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Free Tax Filing For Low Income

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Free Tax Filing For Low Income

Free tax filing for low income Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Free tax filing for low income Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. Free tax filing for low income Method 2. Free tax filing for low income How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. Free tax filing for low income In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Free tax filing for low income You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Free tax filing for low income Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. Free tax filing for low income If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Free tax filing for low income These wages must be included on line 7 of Form 1040. Free tax filing for low income See Form 8919 for more information. Free tax filing for low income Childcare providers. Free tax filing for low income   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Free tax filing for low income If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Free tax filing for low income You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Free tax filing for low income Babysitting. Free tax filing for low income   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Free tax filing for low income Bankruptcy. Free tax filing for low income   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Free tax filing for low income Your W-2 will show your total wages and withheld income tax for the year. Free tax filing for low income On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Free tax filing for low income Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Free tax filing for low income If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. Free tax filing for low income   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Free tax filing for low income For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. Free tax filing for low income   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Free tax filing for low income The statement must show the allocation and describe the method used to make the allocation. Free tax filing for low income For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Free tax filing for low income R. Free tax filing for low income B. Free tax filing for low income 596, available at www. Free tax filing for low income irs. Free tax filing for low income gov/irb/2006-40_IRB/ar12. Free tax filing for low income html. Free tax filing for low income Miscellaneous Compensation This section discusses many types of employee compensation. Free tax filing for low income The subjects are arranged in alphabetical order. Free tax filing for low income Advance commissions and other earnings. Free tax filing for low income   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Free tax filing for low income    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Free tax filing for low income If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. Free tax filing for low income See Repayments , later. Free tax filing for low income Allowances and reimbursements. Free tax filing for low income    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free tax filing for low income If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Free tax filing for low income Back pay awards. Free tax filing for low income   Include in income amounts you are awarded in a settlement or judgment for back pay. Free tax filing for low income These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Free tax filing for low income They should be reported to you by your employer on Form W-2. Free tax filing for low income Bonuses and awards. Free tax filing for low income    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Free tax filing for low income These include prizes such as vacation trips for meeting sales goals. Free tax filing for low income If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Free tax filing for low income However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Free tax filing for low income Employee achievement award. Free tax filing for low income   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Free tax filing for low income However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Free tax filing for low income Your employer can tell you whether your award is a qualified plan award. Free tax filing for low income Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Free tax filing for low income   However, the exclusion does not apply to the following awards. Free tax filing for low income A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Free tax filing for low income A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Free tax filing for low income Example. Free tax filing for low income Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Free tax filing for low income Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Free tax filing for low income However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. Free tax filing for low income Differential wage payments. Free tax filing for low income   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. Free tax filing for low income These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Free tax filing for low income The payments are reported as wages on Form W-2. Free tax filing for low income Government cost-of-living allowances. Free tax filing for low income   Most payments received by U. Free tax filing for low income S. Free tax filing for low income Government civilian employees for working abroad are taxable. Free tax filing for low income However, certain cost-of-living allowances are tax free. Free tax filing for low income Publication 516, U. Free tax filing for low income S. Free tax filing for low income Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Free tax filing for low income Nonqualified deferred compensation plans. Free tax filing for low income   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Free tax filing for low income This amount is shown on Form W-2, box 12, using code Y. Free tax filing for low income This amount is not included in your income. Free tax filing for low income   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Free tax filing for low income This amount is included in your wages shown on Form W-2, box 1. Free tax filing for low income It is also shown on Form W-2, box 12, using code Z. Free tax filing for low income Nonqualified deferred compensation plans of nonqualified entities. Free tax filing for low income   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Free tax filing for low income For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. Free tax filing for low income A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. Free tax filing for low income Note received for services. Free tax filing for low income   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Free tax filing for low income When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Free tax filing for low income Do not include that part again in your income. Free tax filing for low income Include the rest of the payment in your income in the year of payment. Free tax filing for low income   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Free tax filing for low income Severance pay. Free tax filing for low income   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Free tax filing for low income Accrued leave payment. Free tax filing for low income   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Free tax filing for low income   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Free tax filing for low income You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Free tax filing for low income Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. Free tax filing for low income Outplacement services. Free tax filing for low income   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Free tax filing for low income    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Free tax filing for low income Sick pay. Free tax filing for low income   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Free tax filing for low income In addition, you must include in your income sick pay benefits received from any of the following payers. Free tax filing for low income A welfare fund. Free tax filing for low income A state sickness or disability fund. Free tax filing for low income An association of employers or employees. Free tax filing for low income An insurance company, if your employer paid for the plan. Free tax filing for low income However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Free tax filing for low income For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Free tax filing for low income Social security and Medicare taxes paid by employer. Free tax filing for low income   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Free tax filing for low income The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Free tax filing for low income However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Free tax filing for low income Stock appreciation rights. Free tax filing for low income   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Free tax filing for low income When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Free tax filing for low income You include the cash payment in income in the year you use the right. Free tax filing for low income Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Free tax filing for low income Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Free tax filing for low income See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Free tax filing for low income Recipient