 2012

Governmental and Indian Tribal Government Plans – Public Hearings
July 9 and 10 hearings will address two Advance Notices of Proposed Rulemaking

Governmental Plans Update - November 7, 2011

Request for Comments - Governmental Plans
IRS and Treasury solicit comments on possible standards for determining if a plan is a governmental plan under IRC section 414(d).

 


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  • an Indian tribal government, its subdivision, or an agency or instrumentality of either, the participants of which plan(s) are employees of that entity substantially performing services essential to governmental functions, rather than commercial activities.

The Governmental Plans Updates, prepared jointly by the offices of Employee Plans, Federal, State, and Local Governments, and Indian Tribal Governments, are brief summaries with links to other materials available on IRS.gov about:
 

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Page Last Reviewed or Updated: 14-Mar-2014

The Free Ez Tax

Free ez tax 17. Free ez tax   Individual Retirement Arrangements (IRAs) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? What's New Traditional IRA contribution and deduction limit. Free ez tax  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Free ez tax If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Free ez tax For more information, see How Much Can Be Contributed? later. Free ez tax Roth IRA contribution limit. Free ez tax  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Free ez tax If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Free ez tax However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Free ez tax For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later. Free ez tax Modified AGI limit for traditional IRA contributions increased. Free ez tax  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Free ez tax If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Free ez tax If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Free ez tax See How Much Can You Deduct , later. Free ez tax Modified AGI limit for Roth IRA contributions increased. Free ez tax  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Free ez tax Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Free ez tax You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Free ez tax Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Free ez tax You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Free ez tax Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Free ez tax You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Free ez tax See Can You Contribute to a Roth IRA , later. Free ez tax Net Investment Income Tax. Free ez tax   For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan including IRAs (for example; 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Free ez tax However, these distributions are taken into account when determining the modified adjusted gross income threshold. Free ez tax Distributions from a nonqualified retirement plan are included in net investment income. Free ez tax See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Free ez tax Name change. Free ez tax  All spousal IRAs have been renamed Kay Bailey Hutchison Spousal IRAs. Free ez tax There are no changes to the rules regarding these IRAs. Free ez tax See Kay Bailey Hutchison Spousal IRA Limit , later, for more information. Free ez tax Reminders 2014 limits. Free ez tax   You can find information about the 2014 contribution and AGI limits in Publication 590. Free ez tax Contributions to both traditional and Roth IRAs. Free ez tax   For information on your combined contribution limit if you contribute to both traditional and Roth IRAs, see Roth IRAs and traditional IRAs under How Much Can Be Contributed? in Roth IRAs, later. Free ez tax Statement of required minimum distribution. Free ez tax  If a minimum distribution from your IRA is required, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. Free ez tax The report or offer must include the date by which the amount must be distributed. Free ez tax The report is due January 31 of the year in which the minimum distribution is required. Free ez tax It can be provided with the year-end fair market value statement that you normally get each year. Free ez tax No report is required for IRAs of owners who have died. Free ez tax IRA interest. Free ez tax  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Free ez tax Tax on your traditional IRA is generally deferred until you take a distribution. Free ez tax Do not report this interest on your tax return as tax-exempt interest. Free ez tax Form 8606. Free ez tax   To designate contributions as nondeductible, you must file Form 8606, Nondeductible IRAs. Free ez tax The term “50 or older” is used several times in this chapter. Free ez tax It refers to an IRA owner who is age 50 or older by the end of the tax year. Free ez tax Introduction An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement. Free ez tax This chapter discusses the following topics. Free ez tax The rules for a traditional IRA (any IRA that is not a Roth or SIMPLE IRA). Free ez tax The Roth IRA, which features nondeductible contributions and tax-free distributions. Free ez tax Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. Free ez tax For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590. Free ez tax For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions, see Publication 590. Free ez tax Useful Items - You may want to see: Publication 560 Retirement Plans for Small Business 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts 8606 Nondeductible IRAs Traditional IRAs In this chapter, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Free ez tax ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Free ez tax Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Free ez tax Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. Free ez tax What is compensation?   