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Free federal tax filing 28. Free federal tax filing   Miscellaneous Deductions Table of Contents What's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses What's New Standard mileage rate. Free federal tax filing  The 2013 rate for business use of a vehicle is 56½ cents per mile. Free federal tax filing Introduction This chapter explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). Free federal tax filing You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. Free federal tax filing This chapter covers the following topics. Free federal tax filing Deductions subject to the 2% limit. Free federal tax filing Deductions not subject to the 2% limit. Free federal tax filing Expenses you cannot deduct. Free federal tax filing You must keep records to verify your deductions. Free federal tax filing You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. Free federal tax filing For more information on recordkeeping, get Publication 552, Record- keeping for Individuals. Free federal tax filing Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). Free federal tax filing You can claim the amount of expenses that is more than 2% of your adjusted gross income. Free federal tax filing You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Free federal tax filing Your adjusted gross income is the amount on Form 1040, line 38. Free federal tax filing Generally, you apply the 2% limit after you apply any other deduction limit. Free federal tax filing For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed in chapter 26) before you apply the 2% limit. Free federal tax filing Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A (Form 1040). Free federal tax filing Unreimbursed employee expenses (line 21). Free federal tax filing Tax preparation fees (line 22). Free federal tax filing Other expenses (line 23). Free federal tax filing Unreimbursed Employee Expenses (Line 21) Generally, you can deduct on Schedule A (Form 1040), line 21, unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. Free federal tax filing An expense is ordinary if it is common and accepted in your trade, business, or profession. Free federal tax filing An expense is necessary if it is appropriate and helpful to your business. Free federal tax filing An expense does not have to be required to be considered necessary. Free federal tax filing Examples of unreimbursed employee expenses are listed next. Free federal tax filing The list is followed by discussions of additional unreimbursed employee expenses. Free federal tax filing Business bad debt of an employee. Free federal tax filing Education that is work related. Free federal tax filing (See chapter 27. Free federal tax filing ) Legal fees related to your job. Free federal tax filing Licenses and regulatory fees. Free federal tax filing Malpractice insurance premiums. Free federal tax filing Medical examinations required by an employer. Free federal tax filing Occupational taxes. Free federal tax filing Passport for a business trip. Free federal tax filing Subscriptions to professional journals and trade magazines related to your work. Free federal tax filing Travel, transportation, entertainment, and gifts related to your work. Free federal tax filing (See chapter 26. Free federal tax filing ) Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. Free federal tax filing Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer that are attributable to the pay you received from that employer. Free federal tax filing Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. Free federal tax filing For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer, see Publication 529. Free federal tax filing Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Free federal tax filing Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. Free federal tax filing Lobbying and political activities. Free federal tax filing   You may not be able to deduct that part of your dues that is for certain lobbying and political activities. Free federal tax filing See Dues used for lobbying under Nondeductible Expenses, later. Free federal tax filing Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. Free federal tax filing If you file Form 1040A, you can deduct these expenses on line 16. Free federal tax filing If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. Free federal tax filing However, neither spouse can deduct more than $250 of his or her qualified expenses. Free federal tax filing Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. Free federal tax filing You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. Free federal tax filing The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. Free federal tax filing See Publication 587 for more detailed information and a worksheet. Free federal tax filing Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. Free federal tax filing You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. Free federal tax filing Employment and outplacement agency fees. Free federal tax filing   You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. Free federal tax filing Employer pays you back. Free federal tax filing   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Free federal tax filing (See Recoveries in chapter 12. Free federal tax filing ) Employer pays the employment agency. Free federal tax filing   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. Free federal tax filing Résumé. Free federal tax filing   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. Free federal tax filing Travel and transportation expenses. Free federal tax filing   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. Free federal tax filing You can deduct the travel expenses if the trip is primarily to look for a new job. Free federal tax filing The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. Free federal tax filing   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. Free federal tax filing   You can choose to use the standard mileage rate to figure your car expenses. Free federal tax filing The 2013 rate for business use of a vehicle is 56½ cents per mile. Free federal tax filing See chapter 26 for more information. Free federal tax filing Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. Free federal tax filing Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Free federal tax filing If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. Free federal tax filing Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. Free federal tax filing If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. Free federal tax filing Research Expenses of a College Professor If you are a college professor, you can deduct research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. Free federal tax filing You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. Free federal tax filing However, you cannot deduct the cost of travel as a form of education. Free federal tax filing Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. Free federal tax filing You can depreciate the cost of tools that have a useful life substantially beyond the tax year. Free federal tax filing For more information about depreciation, see Publication 946. Free federal tax