of fringe benefit. Free tax filing for low income   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Free tax filing for low income You are considered to be the recipient even if it is given to another person, such as a member of your family. Free tax filing for low income An example is a car your employer gives to your spouse for services you perform. Free tax filing for low income The car is considered to have been provided to you and not to your spouse. Free tax filing for low income   You do not have to be an employee of the provider to be a recipient of a fringe benefit. Free tax filing for low income If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Free tax filing for low income Provider of benefit. Free tax filing for low income   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. Free tax filing for low income The provider can be a client or customer of an independent contractor. Free tax filing for low income Accounting period. Free tax filing for low income   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Free tax filing for low income Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Free tax filing for low income The general rule: benefits are reported for a full calendar year (January 1–December 31). Free tax filing for low income The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Free tax filing for low income For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Free tax filing for low income Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Free tax filing for low income   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Free tax filing for low income Form W-2. Free tax filing for low income   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Free tax filing for low income Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Free tax filing for low income However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Free tax filing for low income Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Free tax filing for low income Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Free tax filing for low income For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Free tax filing for low income Long-term care coverage. Free tax filing for low income   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Free tax filing for low income However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Free tax filing for low income This amount will be reported as wages in box 1 of your Form W-2. Free tax filing for low income Archer MSA contributions. Free tax filing for low income    Contributions by your employer to your Archer MSA generally are not included in your income. Free tax filing for low income Their total will be reported in box 12 of Form W-2, with code R. Free tax filing for low income You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Free tax filing for low income File the form with your return. Free tax filing for low income Health flexible spending arrangement (health FSA). Free tax filing for low income   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Free tax filing for low income   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Free tax filing for low income The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Free tax filing for low income For more information, see Notice 2012-40, 2012-26 I. Free tax filing for low income R. Free tax filing for low income B. Free tax filing for low income 1046, available at www. Free tax filing for low income irs. Free tax filing for low income gov/irb/2012-26 IRB/ar09. Free tax filing for low income html. Free tax filing for low income Health reimbursement arrangement (HRA). Free tax filing for low income   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Free tax filing for low income Health savings accounts (HSA). Free tax filing for low income   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Free tax filing for low income Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Free tax filing for low income Contributions made by your employer are not included in your income. Free tax filing for low income Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Free tax filing for low income Distributions not used for qualified medical expenses are included in your income. Free tax filing for low income See Publication 969 for the requirements of an HSA. Free tax filing for low income   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Free tax filing for low income The contributions are treated as a distribution of money and are not included in the partner's gross income. Free tax filing for low income Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Free tax filing for low income In both situations, the partner can deduct the contribution made to the partner's HSA. Free tax filing for low income   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Free tax filing for low income The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Free tax filing for low income Qualified HSA funding distribution. Free tax filing for low income   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Free tax filing for low income See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Free tax filing for low income Failure to maintain eligibility. Free tax filing for low income   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Free tax filing for low income If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Free tax filing for low income This income is also subject to an additional 10% tax. Free tax filing for low income Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Free tax filing for low income See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Free tax filing for low income Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Free tax filing for low income They also are included as social security and Medicare wages in boxes 3 and 5. Free tax filing for low income However, they are not included as wages in box 1. Free tax filing for low income To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Free tax filing for low income File the form with your return. Free tax filing for low income Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. Free tax filing for low income The gym must be used primarily by employees, their spouses, and their dependent children. Free tax filing for low income If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. Free tax filing for low income De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Free tax filing for low income In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Free tax filing for low income Also see Employee Discounts , later. Free tax filing for low income Holiday gifts. Free tax filing for low income   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Free tax filing for low income However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Free tax filing for low income Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Free tax filing for low income Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. Free tax filing for low income The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Free tax filing for low income Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. Free tax filing for low income Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. Free tax filing for low income To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Free tax filing for low income See the Instructions for Form 2441 for more information. Free tax filing for low income Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Free tax filing for low income For more information, see Publication 970. Free tax filing for low income Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. Free tax filing for low income The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. Free tax filing for low income However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Free tax filing for low income The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Free tax filing for low income For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. Free tax filing for low income (Ask your employer for this percentage. Free tax filing for low income ) For a discount on services, 20%. Free tax filing for low income Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. Free tax filing for low income If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). Free tax filing for low income Qualified retirement planning services paid for you by your employer may be excluded from your income. Free tax filing for low income For more information, see Retirement Planning Services , later. Free tax filing for low income Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Free tax filing for low income However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Free tax filing for low income For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Free tax filing for low income If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Free tax filing for low income Also, it is shown separately in box 12 with code C. Free tax filing for low income Group-term life insurance. Free tax filing for low income   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Free tax filing for low income Permanent benefits. Free tax filing for low income   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Free tax filing for low income Your employer should be able to tell you the amount to include in your income. Free tax filing for low income Accidental death benefits. Free tax filing for low income   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Free tax filing for low income Former employer. Free tax filing for low income   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Free tax filing for low income Also, it is shown separately in box 12 with code C. Free tax filing for low income Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Free tax filing for low income