Generally, compensation is what you earn from working. Free ez tax Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services. Free ez tax The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Free ez tax   Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. Free ez tax   Compensation also includes commissions and taxable alimony and separate maintenance payments. Free ez tax Self-employment income. Free ez tax   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deductible part of your self-employment tax. Free ez tax   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Free ez tax Nontaxable combat pay. Free ez tax   For IRA purposes, if you were a member of the U. Free ez tax S. Free ez tax Armed Forces, your compensation includes any nontaxable combat pay you receive. Free ez tax What is not compensation?   Compensation does not include any of the following items. Free ez tax Earnings and profits from property, such as rental income, interest income, and dividend income. Free ez tax Pension or annuity income. Free ez tax Deferred compensation received (compensation payments postponed from a past year). Free ez tax Income from a partnership for which you do not provide services that are a material income-producing factor. Free ez tax Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Free ez tax Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Free ez tax When and How Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Free ez tax However, the time for making contributions for any year is limited. Free ez tax See When Can Contributions Be Made , later. Free ez tax You can open different kinds of IRAs with a variety of organizations. Free ez tax You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Free ez tax You can also open an IRA through your stockbroker. Free ez tax Any IRA must meet Internal Revenue Code requirements. Free ez tax Kinds of traditional IRAs. Free ez tax   Your traditional IRA can be an individual retirement account or annuity. Free ez tax It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Free ez tax How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Free ez tax These limits and other rules are explained below. Free ez tax Community property laws. Free ez tax   Except as discussed later under Kay Bailey Hutchison Spousal IRA limit , each spouse figures his or her limit separately, using his or her own compensation. Free ez tax This is the rule even in states with community property laws. Free ez tax Brokers' commissions. Free ez tax   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Free ez tax Trustees' fees. Free ez tax   Trustees' administrative fees are not subject to the contribution limit. Free ez tax Qualified reservist repayments. Free ez tax   If you are (or were) a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions you received. Free ez tax You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Free ez tax To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or similar arrangement. Free ez tax   For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 of Publication 590. Free ez tax Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Free ez tax (See Roth IRAs, later. Free ez tax ) General limit. Free ez tax   For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts. Free ez tax $5,500 ($6,500 if you are 50 or older). Free ez tax Your taxable compensation (defined earlier) for the year. Free ez tax This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Free ez tax (See Nondeductible Contributions , later. Free ez tax ) Qualified reservist repayments do not affect this limit. Free ez tax Example 1. Free ez tax Betty, who is 34 years old and single, earned $24,000 in 2013. Free ez tax Her IRA contributions for 2013 are limited to $5,500. Free ez tax Example 2. Free ez tax John, an unmarried college student working part time, earned $3,500 in 2013. Free ez tax His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Free ez tax Kay Bailey Hutchison Spousal IRA limit. Free ez tax   For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following amounts. Free ez tax $5,500 ($6,500 if you are 50 or older). Free ez tax The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Free ez tax Your spouse's IRA contribution for the year to a traditional IRA. Free ez tax Any contribution for the year to a Roth IRA on behalf of your spouse. Free ez tax This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is 50 or older, or $13,000 if both of you are 50 or older). Free ez tax When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Free ez tax Contributions must be in the form of money (cash, check, or money order). Free ez tax Property cannot be contributed. Free ez tax Contributions must be made by due date. Free ez tax   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Free ez tax Age 70½ rule. Free ez tax   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Free ez tax   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Free ez tax If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Free ez tax Designating year for which contribution is made. Free ez tax   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Free ez tax If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Free ez tax Filing before a contribution is made. Free ez tax   You can file your return claiming a traditional IRA contribution before the contribution is actually made. Free ez tax Generally, the contribution must be made by the due date of your return, not including extensions. Free ez tax Contributions not required. Free ez tax   You do not have to contribute to your traditional IRA for every tax year, even if you can. Free ez tax How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if it applies). Free ez tax However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Free ez tax See Limit If Covered by Employer Plan , later. Free ez tax You may be able to claim a credit for contributions to your traditional IRA. Free ez tax For more information, see chapter 37. Free ez tax Trustees' fees. Free ez tax   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Free ez tax However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Free ez tax See chapter 28. Free ez tax Brokers' commissions. Free ez tax   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Free ez tax Full deduction. Free ez tax   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older in 2013). Free ez tax 100% of your compensation. Free ez tax This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Free ez tax Kay Bailey Hutchison Spousal IRA. Free ez tax   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of the following amounts. Free ez tax $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older in 2013). Free ez tax The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Free ez tax The IRA deduction for the year of the spouse with the greater compensation. Free ez tax Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Free ez tax Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Free ez tax This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation. Free ez tax Note. Free ez tax If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Free ez tax After a divorce or legal separation, you can deduct only contributions to your own IRA. Free ez tax Your deductions are subject to the rules for single individuals. Free ez tax Covered by an employer retirement plan. Free ez tax   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Free ez tax This is discussed later under Limit If Covered by Employer Plan . Free ez tax Limits on the amount you can deduct do not affect the amount that can be contributed. Free ez tax See Nondeductible Contributions , later. Free ez tax Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Free ez tax The “Retirement plan” box should be checked if you were covered. Free ez tax Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered by an Employer Plan , later. Free ez tax If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Free ez tax Federal judges. Free ez tax   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan. Free ez tax For Which Year(s) Are You Covered by an Employer Plan? Special rules apply to determine the tax years for which you are covered by an employer plan. Free ez tax These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Free ez tax Tax year. Free ez tax   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Free ez tax For almost all people, the tax year is the calendar year. Free ez tax Defined contribution plan. Free ez tax   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Free ez tax   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Free ez tax Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Free ez tax Defined benefit plan. Free ez tax   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Free ez tax This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Free ez tax   A defined benefit plan is any plan that is not a defined contribution plan. Free ez tax Defined benefit plans include pension plans and annuity plans. Free ez tax No vested interest. Free ez tax   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Free ez tax Situations in Which You Are Not Covered by an Employer Plan Unless you are covered under another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Free ez tax Social security or railroad retirement. Free ez tax   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Free ez tax Benefits from a previous employer's plan. Free ez tax   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Free ez tax Reservists. Free ez tax   If the only reason you participate in a plan is because you are a member of a reserve unit of the armed forces, you may not be covered by the plan. Free ez tax You are not covered by the plan if both of the following conditions are met. Free ez tax The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Free ez tax You did not serve more than 90 days on active duty during the year (not counting duty for training). Free ez tax Volunteer firefighters. Free ez tax   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Free ez tax You are not covered by the plan if both of the following conditions are met. Free ez tax The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Free ez tax Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Free ez tax Limit If Covered by Employer Plan If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Free ez tax Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Free ez tax These amounts vary depending on your filing status. Free ez tax To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. Free ez tax See Filing status and Modified adjusted gross income (AGI) , later. Free ez tax Then use Table 17-1 or 17-2 to determine if the phaseout applies. Free ez tax Social security recipients. Free ez tax   Instead of using Table 17-1 or Table 17-2, use the worksheets in Appendix B of Publication 590 if, for the year, all of the following apply. Free ez tax You received social security benefits. Free ez tax You received taxable compensation. Free ez tax Contributions were made to your traditional IRA. Free ez tax You or your spouse was covered by an employer retirement plan. Free ez tax Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Free ez tax Deduction phaseout. Free ez tax   If you were covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI as shown in Table 17-1. Free ez tax Table 17-1. Free ez tax Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Free ez tax IF your filing status is. Free ez tax . Free ez tax . Free ez tax   AND your modified AGI is. Free ez tax . Free ez tax . Free ez tax   THEN you can take. Free ez tax . Free ez tax . Free ez tax single   or  head of household   $59,000 or less   a full deduction. Free ez tax   more than $59,000 but less than $69,000   a partial deduction. Free ez tax   $69,000 or more   no deduction. Free ez tax married filing jointly   or  qualifying widow(er)   $95,000 or less   a full deduction. Free ez tax   more than $95,000 but less than $115,000   a partial deduction. Free ez tax   $115,000 or more   no deduction. Free ez tax married filing separately2   less than $10,000   a partial deduction. Free ez tax   $10,000 or more   no deduction. Free ez tax 1Modified AGI (adjusted gross income). Free ez tax See Modified adjusted gross income (AGI) . Free ez tax 2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” column). Free ez tax If your spouse is covered. Free ez tax   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 17-2. Free ez tax Filing status. Free ez tax   Your filing status depends primarily on your marital status. Free ez tax For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Free ez tax If you need more information on filing status, see chapter 2. Free ez tax Lived apart from spouse. Free ez tax   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Free ez tax Table 17-2. Free ez tax Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Free ez tax IF your filing status is. Free