filing Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. Free federal tax filing You can also deduct assessments for benefit payments to unemployed union members. Free federal tax filing However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Free federal tax filing Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions. Free federal tax filing You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. Free federal tax filing See Lobbying Expenses under Nondeductible Expenses, later. Free federal tax filing Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. Free federal tax filing You must wear them as a condition of your employment. Free federal tax filing The clothes are not suitable for everyday wear. Free federal tax filing It is not enough that you wear distinctive clothing. Free federal tax filing The clothing must be specifically required by your employer. Free federal tax filing Nor is it enough that you do not, in fact, wear your work clothes away from work. Free federal tax filing The clothing must not be suitable for taking the place of your regular clothing. Free federal tax filing Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. Free federal tax filing ). Free federal tax filing Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. Free federal tax filing However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. Free federal tax filing Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. Free federal tax filing Protective clothing. Free federal tax filing   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Free federal tax filing   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. Free federal tax filing Military uniforms. Free federal tax filing   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. Free federal tax filing However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. Free federal tax filing In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. Free federal tax filing   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. Free federal tax filing   You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. Free federal tax filing Tax Preparation Fees (Line 22) You can usually deduct tax preparation fees in the year you pay them. Free federal tax filing Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. Free federal tax filing These fees include the cost of tax preparation software programs and tax publications. Free federal tax filing They also include any fee you paid for electronic filing of your return. Free federal tax filing Other Expenses (Line 23) You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% limit. Free federal tax filing On Schedule A (Form 1040), line 23, you can deduct expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. Free federal tax filing You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. Free federal tax filing Some of these other expenses are explained in the following discussions. Free federal tax filing If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses , later, under Nondeductible Expenses. Free federal tax filing Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. Free federal tax filing Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. Free federal tax filing First report the loss in Section B of Form 4684, Casualties and Thefts. Free federal tax filing You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. Free federal tax filing To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Free federal tax filing For other casualty and theft losses, see chapter 25. Free federal tax filing Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. Free federal tax filing Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. Free federal tax filing The fees are deductible in the year paid. Free federal tax filing Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). Free federal tax filing You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. Free federal tax filing But if you work as an employee and also use the computer in that work, see Publication 946. Free federal tax filing Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. Free federal tax filing Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. Free federal tax filing The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. Free federal tax filing For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. Free federal tax filing Fees to Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. Free federal tax filing But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. Free federal tax filing You must add the fee to the cost of the property. Free federal tax filing You cannot deduct the fee you pay to a broker to sell securities. Free federal tax filing You can use the fee only to figure gain or loss from the sale. Free federal tax filing See the Instructions for Form 8949 for information on how to report the fee. Free federal tax filing Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. Free federal tax filing A hobby is not a business because it is not carried on to make a profit. Free federal tax filing See Activity not for profit in chapter 12 under Other Income. Free federal tax filing Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. Free federal tax filing Deductions of pass-through entities are passed through to the partners or shareholders. Free federal tax filing The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. Free federal tax filing Example. Free federal tax filing You are a member of an investment club that is formed solely to invest in securities. Free federal tax filing The club is treated as a partnership. Free federal tax filing The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. Free federal tax filing In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. Free federal tax filing However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. Free federal tax filing Publicly offered mutual funds. Free federal tax filing   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. Free federal tax filing A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. Free federal tax filing   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). Free federal tax filing This net figure is the amount you report on your return as income. Free federal tax filing You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. Free federal tax filing Information returns. Free federal tax filing   You should receive information returns from pass-through entities. Free federal tax filing Partnerships and S corporations. Free federal tax filing   These entities issue Schedule K-1, which lists the items and amounts you must report and identifies the tax return schedules and lines to use. Free federal tax filing Nonpublicly offered mutual funds. Free federal tax filing   These funds will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing your share of gross income and investment expenses. Free federal tax filing You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. Free federal tax filing Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. Free federal tax filing Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. Free federal tax filing You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. Free federal tax filing You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F), on the