You must pay these taxes with your income tax return. Free tax filing for low income Include them on line 60, Form 1040, and follow the instructions forline 60. Free tax filing for low income For more information, see the Instructions for Form 1040. Free tax filing for low income Two or more employers. Free tax filing for low income   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Free tax filing for low income If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Free tax filing for low income You must figure how much to include in your income. Free tax filing for low income Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Free tax filing for low income Figuring the taxable cost. Free tax filing for low income    Use the following worksheet to figure the amount to include in your income. Free tax filing for low income   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. Free tax filing for low income However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . Free tax filing for low income Worksheet 1. Free tax filing for low income Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Free tax filing for low income Enter the total amount of your insurance coverage from your employer(s) 1. Free tax filing for low income   2. Free tax filing for low income Limit on exclusion for employer-provided group-term life insurance coverage 2. Free tax filing for low income 50,000 3. Free tax filing for low income Subtract line 2 from line 1 3. Free tax filing for low income   4. Free tax filing for low income Divide line 3 by $1,000. Free tax filing for low income Figure to the nearest tenth 4. Free tax filing for low income   5. Free tax filing for low income Go to Table 1. Free tax filing for low income Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Free tax filing for low income   6. Free tax filing for low income Multiply line 4 by line 5 6. Free tax filing for low income     7. Free tax filing for low income Enter the number of full months of coverage at this cost 7. Free tax filing for low income   8. Free tax filing for low income Multiply line 6 by line 7 8. Free tax filing for low income   9. Free tax filing for low income Enter the premiums you paid per month 9. Free tax filing for low income       10. Free tax filing for low income Enter the number of months you paid the  premiums 10. Free tax filing for low income       11. Free tax filing for low income Multiply line 9 by line 10. Free tax filing for low income 11. Free tax filing for low income   12. Free tax filing for low income Subtract line 11 from line 8. Free tax filing for low income Include this amount in your income as wages 12. Free tax filing for low income   Table 1. Free tax filing for low income Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . Free tax filing for low income 05     25 through 29 . Free tax filing for low income 06     30 through 34 . Free tax filing for low income 08     35 through 39 . Free tax filing for low income 09     40 through 44 . Free tax filing for low income 10     45 through 49 . Free tax filing for low income 15     50 through 54 . Free tax filing for low income 23     55 through 59 . Free tax filing for low income 43     60 through 64 . Free tax filing for low income 66     65 through 69 1. Free tax filing for low income 27     70 and older 2. Free tax filing for low income 06   Example. Free tax filing for low income You are 51 years old and work for employers A and B. Free tax filing for low income Both employers provide group-term life insurance coverage for you for the entire year. Free tax filing for low income Your coverage is $35,000 with employer A and $45,000 with employer B. Free tax filing for low income You pay premiums of $4. Free tax filing for low income 15 a month under the employer B group plan. Free tax filing for low income You figure the amount to include in your income as follows. Free tax filing for low income   Worksheet 1. Free tax filing for low income Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Free tax filing for low income Enter the total amount of your insurance coverage from your employer(s) 1. Free tax filing for low income 80,000 2. Free tax filing for low income Limit on exclusion for employer-provided group-term life insurance coverage 2. Free tax filing for low income 50,000 3. Free tax filing for low income Subtract line 2 from line 1 3. Free tax filing for low income 30,000 4. Free tax filing for low income Divide line 3 by $1,000. Free tax filing for low income Figure to the nearest tenth 4. Free tax filing for low income 30. Free tax filing for low income 0 5. Free tax filing for low income Go to Table 1. Free tax filing for low income Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Free tax filing for low income . Free tax filing for low income 23 6. Free tax filing for low income Multiply line 4 by line 5 6. Free tax filing for low income 6. Free tax filing for low income 90 7. Free tax filing for low income Enter the number of full months of coverage at this cost. Free tax filing for low income 7. Free tax filing for low income 12 8. Free tax filing for low income Multiply line 6 by line 7 8. Free tax filing for low income 82. Free tax filing for low income 80 9. Free tax filing for low income Enter the premiums you paid per month 9. Free tax filing for low income 4. Free tax filing for low income 15     10. Free tax filing for low income Enter the number of months you paid the premiums 10. Free tax filing for low income 12     11. Free tax filing for low income Multiply line 9 by line 10. Free tax filing for low income 11. Free tax filing for low income 49. Free tax filing for low income 80 12. Free tax filing for low income Subtract line 11 from line 8. Free tax filing for low income Include this amount in your income as wages 12. Free tax filing for low income 33. Free tax filing for low income 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Free tax filing for low income Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. Free tax filing for low income You must add it to the wages shown on your Forms W-2 and include the total on your return. Free tax filing for low income Entire cost excluded. Free tax filing for low income   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Free tax filing for low income You are permanently and totally disabled and have ended your employment. Free tax filing for low income Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Free tax filing for low income A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Free tax filing for low income (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Free tax filing for low income ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Free tax filing for low income Entire cost taxed. Free tax filing for low income   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Free tax filing for low income The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Free tax filing for low income You are a key employee and your employer's plan discriminates in favor of key employees. Free tax filing for low income Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Free tax filing for low income The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Free tax filing for low income The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. Free tax filing for low income (You must accept it in order to be able to properly perform your duties. Free tax filing for low income ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Free tax filing for low income See De Minimis (Minimal) Benefits , earlier. Free tax filing for low income Faculty lodging. Free tax filing for low income   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. Free tax filing for low income However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Free tax filing for low income Academic health center. Free tax filing for low income   This is an organization that meets the following conditions. Free tax filing for low income Its principal purpose or function is to provide medical or hospital care or medical education or research. Free tax filing for low income It receives payments for graduate medical education under the Social Security Act. Free tax filing for low income One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Free tax filing for low income Qualified campus lodging. Free tax filing for low income   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. Free tax filing for low income The lodging must be located on or near a campus of the educational institution or academic health center. Free tax filing for low income Adequate rent. Free tax filing for low income   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. Free tax filing for low income If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Free tax filing for low income   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Free tax filing for low income Example. Free tax filing for low income Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Free tax filing for low income The house is appraised at $200,000. Free tax filing for low income The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Free tax filing for low income Carl pays an annual rent of $11,000. Free tax filing for low income Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). Free tax filing for low income If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Free tax filing for low income Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. Free tax filing for low income See Publication 521 for more information. Free tax filing for low income No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). Free tax filing for low income In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Free tax filing for low income Example. Free tax filing for low income You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Free tax filing for low income Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. Free tax filing for low income The value of the personal flight is not included in your income. Free tax filing for low income However, the value of the hotel room is included in your income because you do not work in the hotel business. Free tax filing for low income Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Free tax filing for low income Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Free tax filing for low income You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Free tax filing for low income Also, see Financial Counseling Fees , earlier. Free tax filing for low income Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Free tax filing for low income A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Free tax filing for low income Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Free tax filing for low income However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Free tax filing for low income Exclusion limit. Free tax filing for low income   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Free tax filing for low income   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Free tax filing for low income   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Free tax filing for low income   If the benefits have a value that is more than these limits, the excess must be included in your income. Free tax filing for low income You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Free tax filing for low income Commuter highway vehicle. Free tax filing for low income   This is a highway vehicle that seats at least six adults (not including the driver). Free tax filing for low income At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Free tax filing for low income Transit pass. Free tax filing for low income   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Free tax filing for low income Qualified parking. Free tax filing for low income   This is parking provided to an employee at or near the employer's place of business. Free tax filing for low income It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Free tax filing for low income It does not include parking at or near the employee's home. Free tax filing for low income Qualified bicycle commuting. Free tax filing for low income   This is reimbursement based on the number of qualified bicycle commuting months for the year. Free tax filing for low income A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Free tax filing for low income The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Free tax filing for low income Tuition Reduction You can exclude a qualified tuition reduction from your income. Free tax filing for low income This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. Free tax filing for low income For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. Free tax filing for low income Representing 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 tax filing for low income For more information, see Publication 970. Free tax filing for low income Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. Free tax filing for low income Example. Free tax filing for low income You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Free tax filing for low income The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. Free tax filing for low income Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. Free tax filing for low income For an exception, see Group-Term Life Insurance , earlier. Free tax filing for low income General valuation rule. Free tax filing for low income   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. Free tax filing for low income If you pay fair market value for a fringe benefit, no amount is included in your income. Free tax filing for low income Fair market value. Free tax filing for low income   The fair market value of a fringe benefit is determined by all the facts and circumstances. Free tax filing for low income It is the amount you would have to pay a third party to buy or lease the benefit. Free tax filing for low income This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Free tax filing for low income Employer-provided vehicles. Free tax filing for low income   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. Free tax filing for low income   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. Free tax filing for low income An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. Free tax filing for low income The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. Free tax filing for low income Flights on employer-provided aircraft. Free tax filing for low income   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. Free tax filing for low income   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Free tax filing for low income The division must be based on all the facts, including which employee or employees control the use of the aircraft. Free tax filing for low income Special valuation rules. Free tax filing for low income   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Free tax filing for low income If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Free tax filing for low income You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Free tax filing for low income   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. Free tax filing for low income The special valuation rules are the following. Free tax filing for low income The automobile lease rule. Free tax filing for low income The vehicle cents-per-mile rule. Free tax filing for low income The commuting rule. Free tax filing for low income The unsafe conditions commuting rule. Free tax filing for low income The employer-operated eating-facility rule. Free tax filing for low income   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free tax filing for low income    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Free tax filing for low income 61-21(g) and 1. Free tax filing for low income 61-21(h) of the regulations. Free tax filing for low income Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Free tax filing for low income (Your employer can tell you whether your retirement plan is qualified. Free tax filing for low income ) However, the cost of life insurance coverage included in the plan may have to be included. Free tax filing for low income See Group-Term Life Insurance , earlier, under Fringe Benefits. Free tax filing for low income If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Free tax filing for low income However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Free tax filing for low income For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Free tax filing for low income S. Free tax filing for low income Civil Service Retirement Benefits, if you are a federal employee or retiree). Free tax filing for low income Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Free tax filing for low income The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Free tax filing for low income An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Free tax filing for low income However, it is included in wages subject to social security and Medicare taxes. Free tax filing for low income Elective deferrals include elective contributions to the following retirement plans. Free tax filing for low income Cash or deferred arrangements (section 401(k) plans). Free tax filing for low income The Thrift Savings Plan for federal employees. Free tax filing for low income Salary reduction simplified employee pension plans (SARSEP). Free tax filing for low income Savings incentive match plans for employees (SIMPLE plans). Free tax filing for low income Tax-sheltered annuity plans (403(b) plans). Free tax filing for low income Section 501(c)(18)(D) plans. Free tax filing for low income (But see Reporting by employer , later. Free tax filing for low income ) Section 457 plans. Free tax filing for low income Qualified automatic contribution arrangements. Free tax filing for low income   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Free tax filing for low income You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Free tax filing for low income The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Free tax filing for low income   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Free tax filing for low income Overall limit on deferrals. Free tax filing for low income   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. Free tax filing for low income The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Free tax filing for low income Amounts deferred under specific plan limits are part of the overall limit on deferrals. Free tax filing for low income   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Free tax filing for low income However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Free tax filing for low income Catch-up contributions. Free tax filing for low income   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. Free tax filing for low income For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Free tax filing for low income   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. Free tax filing for low income SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Free tax filing for low income Section 457 plans, see Limit for deferrals under section 457 plans , later. Free tax filing for low income Limit for deferrals under SIMPLE plans. Free tax filing for low income   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Free tax filing for low income Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. Free tax filing for low income Limit for tax-sheltered annuities. Free tax filing for low income   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. Free tax filing for low income However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. Free tax filing