ez tax . Free ez tax . Free ez tax   AND your modified AGI is. Free ez tax . Free ez tax . Free ez tax   THEN you can take. Free ez tax . Free ez tax . Free ez tax single, head of household, or qualifying widow(er)   any amount   a full deduction. Free ez tax married filing jointly or separately with a spouse who is not covered by a plan at work   any amount   a full deduction. Free ez tax married filing jointly with a spouse who is covered by a plan at work   $178,000 or less   a full deduction. Free ez tax   more than $178,000 but less than $188,000   a partial deduction. Free ez tax   $188,000 or more   no deduction. Free ez tax married filing separately with a spouse who is covered by a plan at work2   less than $10,000   a partial deduction. Free ez tax   $10,000 or more   no deduction. Free ez tax 1Modified AGI (adjusted gross income). Free ez tax See Modified adjusted gross income (AGI) . Free ez tax 2You are entitled to the full deduction if you did not live with your spouse at any time during the year. Free ez tax Modified adjusted gross income (AGI). Free ez tax   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. Free ez tax If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Publication 590. Free ez tax You may be able to use Worksheet 17-1 to figure your modified AGI. Free ez tax    Do not assume that your modified AGI is the same as your compensation. Free ez tax Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions. Free ez tax Form 1040. Free ez tax   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following eight amounts. Free ez tax IRA deduction. Free ez tax Student loan interest deduction. Free ez tax Tuition and fees deduction. Free ez tax Domestic production activities deduction. Free ez tax Foreign earned income exclusion. Free ez tax Foreign housing exclusion or deduction. Free ez tax Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U. Free ez tax S. Free ez tax Savings Bonds Issued After 1989. Free ez tax Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses. Free ez tax This is your modified AGI. Free ez tax Form 1040A. Free ez tax   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Free ez tax IRA deduction. Free ez tax Student loan interest deduction. Free ez tax Tuition and fees deduction. Free ez tax Exclusion of qualified savings bond interest shown on Form 8815. Free ez tax This is your modified AGI. Free ez tax Both contributions for 2013 and distributions in 2013. Free ez tax   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Free ez tax You received distributions in 2013 from one or more traditional IRAs. Free ez tax You made contributions to a traditional IRA for 2013. Free ez tax Some of those contributions may be nondeductible contributions. Free ez tax If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Free ez tax To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590. Free ez tax   If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1, later. Free ez tax    How to figure your reduced IRA deduction. Free ez tax   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. Free ez tax Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead. Free ez tax Worksheet 17-1. Free ez tax Figuring Your Modified AGI Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes. Free ez tax 1. Free ez tax Enter your adjusted gross income (AGI) from Form 1040, line 38, or Form 1040A, line 22, figured without taking into account the amount from Form 1040, line 32, or Form 1040A, line 17 1. Free ez tax   2. Free ez tax Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18 2. Free ez tax   3. Free ez tax Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Free ez tax   4. Free ez tax Enter any domestic production activities deduction from Form 1040, line 35 4. Free ez tax   5. Free ez tax Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Free ez tax   6. Free ez tax Enter any foreign housing deduction from Form 2555, line 50 6. Free ez tax   7. Free ez tax Enter any excludable savings bond interest from Form 8815, line 14 7. Free ez tax   8. Free ez tax Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Free ez tax   9. Free ez tax Add lines 1 through 8. Free ez tax This is your Modified AGI for traditional IRA purposes 9. Free ez tax   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Free ez tax If you file Form 1040A, enter your IRA deduction on line 17. Free ez tax You cannot deduct IRA contributions on Form 1040EZ. Free ez tax Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Free ez tax The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Free ez tax Example. Free ez tax Mike is 28 years old and single. Free ez tax In 2013, he was covered by a retirement plan at work. Free ez tax His salary was $57,312. Free ez tax His modified AGI was $70,000. Free ez tax Mike made a $5,500 IRA contribution for 2013. Free ez tax Because he was covered by a retirement plan and his modified AGI was over $69,000, he cannot deduct his $5,500 IRA contribution. Free ez tax He must designate this contribution as a nondeductible contribution by reporting it on Form 8606, as explained next. Free ez tax Form 8606. Free ez tax   To designate contributions as nondeductible, you must file Form 8606. Free ez tax   You do not have to designate a contribution as nondeductible until you file your tax return. Free ez tax When you file, you can even designate otherwise deductible contributions as nondeductible. Free ez tax   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Free ez tax A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Free ez tax In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Free ez tax See Form 8606 under Distributions Fully or Partly Taxable, later. Free ez tax Failure to report nondeductible contributions. Free ez tax   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions when withdrawn. Free ez tax All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Free ez tax Penalty for overstatement. Free ez tax   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Free ez tax Penalty for failure to file Form 8606. Free ez tax   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Free ez tax    Tax on earnings on nondeductible contributions. Free ez tax   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Free ez tax See When Can You Withdraw or Use IRA Assets , later. Free