appropriate schedule. Free federal tax filing You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040). Free federal tax filing See Tax Preparation Fees , earlier. Free federal tax filing Loss on Deposits For information on whether, and if so, how, you may deduct a loss on your deposit in a qualified financial institution, see Loss on Deposits in chapter 25. Free federal tax filing Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. Free federal tax filing If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. Free federal tax filing If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. Free federal tax filing Repayments of Social Security Benefits For information on how to deduct your repayments of certain social security benefits, see Repayments More Than Gross Benefits in chapter 11. Free federal tax filing Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. Free federal tax filing You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. Free federal tax filing Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. Free federal tax filing These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. Free federal tax filing Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. Free federal tax filing For more information about IRAs, see chapter 17. Free federal tax filing Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. Free federal tax filing They are not subject to the 2% limit. Free federal tax filing Report these items on Schedule A (Form 1040), line 28. Free federal tax filing List of Deductions Each of the following items is discussed in detail after the list (except where indicated). Free federal tax filing Amortizable premium on taxable bonds. Free federal tax filing Casualty and theft losses from income- producing property. Free federal tax filing Federal estate tax on income in respect of a decedent. Free federal tax filing Gambling losses up to the amount of gambling winnings. Free federal tax filing Impairment-related work expenses of persons with disabilities. Free federal tax filing Loss from other activities from Schedule K-1 (Form 1065-B), box 2. Free federal tax filing Losses from Ponzi-type investment schemes. Free federal tax filing See Losses from Ponzi-type investment schemes under Theft in chapter 25. Free federal tax filing Repayments of more than $3,000 under a claim of right. Free federal tax filing Unrecovered investment in an annuity. Free federal tax filing Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. Free federal tax filing You can elect to amortize the premium on taxable bonds. Free federal tax filing The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. Free federal tax filing Part of the premium on some bonds may be a miscellaneous deduction not subject to the 2% limit. Free federal tax filing For more information, see Amortizable Premium on Taxable Bonds in Publication 529, and Bond Premium Amortization in chapter 3 of Publication 550, Investment Income and Expenses. Free federal tax filing Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). Free federal tax filing First, report the loss in Form 4684, Section B. Free federal tax filing You may also have to include the loss on Form 4797, Sales of Business Property if you are otherwise required to file that form. Free federal tax filing To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Free federal tax filing For more information on casualty and theft losses, see chapter 25. Free federal tax filing Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. Free federal tax filing Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. Free federal tax filing See Publication 559 for more information. Free federal tax filing Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. Free federal tax filing You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. Free federal tax filing You cannot deduct gambling losses that are more than your winnings. Free federal tax filing You cannot reduce your gambling winnings by your gambling losses and report the difference. Free federal tax filing You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Free federal tax filing Therefore, your records should show your winnings separately from your losses. Free federal tax filing Diary of winnings and losses. Free federal tax filing You must keep an accurate diary or similar record of your losses and winnings. Free federal tax filing Your diary should contain at least the following information. Free federal tax filing The date and type of your specific wager or wagering activity. Free federal tax filing The name and address or location of the gambling establishment. Free federal tax filing The names of other persons present with you at the gambling establishment. Free federal tax filing The amount(s) you won or lost. Free federal tax filing See Publication 529 for more information. Free federal tax filing Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. Free federal tax filing Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and for other expenses in connection with your place of work that are necessary for you to be able to work. Free federal tax filing Self-employed. Free federal tax filing   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. Free federal tax filing Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28. Free federal tax filing It is not subject to the passive activity limitations. Free federal tax filing Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid or take a credit against your tax. Free federal tax filing See Repayments in chapter 12 for more information. Free federal tax filing Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. Free federal tax filing If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. Free federal tax filing See chapter 10 for more information about the tax treatment of pensions and annuities. Free federal tax filing Nondeductible Expenses Examples of nondeductible expenses are listed next. Free federal tax filing The list is followed by discussions of additional nondeductible expenses. Free federal tax filing List of Nondeductible Expenses Broker's commissions that you paid in connection with your IRA or other investment property. Free federal tax filing Burial or funeral expenses, including the cost of a cemetery lot. Free federal tax filing Capital expenses. Free federal tax filing Fees and licenses, such as car licenses, marriage licenses, and dog tags. Free federal tax filing Hobby losses, but see Hobby Expenses , earlier. Free federal tax filing Home repairs, insurance, and rent. Free federal tax filing Illegal bribes and kickbacks. Free federal tax filing See Bribes and kickbacks in chapter 11 of Publication 535. Free federal tax filing Losses from the sale of your home, furniture, personal car, etc. Free federal tax filing Personal disability insurance premiums. Free federal tax filing Personal, living, or family expenses. Free federal tax filing The value of wages never received or lost vacation time. Free federal tax filing Adoption Expenses You cannot deduct the expenses of adopting a child, but you may be able to take a credit for those expenses. Free federal tax filing See chapter 37. Free federal tax filing Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. Free federal tax filing These include qualification