for low income $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Free tax filing for low income   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Free tax filing for low income   For more information, see Publication 571. Free tax filing for low income Limit for deferral under section 501(c)(18) plans. Free tax filing for low income   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. Free tax filing for low income Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. Free tax filing for low income Limit for deferrals under section 457 plans. Free tax filing for low income   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. Free tax filing for low income However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Free tax filing for low income See Increased limit , later. Free tax filing for low income Includible compensation. Free tax filing for low income   This is the pay you received for the year from the employer who maintained the section 457 plan. Free tax filing for low income In most cases, it includes all the following payments. Free tax filing for low income Wages and salaries. Free tax filing for low income Fees for professional services. Free tax filing for low income The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Free tax filing for low income Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Free tax filing for low income Commissions and tips. Free tax filing for low income Fringe benefits. Free tax filing for low income Bonuses. Free tax filing for low income Employer contributions (elective deferrals) to: The section 457 plan. Free tax filing for low income Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Free tax filing for low income A salary reduction simplified employee pension (SARSEP). Free tax filing for low income A tax-sheltered annuity (section 403(b) plan). Free tax filing for low income A savings incentive match plan for employees (SIMPLE plan). Free tax filing for low income A section 125 cafeteria plan. Free tax filing for low income   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Free tax filing for low income Your wages as defined for income tax withholding purposes. Free tax filing for low income Your wages as reported in box 1 of Form W-2. Free tax filing for low income Your wages that are subject to social security withholding (including elective deferrals). Free tax filing for low income Increased limit. Free tax filing for low income   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). Free tax filing for low income Catch-up contributions. Free tax filing for low income   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. Free tax filing for low income If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Free tax filing for low income However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. Free tax filing for low income Designated Roth contributions. Free tax filing for low income   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Free tax filing for low income Designated Roth contributions are treated as elective deferrals, except that they are included in income. Free tax filing for low income Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Free tax filing for low income   Qualified distributions from a Roth plan are not included in income. Free tax filing for low income In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. Free tax filing for low income Reporting by employer. Free tax filing for low income   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Free tax filing for low income Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Free tax filing for low income Section 501(c)(18)(D) contributions. Free tax filing for low income   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. Free tax filing for low income The amount you contributed should be identified with code “H” in box 12. Free tax filing for low income You may deduct the amount deferred subject to the limits that apply. Free tax filing for low income Include your deduction in the total on Form 1040, line 36. Free tax filing for low income Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Free tax filing for low income Designated Roth contributions. Free tax filing for low income    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Free tax filing for low income Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. Free tax filing for low income Excess deferrals. Free tax filing for low income   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Free tax filing for low income If the plan permits, the excess amount will be distributed to you. Free tax filing for low income If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. Free tax filing for low income You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Free tax filing for low income The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. Free tax filing for low income   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. Free tax filing for low income File Form 1040 to add the excess deferral amount to your wages on line 7. Free tax filing for low income Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Free tax filing for low income Excess not distributed. Free tax filing for low income   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. Free tax filing for low income Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. Free tax filing for low income Excess distributed to you. Free tax filing for low income   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. Free tax filing for low income If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Free tax filing for low income Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Free tax filing for low income If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. Free tax filing for low income    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Free tax filing for low income Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Free tax filing for low income If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Free tax filing for low income Add the excess deferral amount to your wages on your 2013 tax return. Free tax filing for low income If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. Free tax filing for low income Do not add this amount to your wages on your 2013 return. Free tax filing for low income If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Free tax filing for low income If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. Free tax filing for low income S. Free tax filing for low income Individual Income Tax Return. Free tax filing for low income If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. Free tax filing for low income If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. Free tax filing for low income Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Free tax filing for low income Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Free tax filing for low income Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Free tax filing for low income ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Free tax filing for low income It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free tax filing for low income Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. Free tax filing for low income If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. Free tax filing for low income You must include the excess contributions in your income as wages on Form 1040, line 7. Free tax filing for low income You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Free tax filing for low income If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. Free tax filing for low income The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. Free tax filing for low income You should receive a Form 1099-R for the year the excess contributions are distributed to you. Free tax filing for low income Add the distribution to your wages for that year. Free tax filing for low income Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Free tax filing for low income It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free tax filing for low income Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. Free tax filing for low income Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. Free tax filing for low income A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. Free tax filing for low income A corrective payment consisting of your after-tax contributions is not taxable. Free tax filing for low income If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. Free tax filing for low income Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. Free tax filing for low income Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. Free tax filing for low income Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Free tax filing for low income It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free tax filing for low income Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. Free tax filing for low income The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Free tax filing for low income Your employer can tell you which kind of option you hold. Free tax filing for low income Nonstatutory Stock Options Grant of option. Free tax filing for low income   If you are granted a nonstatutory stock option, you may have income when you receive the option. Free tax filing for low income The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. Free tax filing for low income The fair market value of an option can be readily determined if it is actively traded on an established market. Free tax filing for low income    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. Free tax filing for low income You can transfer the option. Free tax filing for low income You can exercise the option immediately in full. Free tax filing for low income The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. Free