ez tax Cost basis. Free ez tax   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Free ez tax Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Free ez tax Inherited IRAs If you inherit a traditional IRA, you are called a beneficiary. Free ez tax A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Free ez tax Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Free ez tax Inherited from spouse. Free ez tax   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Free ez tax You can: Treat it as your own IRA by designating yourself as the account owner. Free ez tax Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (section 403(b) plan), or Deferred compensation plan of a state or local government (section 457 plan). Free ez tax Treat yourself as the beneficiary rather than treating the IRA as your own. Free ez tax Treating it as your own. Free ez tax   You will be considered to have chosen to treat the IRA as your own if: Contributions (including rollover contributions) are made to the inherited IRA, or You do not take the required minimum distribution for a year as a beneficiary of the IRA. Free ez tax You will only be considered to have chosen to treat the IRA as your own if: You are the sole beneficiary of the IRA, and You have an unlimited right to withdraw amounts from it. Free ez tax   However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. Free ez tax Inherited from someone other than spouse. Free ez tax   If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. Free ez tax This means that you cannot make any contributions to the IRA. Free ez tax It also means you cannot roll over any amounts into or out of the inherited IRA. Free ez tax However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. Free ez tax For more information, see the discussion of inherited IRAs under Rollover From One IRA Into Another, later. Free ez tax Can You Move Retirement Plan Assets? You can transfer, tax free, assets (money or property) from other retirement plans (including traditional IRAs) to a traditional IRA. Free ez tax You can make the following kinds of transfers. Free ez tax Transfers from one trustee to another. Free ez tax Rollovers. Free ez tax Transfers incident to a divorce. Free ez tax Transfers to Roth IRAs. Free ez tax   Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. Free ez tax You can also move assets from a qualified retirement plan to a Roth IRA. Free ez tax See Can You Move Amounts Into a Roth IRA? under Roth IRAs, later. Free ez tax Trustee-to-Trustee Transfer A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Free ez tax Because there is no distribution to you, the transfer is tax free. Free ez tax Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers, discussed later under Rollover From One IRA Into Another . Free ez tax For information about direct transfers to IRAs from retirement plans other than IRAs, see Can You Move Retirement Plan Assets? in chapter 1 and Can You Move Amounts Into a Roth IRA? in chapter 2 of Publication 590. Free ez tax Rollovers Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute (roll over) to another retirement plan. Free ez tax The contribution to the second retirement plan is called a “rollover contribution. Free ez tax ” Note. Free ez tax An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan. Free ez tax Kinds of rollovers to a traditional IRA. Free ez tax   You can roll over amounts from the following plans into a traditional IRA: A traditional IRA, An employer's qualified retirement plan for its employees, A deferred compensation plan of a state or local government (section 457 plan), or A tax-sheltered annuity plan (section 403(b) plan). Free ez tax Treatment of rollovers. Free ez tax   You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and under Reporting rollovers from employer plans . Free ez tax Kinds of rollovers from a traditional IRA. Free ez tax   You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. Free ez tax These plans include the federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). Free ez tax The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Free ez tax Qualified plans may, but are not required to, accept such rollovers. Free ez tax Time limit for making a rollover contribution. Free ez tax   You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. Free ez tax The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. Free ez tax For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free ez tax Extension of rollover period. Free ez tax   If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, special rules extend the rollover period. Free ez tax For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free ez tax More information. Free ez tax   For more information on rollovers, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free ez tax Rollover From One IRA Into Another You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Free ez tax Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA. Free ez tax Waiting period between rollovers. Free ez tax   Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. Free ez tax You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. Free ez tax   The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Free ez tax Example. Free ez tax You have two traditional IRAs, IRA-1 and IRA-2. Free ez tax You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Free ez tax You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. Free ez tax However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. Free ez tax This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2. Free ez tax Exception. Free ez tax   For an exception for distributions from failed financial institutions, see Rollover From One IRA Into Another under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free ez tax Partial rollovers. Free ez tax   If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. Free ez tax The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). Free ez tax The amount you keep may be subject to the 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes? . Free ez tax Required distributions. Free ez tax   Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. Free ez tax Inherited IRAs. Free ez tax   If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own. Free ez tax See Treating it as your