and registration fees for primary elections. Free federal tax filing Legal fees. Free federal tax filing   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. Free federal tax filing Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. Free federal tax filing Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Free federal tax filing This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. Free federal tax filing You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. Free federal tax filing Dues paid to airline, hotel, and luncheon clubs are not deductible. Free federal tax filing Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). Free federal tax filing If you haul tools, instruments, or other items, in your car to and from work, you can deduct only the additional cost of hauling the items such as the rent on a trailer to carry the items. Free federal tax filing Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. Free federal tax filing This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). Free federal tax filing Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. Free federal tax filing Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. Free federal tax filing Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. Free federal tax filing However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. Free federal tax filing See Home Office under Unreimbursed Employee Expenses, earlier, and Security System under Deducting Expenses in Publication 587. Free federal tax filing Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. Free federal tax filing Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. Free federal tax filing You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. Free federal tax filing See chapter 18 for information on alimony. Free federal tax filing Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. Free federal tax filing These include expenses to: Influence legislation, Participate or intervene in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. Free federal tax filing Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. Free federal tax filing Dues used for lobbying. Free federal tax filing   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. Free federal tax filing See Lobbying Expenses in Publication 529 for information on exceptions. Free federal tax filing Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. Free federal tax filing However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Free federal tax filing See chapter 25. Free federal tax filing Example. Free federal tax filing A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Free federal tax filing The diamond falls from the ring and is never found. Free federal tax filing The loss of the diamond is a casualty. Free federal tax filing Lunches with Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. Free federal tax filing See chapter 26 for information on deductible expenses while traveling away from home. Free federal tax filing Meals While Working Late You cannot deduct the cost of meals while working late. Free federal tax filing However, you may be able to claim a deduction if the cost of meals is a deductible entertainment expense, or if you are traveling away from home. Free federal tax filing See chapter 26 for information on deductible entertainment expenses and expenses while traveling away from home. Free federal tax filing Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. Free federal tax filing Custody of children. Free federal tax filing Breach of promise to marry suit. Free federal tax filing Civil or criminal charges resulting from a personal relationship. Free federal tax filing Damages for personal injury, except for certain unlawful discrimination and whistleblower claims. Free federal tax filing Preparation of a title (or defense or perfection of a title). Free federal tax filing Preparation of a will. Free federal tax filing Property claims or property settlement in a divorce. Free federal tax filing You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. Free federal tax filing Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Free federal tax filing Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. Free federal tax filing Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. Free federal tax filing Accounting certificate fees paid for the initial right to practice accounting. Free federal tax filing Bar exam fees and incidental expenses in securing initial admission to the bar. Free federal tax filing Medical and dental license fees paid to get initial licensing. Free federal tax filing Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. Free federal tax filing Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. Free federal tax filing Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. Free federal tax filing Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. Free federal tax filing You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. Free federal tax filing Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. Free federal tax filing You cannot deduct interest on a debt incurred or continued to buy or carry  tax-exempt securities. Free federal tax filing If you have expenses to produce both taxable and tax-exempt income, but you cannot identify the expenses that produce each type of income, you must divide the expenses based on the amount of each type of income to determine the amount that you can deduct. Free federal tax filing Example. Free federal tax filing During the year, you received taxable interest of $4,800 and tax-exempt interest of $1,200. Free federal tax filing In earning this income, you had total expenses of $500 during the year. Free federal tax filing You cannot identify the amount of each expense item that is for each income item. Free federal tax filing Therefore, 80% ($4,800/$6,000) of the expense is for the taxable interest and 20% ($1,200/$6,000) is for the tax-exempt interest. Free federal tax filing You can deduct, subject to the 2% limit, expenses of $400 (80% of $500). Free federal tax filing Travel Expenses for Another Individual You generally cannot deduct travel expenses you pay or incur for a spouse, dependent, or other individual who accompanies you (or your employee) on business or personal travel unless the spouse, dependent, or other individual is an employee of the taxpayer, the travel is for a bona fide business purpose, and such expenses would otherwise be deductible by the spouse, dependent, or other individual. Free federal tax filing See chapter 26 for more information on deductible travel expenses. Free federal tax filing Voluntary Unemployment Benefit Fund Contributions You cannot deduct voluntary unemployment benefit fund contributions you make to a union fund or a private fund. Free federal tax filing However, you can deduct contributions as taxes if state law requires you to make them to a state unemployment fund that covers you for the loss of wages from unemployment caused by business conditions. Free federal tax filing Wristwatches You cannot deduct the cost of a wristwatch, even if there is a job requirement that you know the correct time to properly perform your duties. Free federal tax filing Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