tax filing for low income The fair market value of the option privilege can be readily determined. Free tax filing for low income The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. Free tax filing for low income For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. Free tax filing for low income The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. Free tax filing for low income If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. Free tax filing for low income For more information on the excise tax, see Internal Revenue Code section 4985. Free tax filing for low income Option with readily determinable value. Free tax filing for low income   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. Free tax filing for low income See Restricted Property , later, for rules on how much income to include and when to include it. Free tax filing for low income However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. Free tax filing for low income Option without readily determinable value. Free tax filing for low income   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. Free tax filing for low income    Exercise or transfer of option. Free tax filing for low income   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. Free tax filing for low income Option with readily determinable value. Free tax filing for low income   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. Free tax filing for low income Option without readily determinable value. Free tax filing for low income   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope
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For questions about the HCTC Program, please call the IRS HCTC voice mail box at 1-855-379-0440. Please note this line is for HCTC-related questions only. IRS HCTC Analysts will not respond to any calls pertaining to filing tax returns, tax refunds, or other non-HCTC inquiries. You will be prompted to leave a message and must include the following information:
 

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Page Last Reviewed or Updated: 25-Mar-2014

The Free Tax Filing For Low Income

Free tax filing for low income 13. Free tax filing for low income   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Free tax filing for low income It is divided into the following sections. Free tax filing for low income Cost basis. Free tax filing for low income Adjusted basis. Free tax filing for low income Basis other than cost. Free tax filing for low income Your basis is the amount of your investment in property for tax purposes. Free tax filing for low income Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Free tax filing for low income Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Free tax filing for low income If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Free tax filing for low income Only the basis allocated to the business or investment use of the property can be depreciated. Free tax filing for low income Your original basis in property is adjusted (increased or decreased) by certain events. Free tax filing for low income For example, if you make improvements to the property, increase your basis. Free tax filing for low income If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Free tax filing for low income Keep accurate records of all items that affect the basis of your property. Free tax filing for low income For more information on keeping records, see chapter 1. Free tax filing for low income Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Free tax filing for low income The cost is the amount you pay in cash, debt obligations, other property, or services. Free tax filing for low income Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Free tax filing for low income In addition, the basis of real estate and business assets may include other items. Free tax filing for low income Loans with low or no interest. Free tax filing for low income    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. Free tax filing for low income You generally have unstated interest if your interest rate is less than the applicable federal rate. Free tax filing for low income   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Free tax filing for low income Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Free tax filing for low income If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Free tax filing for low income Lump sum purchase. Free tax filing for low income   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Free tax filing for low income Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Free tax filing for low income Figure the basis of each asset by multiplying the lump sum by a fraction. Free tax filing for low income The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Free tax filing for low income    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Free tax filing for low income Fair market value (FMV). Free tax filing for low income   FMV is the price at which the 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 necessary facts. Free tax filing for low income Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Free tax filing for low income Assumption of mortgage. Free tax filing for low income   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Free tax filing for low income Settlement costs. Free tax filing for low income   Your basis includes the settlement fees and closing costs you paid for buying the property. Free tax filing for low income (A fee for buying property is a cost that must be paid even if you buy the property for cash. Free tax filing for low income ) Do not include fees and costs for getting a loan on the property in your basis. Free tax filing for low income   The following are some of the settlement fees or closing costs you can include in the basis of your property. Free tax filing for low income Abstract fees (abstract of title fees). Free tax filing for low income Charges for installing utility services. Free tax filing for low income Legal fees (including fees for the title search and preparation of the sales contract and deed). Free tax filing for low income Recording fees. Free tax filing for low income Survey fees. Free tax filing for low income Transfer taxes. Free tax filing for low income Owner's title insurance. Free tax filing for low income Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Free tax filing for low income   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free tax filing for low income   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Free tax filing for low income Casualty insurance premiums. Free tax filing for low income Rent for occupancy of the property before closing. Free tax filing for low income Charges for utilities or other services related to occupancy of the property before closing. Free tax filing for low income Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Free tax filing for low income Fees for refinancing a mortgage. Free tax filing for low income Real estate taxes. Free tax filing for low income   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Free tax filing for low income You cannot deduct them as an expense. Free tax filing for low income    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Free tax filing for low income Do not include that amount in the basis of your property. Free tax filing for low income If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Free tax filing for low income Points. Free tax filing for low income   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Free tax filing for low income Generally, you deduct the points over the term of the loan. Free tax filing for low income For more information on how to deduct points, see chapter 23. Free tax filing for low income Points on home mortgage. Free tax filing for low income   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Free tax filing for low income If certain requirements are met, you can deduct the points in full for the year in which they are paid. Free tax filing for low income Reduce the basis of your home by any seller-paid points. Free tax filing for low income Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Free tax filing for low income The result is the adjusted basis. Free tax filing for low income Increases to Basis Increase the basis of any property by all items properly added to a capital account. Free tax filing for low income Examples of items that increase basis are shown in Table 13-1. Free tax filing for low income These include the items discussed below. Free tax filing for low income Improvements. Free tax filing for low income   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Free tax filing for low income For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Free tax filing for low income Assessments for local improvements. Free tax filing for low income   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Free tax filing for low income Do not deduct them as taxes. Free tax filing for low income However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Free tax filing for low income Example. Free tax filing for low income Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Free tax filing for low income Add the assessment to your property's basis. Free tax filing for low income In this example, the assessment is a depreciable asset. Free tax filing for low income Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Free tax filing for low income Examples of items that decrease basis are shown in Table 13-1. Free tax filing for low income These include the items discussed below. Free tax filing for low income Table 13-1. Free tax filing for low income Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. Free tax filing for low income   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Free tax filing for low