own , earlier. Free ez tax Not inherited from spouse. Free ez tax   If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. Free ez tax You must withdraw the IRA assets within a certain period. Free ez tax For more information, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Free ez tax Reporting rollovers from IRAs. Free ez tax   Report any rollover from one traditional IRA to the same or another traditional IRA on lines 15a and 15b, Form 1040, or lines 11a and 11b, Form 1040A, as follows. Free ez tax   Enter the total amount of the distribution on Form 1040, line 15a, or Form 1040A, line 11a. Free ez tax If the total amount on Form 1040, line 15a, or Form 1040A, line 11a, was rolled over, enter zero on Form 1040, line 15b, or Form 1040A, line 11b. Free ez tax If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b, or Form 1040A, line 11b. Free ez tax Put “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b. Free ez tax See your tax return instructions. Free ez tax   If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2014, attach a statement explaining what you did. Free ez tax Rollover From Employer's Plan Into an IRA You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan; Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Free ez tax A qualified plan is one that meets the requirements of the Internal Revenue Code. Free ez tax Eligible rollover distribution. Free ez tax   Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following. Free ez tax A required minimum distribution (explained later under When Must You Withdraw IRA Assets? (Required Minimum Distributions) ). Free ez tax A hardship distribution. Free ez tax Any of a series of substantially equal periodic distributions paid at least once a year over: Your lifetime or life expectancy, The lifetimes or life expectancies of you and your beneficiary, or A period of 10 years or more. Free ez tax Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains. Free ez tax A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan. Free ez tax Dividends on employer securities. Free ez tax The cost of life insurance coverage. Free ez tax Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Free ez tax To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Free ez tax See Form 8606 under Distributions Fully or Partly Taxable, later. Free ez tax Rollover by nonspouse beneficiary. Free ez tax   A direct transfer from a deceased employee's qualified pension, profit-sharing, or stock bonus plan; annuity plan; tax-sheltered annuity (section 403(b)) plan; or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. Free ez tax The IRA is treated as an inherited IRA. Free ez tax For more information about inherited IRAs, see Inherited IRAs , earlier. Free ez tax Reporting rollovers from employer plans. Free ez tax    Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a, or Form 1040A, line 12a. Free ez tax This amount should be shown in box 1 of Form 1099-R. Free ez tax From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Free ez tax From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Free ez tax Enter the remaining amount, even if zero, on Form 1040, line 16b, or Form 1040A, line 12b. Free ez tax Also, enter "Rollover" next to Form 1040, line 16b, or Form 1040A, line 12b. Free ez tax Transfers Incident to Divorce If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. Free ez tax The transfer is tax free. Free ez tax For detailed information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free ez tax Converting From Any Traditional IRA to a Roth IRA Allowable conversions. Free ez tax   You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. Free ez tax The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. Free ez tax If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. Free ez tax However, a part or all of the conversion contribution from your traditional IRA is included in your gross income. Free ez tax Required distributions. Free ez tax   You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70½) under the required distribution rules (discussed later). Free ez tax Income. Free ez tax   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Free ez tax These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Free ez tax   You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed later. Free ez tax   You must file Form 8606 to report 2013 conversions from traditional, SEP, or SIMPLE IRAs to a Roth IRA in 2013 (unless you recharacterized the entire amount) and to figure the amount to include in income. Free ez tax   If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Free ez tax See chapter 4. Free ez tax Recharacterizations You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. Free ez tax This is called recharacterizing the contribution. Free ez tax See Can You Move Retirement Plan Assets? in chapter 1 of Publication 590 for more detailed information. Free ez tax How to recharacterize a contribution. Free ez tax   To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. Free ez tax If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. Free ez tax If you recharacterize your contribution, you must do all three of the following. Free ez tax Include in the transfer any net income allocable to the contribution. Free ez tax If there was a loss, the net income you must transfer may be a negative amount. Free ez tax Report the recharacterization on your tax return for the year during which the contribution was made. Free ez tax Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. Free ez tax No deduction allowed. Free ez tax   You cannot deduct the contribution to the first IRA. Free ez tax Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. Free ez tax Required notifications. Free ez tax   To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. Free ez tax You must make the notifications by the date of the transfer. Free ez tax Only one notification is required if both IRAs are maintained by the same trustee. Free ez tax The notification(s) must include all of the following information. Free ez tax The type and amount of the contribution to the first IRA that is to be recharacterized. Free ez tax The date on which the contribution was made to the first IRA and the year for which it was made. Free ez tax A direction to the trustee of the first IRA to