North Carolina Department of Agriculture and Consumer Services

Website: North Carolina Department of Agriculture and Consumer Services

Address: North Carolina Department of Agriculture and Consumer Services
1001 Mail Service Center
Raleigh, NC 27699-1001

Phone Number: 919-707-3000

North Carolina Office of the Attorney General

Website: North Carolina Office of the Attorney General

Address: North Carolina Office of the Attorney General
Consumer Protection Division
Mail Service Center 9001
Raleigh, NC 27699-9001

Phone Number: 919-716-6000 919-716-0058 (in Spanish)

Toll-free: 1-877-566-7226 (NC)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Commissioner of Banks

Website: Commissioner of Banks

Address: Commissioner of Banks
4309 Mail Service Center
Raleigh, NC 27699-4309

Toll-free: 1-888-384-3811

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Services Division
1201 Mail Service Center
Raleigh, NC 27699-1201

Phone Number: 919-807-6750

Toll-free: 1-800-546-5664 (NC)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Secretary of State

Website: Secretary of State

Address: Secretary of State
Securities Division
PO Box 29622
Raleigh, NC 27626-0622

Phone Number: 919-733-3924

Toll-free: 1-800-688-4507 (Investor Hotline)

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Utilities Commission

Website: Utilities Commission

Address: Utilities Commission
Consumer Services
4325 Mail Service Center
Raleigh, NC 27699-4325