income    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Free tax filing for low income   For more information on casualty and theft losses, see chapter 25. Free tax filing for low income Depreciation and section 179 deduction. Free tax filing for low income   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Free tax filing for low income   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Free tax filing for low income Example. Free tax filing for low income You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Free tax filing for low income You added an improvement to the duplex that cost $10,000. Free tax filing for low income In February last year, the duplex was damaged by fire. Free tax filing for low income Up to that time, you had been allowed depreciation of $23,000. Free tax filing for low income You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Free tax filing for low income You deducted a casualty loss of $1,000 on your income tax return for last year. Free tax filing for low income You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Free tax filing for low income You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Free tax filing for low income Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Free tax filing for low income Your basis in the land is its original cost of $5,000. Free tax filing for low income Easements. Free tax filing for low income   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Free tax filing for low income It reduces the basis of the affected part of the property. Free tax filing for low income If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Free tax filing for low income   If the gain is on a capital asset, see chapter 16 for information about how to report it. Free tax filing for low income If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Free tax filing for low income Exclusion of subsidies for energy conservation measures. Free tax filing for low income   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Free tax filing for low income Reduce the basis of the property for which you received the subsidy by the excluded amount. Free tax filing for low income For more information about this subsidy, see chapter 12. Free tax filing for low income Postponed gain from sale of home. Free tax filing for low income    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Free tax filing for low income For more information on the rules for the sale of a home, see chapter 15. Free tax filing for low income Basis Other Than Cost There are many times when you cannot use cost as basis. Free tax filing for low income In these cases, the fair market value or the adjusted basis of the property can be used. Free tax filing for low income Fair market value (FMV) and adjusted basis were discussed earlier. Free tax filing for low income Property Received for Services If you receive property for your services, include the FMV of the property in income. Free tax filing for low income The amount you include in income becomes your basis. Free tax filing for low income If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Free tax filing for low income Restricted property. Free tax filing for low income   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Free tax filing for low income However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Free tax filing for low income Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Free tax filing for low income For more information, see Restricted Property in Publication 525. Free tax filing for low income Bargain purchases. Free tax filing for low income   A bargain purchase is a purchase of an item for less than its FMV. Free tax filing for low income If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Free tax filing for low income Your basis in the property is its FMV (your purchase price plus the amount you include in income). Free tax filing for low income   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Free tax filing for low income However, your basis in the property is still its FMV. Free tax filing for low income See Employee Discounts in Publication 15-B. Free tax filing for low income Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Free tax filing for low income A taxable gain or deductible loss also is known as a recognized gain or loss. Free tax filing for low income If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Free tax filing for low income Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Free tax filing for low income Similar or related property. Free tax filing for low income   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Free tax filing for low income Decrease the basis by the following. Free tax filing for low income Any loss you recognize on the involuntary conversion. Free tax filing for low income Any money you receive that you do not spend on similar property. Free tax filing for low income Increase the basis by the following. Free tax filing for low income Any gain you recognize on the involuntary conversion. Free tax filing for low income Any cost of acquiring the replacement property. Free tax filing for low income Money or property not similar or related. Free tax filing for low income    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. Free tax filing for low income Example. Free tax filing for low income The state condemned your property. Free tax filing for low income The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Free tax filing for low income You realized a gain of $5,000 ($31,000 − $26,000). Free tax filing for low income You bought replacement property similar in use to the converted property for $29,000. Free tax filing for low income You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Free tax filing for low income Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Free tax filing for low income The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Free tax filing for low income   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Free tax filing for low income Basis for depreciation. Free tax filing for low income   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Free tax filing for low income For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Free tax filing for low income Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Free tax filing for low income If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Free tax filing for low income See Nontaxable Trades in chapter 14. Free tax filing for low income Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Free tax filing for low income To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Free tax filing for low income Qualifying property. Free tax filing for low income Like-kind property. Free tax filing for low income The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Free tax filing for low income If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Free tax filing for low income Qualifying property. Free tax filing for low income   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Free tax filing for low income Like-kind property. Free tax filing for low income   There must be an exchange of like-kind property. Free tax filing for low income Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Free tax filing for low income The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Free tax filing for low income Example. Free tax filing for low income You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Free tax filing for low income The dealer allows you $2,000 on the old truck, and you pay $4,800. Free tax filing for low income This is a like-kind exchange. Free tax filing for low income The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Free tax filing for low income If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Free tax filing for low income The basis of the new truck is the price you pay the dealer. Free tax filing for low income Partially nontaxable exchanges. Free tax filing for low income   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Free tax filing for low income The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Free tax filing for low income Decrease the basis by the following amounts. Free tax filing for low income Any money you receive. Free tax filing for low income Any loss you recognize on the exchange. Free tax filing for low income Increase the basis by the following amounts. Free tax filing for low income Any additional costs you incur. Free tax filing for low income Any gain you recognize on the exchange. Free tax filing for low income If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Free tax filing for low income Allocation of basis. Free tax filing for low income   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Free tax filing for low income The rest is the basis of the like-kind property. Free tax filing for low income More information. Free tax filing for low income   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Free tax filing for low income Basis for depreciation. Free tax filing for low income   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Free tax filing for low income For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Free tax filing for low income Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Free tax filing for low income The same rule applies to a transfer by your former spouse that is incident to divorce. Free tax filing for low income However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Free tax filing for low income If the property transferred to you is a series E, series EE, or series I U. Free tax filing for low income S. Free tax filing for low income savings bond, the transferor must include in income the interest accrued to the date of transfer. Free tax filing for low income Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Free