transfer in a trustee-to-trustee transfer the amount of the contribution and any net income (or loss) allocable to the contribution to the trustee of the second IRA. Free ez tax The name of the trustee of the first IRA and the name of the trustee of the second IRA. Free ez tax Any additional information needed to make the transfer. Free ez tax Reporting a recharacterization. Free ez tax   If you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. Free ez tax You must treat the contribution as having been made to the second IRA. Free ez tax When Can You Withdraw or Use IRA Assets? There are rules limiting use of your IRA assets and distributions from it. Free ez tax Violation of the rules generally results in additional taxes in the year of violation. Free ez tax See What Acts Result in Penalties or Additional Taxes , later. Free ez tax Contributions returned before the due date of return. Free ez tax   If you made IRA contributions in 2013, you can withdraw them tax free by the due date of your return. Free ez tax If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. Free ez tax You can do this if, for each contribution you withdraw, both of the following conditions apply. Free ez tax You did not take a deduction for the contribution. Free ez tax You withdraw any interest or other income earned on the contribution. Free ez tax You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Free ez tax If there was a loss, the net income earned on the contribution may be a negative amount. Free ez tax Note. Free ez tax To calculate the amount you must withdraw, see Worksheet 1-4 under When Can You Withdraw or Use Assets? in chapter 1 of Publication 590. Free ez tax Earnings includible in income. Free ez tax   You must include in income any earnings on the contributions you withdraw. Free ez tax Include the earnings in income for the year in which you made the contributions, not in the year in which you withdraw them. Free ez tax Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. Free ez tax Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes?, later. Free ez tax    Early distributions tax. Free ez tax   The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. Free ez tax However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. Free ez tax When Must You Withdraw IRA Assets? (Required Minimum Distributions) You cannot keep funds in a traditional IRA indefinitely. Free ez tax Eventually they must be distributed. Free ez tax If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. Free ez tax See Excess Accumulations (Insufficient Distributions) , later. Free ez tax The requirements for distributing IRA funds differ depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. Free ez tax Required minimum distribution. Free ez tax   The amount that must be distributed each year is referred to as the required minimum distribution. Free ez tax Required distributions not eligible for rollover. Free ez tax   Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment. Free ez tax IRA owners. Free ez tax   If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Free ez tax April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date. Free ez tax Distributions by the required beginning date. Free ez tax   You must receive at least a minimum amount for each year starting with the year you reach age 70½ (your 70½ year). Free ez tax If you do not (or did not) receive that minimum amount in your 70½ year, then you must receive distributions for your 70½ year by April 1 of the next year. Free ez tax   If an IRA owner dies after reaching age 70½, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. Free ez tax Even if you begin receiving distributions before you attain age 70½, you must begin calculating and receiving required minimum distributions by your required beginning date. Free ez tax Distributions after the required beginning date. Free ez tax   The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year. Free ez tax    Beneficiaries. Free ez tax   If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA generally depend on whether the IRA owner died before or after the required beginning date for distributions. Free ez tax More information. Free ez tax   For more information, including how to figure your minimum required distribution each year and how to figure your required distribution if you are a beneficiary of a decedent's IRA, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Free ez tax Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. Free ez tax Exceptions. Free ez tax   Exceptions to distributions from traditional IRAs being taxable in the year you receive them are: Rollovers, Qualified charitable distributions (QCD), discussed later, Tax-free withdrawals of contributions, discussed earlier, and The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable . Free ez tax    Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it is not an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. Free ez tax Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained in Converting From Any Traditional IRA Into a Roth IRA under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Free ez tax Qualified charitable distributions (QCD). Free ez tax   A QCD is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. Free ez tax Special rules apply if you made a qualified charitable distribution in January 2013 that you elected to treat as made in 2012. Free ez tax See Qualified Charitable Distributions in Publication 590 for more information. Free ez tax Ordinary income. Free ez tax   Distributions from traditional IRAs that you include in income are taxed as ordinary income. Free ez tax No special treatment. Free ez tax   In figuring your tax, you cannot use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans. Free ez tax Distributions Fully or Partly Taxable Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions. Free ez tax Fully taxable. Free ez tax   If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Free ez tax Because you have no basis in your IRA, any distributions are fully taxable when received. Free ez tax See Reporting taxable distributions on your return , later. Free ez tax Partly taxable. Free ez tax    If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. Free ez tax These nondeductible contributions are not taxed when