Phone Number: 919-733-9277

Toll-free: 1-866-380-9816

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The Free Federal Tax Filing

Free federal tax filing 1. Free federal tax filing   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Free federal tax filing  You can set up and make contributions to an IRA if you receive taxable compensation. Free federal tax filing Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Free federal tax filing For more information about IRAs, see Publication 590. Free federal tax filing Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Free federal tax filing The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Free federal tax filing Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Free federal tax filing Many types of educational assistance are tax free if they meet the requirements discussed here. Free federal tax filing Special rules apply to U. Free federal tax filing S. Free federal tax filing citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Free federal tax filing For information about these rules, see Publication 54, Tax Guide for U. Free federal tax filing S. Free federal tax filing Citizens and Resident Aliens Abroad. Free federal tax filing Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Free federal tax filing A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Free federal tax filing Amount of scholarship or fellowship. Free federal tax filing   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Free federal tax filing This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Free federal tax filing The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Free federal tax filing Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Free federal tax filing Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Free federal tax filing A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Free federal tax filing (But for exceptions, see Payment for services,later. Free federal tax filing Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Free federal tax filing Candidate for a degree. Free federal tax filing   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Free federal tax filing Eligible educational institution. Free federal tax filing   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free federal tax filing Qualified education expenses. Free federal tax filing   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Free federal tax filing These items must be required of all students in your course of instruction. Free federal tax filing Expenses that do not qualify. Free federal tax filing   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Free federal tax filing Payment for services. Free federal tax filing   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Free federal tax filing This applies even if all candidates for a degree must perform the services to receive the degree. Free federal tax filing (See exceptions next. Free federal tax filing ) Exceptions. Free federal tax filing   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Free federal tax filing Example 1. Free federal tax filing You received a scholarship of $2,500. Free federal tax filing The scholarship was not received under either of the exceptions mentioned above. Free federal tax filing As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Free federal tax filing Of the $2,500 scholarship, $1,000 represents payment for teaching. Free federal tax filing The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Free federal tax filing Your qualified education expenses were at least $1,500. Free federal tax filing Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Free federal tax filing The $1,000 you received for teaching is taxable. Free federal tax filing Example 2. Free federal tax filing You are a candidate for a degree at a medical school. Free federal tax filing You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Free federal tax filing The terms of your scholarship require you to perform future services. Free federal tax filing A substantial penalty applies if you do not comply. Free federal tax filing The entire amount of your grant is taxable as payment for services in the year it is received. Free federal tax filing Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Free federal tax filing Worksheet 1-1. Free federal tax filing    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Free federal tax filing    Worksheet 1-1. Free federal tax filing Taxable Scholarship and Fellowship Income 1. Free federal tax filing Enter the total amount of any scholarship or fellowship for 2013. Free federal tax filing See Amount of scholarship or fellowship, earlier. Free federal tax filing 1. Free federal tax filing       If you are a degree candidate at an eligible educational institution, go to line 2. Free federal tax filing If you are not a degree candidate at an eligible educational institution, stop here. Free federal tax filing The entire amount is taxable. Free federal tax filing For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Free federal tax filing       2. Free federal tax filing Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Free federal tax filing (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Free federal tax filing ) 2. Free federal tax filing     3. Free federal tax filing Subtract line 2 from line 1 3. Free federal tax filing     4. Free federal tax filing Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Free federal tax filing     5. Free federal tax filing Subtract line 4 from line 3 5. Free federal tax filing     6. Free federal tax filing Enter the amount of your qualified education expenses 6. Free federal tax filing     7. Free federal tax filing Enter the smaller of line 5 or line 6. Free federal tax filing This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Free federal tax filing     8. Free federal tax filing Subtract line 7 from line 5 8. Free federal tax filing     9. Free federal tax filing Taxable part. Free federal tax filing Add lines 2, 4, and 8. Free federal tax filing See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Free federal tax filing     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Free federal tax filing You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Free federal tax filing Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Free federal tax filing If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Free federal tax filing If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Free federal tax filing You must report the taxable amount whether or not you received a Form W-2. Free federal tax filing If you receive