tax filing for low income For more information on these bonds, see chapter 7. Free tax filing for low income At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Free tax filing for low income For more information about the transfer of property from a spouse, see chapter 14. Free tax filing for low income Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Free tax filing for low income FMV less than donor's adjusted basis. Free tax filing for low income   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Free tax filing for low income Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Free tax filing for low income Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Free tax filing for low income See Adjusted Basis , earlier. Free tax filing for low income Example. Free tax filing for low income You received an acre of land as a gift. Free tax filing for low income At the time of the gift, the land had an FMV of $8,000. Free tax filing for low income The donor's adjusted basis was $10,000. Free tax filing for low income After you received the property, no events occurred to increase or decrease your basis. Free tax filing for low income If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Free tax filing for low income If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Free tax filing for low income If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Free tax filing for low income Business property. Free tax filing for low income   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Free tax filing for low income FMV equal to or greater than donor's adjusted basis. Free tax filing for low income   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Free tax filing for low income Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Free tax filing for low income   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Free tax filing for low income See Adjusted Basis , earlier. Free tax filing for low income   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Free tax filing for low income Figure the increase by multiplying the gift tax paid by a fraction. Free tax filing for low income The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Free tax filing for low income   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Free tax filing for low income The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Free tax filing for low income Example. Free tax filing for low income In 2013, you received a gift of property from your mother that had an FMV of $50,000. Free tax filing for low income Her adjusted basis was $20,000. Free tax filing for low income The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Free tax filing for low income She paid a gift tax of $7,320 on the property. Free tax filing for low income Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Free tax filing for low income 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Free tax filing for low income If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Free tax filing for low income However, your basis cannot exceed the FMV of the gift at the time it was given to you. Free tax filing for low income Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Free tax filing for low income The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Free tax filing for low income The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Free tax filing for low income The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Free tax filing for low income If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Free tax filing for low income For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Free tax filing for low income Property inherited from a decedent who died in 2010. Free tax filing for low income   If you inherited property from a decedent who died in 2010, special rules may apply. Free tax filing for low income For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Free tax filing for low income Community property. Free tax filing for low income   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Free tax filing for low income When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Free tax filing for low income For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Free tax filing for low income Example. Free tax filing for low income You and your spouse owned community property that had a basis of $80,000. Free tax filing for low income When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Free tax filing for low income The FMV of the community interest was $100,000. Free tax filing for low income The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Free tax filing for low income The basis of the other half to your spouse's heirs is also $50,000. Free tax filing for low income For more information about community property, see Publication 555, Community Property. Free tax filing for low income Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Free tax filing for low income To do so, you must figure its basis for depreciation at the time of the change. Free tax filing for low income An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Free tax filing for low income Basis for depreciation. Free tax filing for low income   The basis for depreciation is the lesser of the following amounts. Free tax filing for low income The FMV of the property on the date of the change. Free tax filing for low income Your adjusted basis on the date of the change. Free tax filing for low income Example. Free tax filing for low income Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Free tax filing for low income You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Free tax filing for low income Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Free tax filing for low income Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Free tax filing for low income On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Free tax filing for low income The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Free tax filing for low income Sale of property. Free tax filing for low income   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Free tax filing for low income Gain. Free tax filing for low income   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Free tax filing for low income Example. Free tax filing for low income Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Free tax filing for low income Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Free tax filing for low income Loss. Free tax filing for low income   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Free tax filing for low income Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Free tax filing for low income Example. Free tax filing for low income Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Free tax filing for low income In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Free tax filing for low income Reduce that amount ($180,000) by the depreciation deductions ($37,500). Free tax filing for low income The basis for loss is $142,500 ($180,000 − $37,500). Free tax filing for low income Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Free tax filing for low income If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Free tax filing for low income You must adjust the basis of stocks for certain events that occur after purchase. Free tax filing for low income For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Free tax filing for low income This rule applies only when the additional stock received is identical to the stock held. Free tax filing for low income Also reduce your basis when you receive nontaxable distributions. Free tax filing for low income They are a return of capital. Free tax filing for low income Example. Free tax filing for low income In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Free tax filing for low income In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Free tax filing for low income In 2013 XYZ declared a 2-for-1 stock split. Free tax filing for low income You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Free tax filing for low income Other basis. Free tax filing for low income   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Free tax filing for low income For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Free tax filing for low income Identifying stocks or bonds sold. Free tax filing for low income   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Free tax filing for low income If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Free tax filing for low income For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Free tax filing for low income Mutual fund shares. Free tax filing for low income   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Free tax filing for low income For more information, see Publication 550. Free tax filing for low income Bond premium. Free tax filing for low income   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Free tax filing for low income See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Free tax filing for low income Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Free tax filing for low income Original issue discount (OID) on debt instruments. Free tax filing for low income   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Free tax filing for low income See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Free tax filing for low income Tax-exempt obligations. Free tax filing for low income    OID on tax-exempt obligations is generally not taxable. Free tax filing for low income However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Free tax filing for low income The accrued OID is added to the basis of the obligation to determine your gain or loss. Free tax filing for low income See chapter 4 of Publication 550. Free tax filing for low income Prev  Up  Next   Home   More Online Publications