they are distributed to you. Free ez tax They are a return of your investment in your IRA. Free ez tax   Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. Free ez tax If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Free ez tax Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. Free ez tax Form 8606. Free ez tax   You must complete Form 8606 and attach it to your return if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. Free ez tax Using the form, you will figure the nontaxable distributions for 2013 and your total IRA basis for 2013 and earlier years. Free ez tax Note. Free ez tax If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. Free ez tax Send it to the IRS at the time and place you would otherwise file an income tax return. Free ez tax Distributions reported on Form 1099-R. Free ez tax   If you receive a distribution from your traditional IRA, you will receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free ez tax , or a similar statement. Free ez tax IRA distributions are shown in boxes 1 and 2a of Form 1099-R. Free ez tax A number or letter code in box 7 tells you what type of distribution you received from your IRA. Free ez tax Withholding. Free ez tax   Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. Free ez tax See chapter 4. Free ez tax IRA distributions delivered outside the United States. Free ez tax   In general, if you are a U. Free ez tax S. Free ez tax citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA. Free ez tax Reporting taxable distributions on your return. Free ez tax    Report fully taxable distributions, including early distributions on Form 1040, line 15b, or Form 1040A, line 11b (no entry is required on Form 1040, line 15a, or Form 1040A, line 11a). Free ez tax If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a, or Form 1040A, line 11a, and the taxable part on Form 1040, line 15b, or Form 1040A, line 11b. Free ez tax You cannot report distributions on Form 1040EZ. Free ez tax What Acts Result in Penalties or Additional Taxes? The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. Free ez tax There are additions to the regular tax for using your IRA funds in prohibited transactions. Free ez tax There are also additional taxes for the following activities. Free ez tax Investing in collectibles. Free ez tax Making excess contributions. Free ez tax Taking early distributions. Free ez tax Allowing excess amounts to accumulate (failing to take required distributions). Free ez tax There are penalties for overstating the amount of nondeductible contributions and for failure to file a Form 8606, if required. Free ez tax Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA by you, your beneficiary, or any disqualified person. Free ez tax Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendent, and any spouse of a lineal descendent). Free ez tax The following are examples of prohibited transactions with a traditional IRA. Free ez tax Borrowing money from it. Free ez tax Selling property to it. Free ez tax Receiving unreasonable compensation for managing it. Free ez tax Using it as security for a loan. Free ez tax Buying property for personal use (present or future) with IRA funds. Free ez tax Effect on an IRA account. Free ez tax   Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Free ez tax Effect on you or your beneficiary. Free ez tax   If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. Free ez tax If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. Free ez tax For information on figuring your gain and reporting it in income, see Are Distributions Taxable , earlier. Free ez tax The distribution may be subject to additional taxes or penalties. Free ez tax Taxes on prohibited transactions. Free ez tax   If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. Free ez tax In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction is not corrected. Free ez tax More information. Free ez tax   For more information on prohibited transactions, see What Acts Result in Penalties or Additional Taxes? in chapter 1 of Publication 590. Free ez tax Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. Free ez tax You may have to pay the 10% additional tax on early distributions, discussed later. Free ez tax Collectibles. Free ez tax   These include: Artworks, Rugs, Antiques, Metals, Gems, Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property. Free ez tax Exception. Free ez tax    Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U. Free ez tax S. Free ez tax gold coins, or one-ounce silver coins minted by the Treasury Department. Free ez tax It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Free ez tax Excess Contributions Generally, an excess contribution is the amount contributed to your traditional IRA(s) for the year that is more than the smaller of: The maximum deductible amount for the year. Free ez tax For 2013, this is $5,500 ($6,500 if you are 50 or older), or Your taxable compensation for the year. Free ez tax Tax on excess contributions. Free ez tax   In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. Free ez tax You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. Free ez tax The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. Free ez tax Excess contributions withdrawn by due date of return. Free ez tax   You will not have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution. Free ez tax You must complete your withdrawal by the date your tax return for that year is due, including extensions. Free ez tax How to treat withdrawn contributions. Free ez tax   Do not include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both the following conditions are met. Free ez tax No deduction was allowed for the excess contribution. Free ez tax You withdraw the interest or other income earned on the excess contribution. Free ez tax You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Free ez tax If there was a loss, the net income you must withdraw may be a negative amount. Free ez tax How to treat withdrawn interest or other income. Free ez tax   You must include in your gross income the interest or other income that was earned on the excess contribution. Free ez tax Report it on your return for the year in which the excess contribution was made. Free ez tax Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions, discus