an incorrect Form W-2, ask the payer for a corrected one. Free federal tax filing For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Free federal tax filing How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Free federal tax filing Form 1040EZ. Free federal tax filing   If you file Form 1040EZ, include the taxable amount in the total on line 1. Free federal tax filing If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Free federal tax filing Form 1040A. Free federal tax filing   If you file Form 1040A, include the taxable amount in the total on line 7. Free federal tax filing If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Free federal tax filing Form 1040. Free federal tax filing   If you file Form 1040, include the taxable amount in the total on line 7. Free federal tax filing If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Free federal tax filing Schedule SE (Form 1040). Free federal tax filing   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Free federal tax filing If your net earnings are $400 or more, you must pay self-employment tax. Free federal tax filing Use Schedule SE, Self-Employment Tax, to figure this tax. Free federal tax filing Form 1040NR. Free federal tax filing   If you file Form 1040NR, report the taxable amount on line 12. Free federal tax filing Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Free federal tax filing S. Free federal tax filing Source Income Subject to Withholding. Free federal tax filing See the Instructions for Form 1040NR for more information. Free federal tax filing Form 1040NR-EZ. Free federal tax filing   If you file Form 1040NR-EZ, report the taxable amount on line 5. Free federal tax filing Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Free federal tax filing See the Instructions for Form 1040NR-EZ for more information. Free federal tax filing Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Free federal tax filing Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Free federal tax filing Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Free federal tax filing They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Free federal tax filing Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Free federal tax filing Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Free federal tax filing Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Free federal tax filing Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Free federal tax filing Do not include these payments as income on your federal tax return. Free federal tax filing If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Free federal tax filing This applies only to the part of your VA payments that is required to be used for education expenses. Free federal tax filing You may want to visit the Veteran's Administration website at www. Free federal tax filing gibill. Free federal tax filing va. Free federal tax filing gov for specific information about the various VA benefits for education. Free federal tax filing Example. Free federal tax filing You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Free federal tax filing Neither of these benefits is taxable and you do not report them on your tax return. Free federal tax filing You also want to claim an American opportunity credit on your return. Free federal tax filing You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Free federal tax filing To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Free federal tax filing You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Free federal tax filing Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Free federal tax filing This is called a “tuition reduction. Free federal tax filing ” You do not have to include a qualified tuition reduction in your income. Free federal tax filing A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Free federal tax filing You do not have to use the tuition reduction at the eligible educational institution from which you received it. Free federal tax filing In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Free federal tax filing The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Free federal tax filing You must include in your income any tuition reduction you receive that is payment for your services. Free federal tax filing Eligible educational institution. Free federal tax filing   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free federal tax filing Officers, owners, and highly compensated employees. Free federal tax filing   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Free federal tax filing This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Free federal tax filing The group must be defined under a reasonable classification set up by the employer. Free federal tax filing The classification must not discriminate in favor of owners, officers, or highly compensated employees. Free federal tax filing Payment for services. Free federal tax filing   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Free federal tax filing This applies even if all candidates for a degree must perform the services to receive the degree. Free federal tax filing (See below for exceptions. Free federal tax filing ) Exceptions. Free federal tax filing   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Free federal tax filing Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Free federal tax filing You are an employee of the eligible educational institution. Free federal tax filing You were an employee of the eligible educational institution, but you retired or left on disability. Free federal tax filing You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Free federal tax filing You are the dependent child or spouse of an individual described in (1) through (3), above. Free federal tax filing Child of deceased parents. Free federal tax filing   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Free federal tax filing Child of divorced parents. Free federal tax filing   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Free federal tax filing Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Free federal tax filing It is provided by an eligible educational institution. Free federal tax filing You are a graduate student who performs teaching or research activities for the educational institution. Free federal tax filing You must include in income any other tuition reductions for graduate education that you receive. Free federal tax filing How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Free federal tax filing Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Free federal tax filing Prev  Up  Next   Home   More Online Publications