Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free Tax Software Online

Is There A Way To File State Taxes For FreeFile Federal Taxes OnlineFree Online 1040ezHow To File My 2012 Taxes LateFree Online TaxH&r Block Tax Cut 2011Military Turbo Tax2007 Tax Software Free DownloadEfile For Free State And FederalWhat Forms Do I Need To File An Amended Tax ReturnVita TaxTax Extension 2011Free 2011 Tax Software DownloadFiling 1040x With Form 982H&r Block Free Tax For MilitaryHow Do I File An Amended Tax Return For 2013Taxes 2011 Forms1040 Ez For 20111040ez Calculator1040 Ez FormHow Far Back Can I Amend A Tax ReturnAmend Tax FormAmending A 2010 Tax ReturnAmended 2009 Tax Return InstructionsH&r Block Free Tax Returns1040nr 2013Irs Forms2010 Federal Tax ReturnHow To Fill Out A 1040x1040ez Free File Online2010 Tax FormsIrs E File 1040 EzFederal Tax Forms 2011 EzEfile 1040nr Ez 540nr ShortStudent TaxesWww.freestatetaxsites.com1040 Ez Form 2012File 1040nr OnlineFree Prior Year Tax SoftwareWhere To File 2011 Taxes

Free Tax Software Online

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

A-Z Index of U.S. Government Departments and Agencies

The Free Tax Software Online

Free tax software online Tax Changes for Businesses Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Electronic Form 1099 Tax Incentives for New York Liberty Zone Other 2001 Changes 2002 ChangesNonaccrual-Experience Method Issuance of Qualified Zone Academy Bonds Depletion Work Opportunity Credit Expanded in New York Liberty Zone Credit For Pension Plan Startup Costs Welfare-to-Work Credit Extended Work Opportunity Credit Extended Electric and Clean-Fuel Vehicles Renewable Electricity Production Credit Later ChangesSpecial Depreciation Allowance Extension of Placed in Service Date Special Liberty Zone Depreciation Allowance for New and Used Property Depreciation of Property Used on Indian Reservations Indian Employment Credit Extended 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). Free tax software online However, you can still choose to use the previous carryback period. Free tax software online You also can choose not to carry back an NOL and only carry it forward. Free tax software online Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Free tax software online Corporations can file Form 1139, Corporation Application for Tentative Refund. Free tax software online The instructions for these forms will be revised to reflect the new law. Free tax software online Electronic Form 1099 For tax years ending after March 9, 2002, most Forms 1099 can be furnished electronically if the recipient consents, according to IRS regulations, to receive it that way. Free tax software online Tax Incentives for New York Liberty Zone New tax benefits are provided for the parts of New York City damaged in the terrorist attacks on September 11, 2001. Free tax software online These benefits apply to the newly created New York Liberty Zone, which is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway), in the Borough of Manhattan. Free tax software online Tax benefits for the New York Liberty Zone include the following. Free tax software online A special depreciation allowance equal to 30% of the adjusted basis of qualified Liberty Zone property. Free tax software online It is allowed for the year the property is placed in service. Free tax software online No alternative minimum tax depreciation adjustment for qualified Liberty Zone property. Free tax software online Classification of Liberty Zone leasehold improvement property as 5-year property. Free tax software online Authorization of the issuance of tax-exempt New York Liberty bonds to finance the acquisition, construction, reconstruction, and renovation of nonresidential real property, residential rental property, and public utility property in the Liberty Zone. Free tax software online An increased section 179 deduction for certain Liberty Zone property. Free tax software online Extension of the replacement period from 2 years to 5 years for certain property involuntarily converted as a result of the terrorist attacks on September 11, 2001, but only if substantially all of the use of the replacement property is in New York City. Free tax software online For more information about involuntary conversions, see Postponement of Gain in Publication 547, Casualties, Disasters, and Thefts. Free tax software online In addition, for 2002 and 2003, the work opportunity credit is expanded by creating a new targeted group, consisting generally of employees who work in the Liberty Zone or, in certain cases, in New York City outside the Liberty Zone. Free tax software online For more information, see Work Opportunity Credit Expanded in New York Liberty Zone under 2002 Changes, later. Free tax software online For more information about the 30% special depreciation allowance, Liberty Zone leasehold improvement property, or increased section 179 deduction, see New York Liberty Zone Benefits, in chapter 5. Free tax software online In addition, the tax benefits for the Liberty Zone will be covered in a new edition of Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, available later in 2002. Free tax software online Other 2001 Changes Other changes are discussed in the following chapters. Free tax software online Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Nonaccrual-Experience Method Under current law, if you perform services and use an accrual method of accounting, you do not accrue income which, based on experience, you expect to be uncollectible. Free tax software online Beginning in 2002, this rule only applies if you perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting, or your average annual gross receipts for the 3 prior tax years does not exceed $5,000,000. Free tax software online As under current law, the nonaccrual-experience method will not apply to amounts on which you charge interest or a late payment penalty. Free tax software online For more information, see Nonaccrual-Experience Method in chapter 11 of Publication 535, Business Expenses. Free tax software online Issuance of Qualified Zone Academy Bonds State and local governments issue qualified zone academy bonds to raise funds for the use of qualified zone academies. Free tax software online The amount of bonds that may be issued was limited to $400 million each year for 1998, 1999, 2000, and 2001. Free tax software online This provision has been extended to provide for an additional $400 million of bonds to be issued each year for 2002 and 2003. Free tax software online For more information about qualified zone academy bonds, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Free tax software online Depletion The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas that was scheduled to expire for tax years beginning after 2001 has been extended to tax years beginning before 2004. Free tax software online For more information on marginal production, see section 613A(c) of the Internal Revenue Code. Free tax software online Work Opportunity Credit Expanded in New York Liberty Zone The work opportunity credit is expanded to include a new targeted group consisting generally of employees who perform substantially all their services: In the New York Liberty Zone (defined earlier under Tax Incentives for New York Liberty Zone, under 2001 Changes), or Elsewhere in New York City for a business that relocated from the Liberty Zone due to the destruction or damage of its place of business by the September 11, 2001, terrorist attack. Free tax software online The credit is available to employers for wages paid to new employees and existing employees for work performed during 2002 or 2003. Free tax software online Certain limits apply. Free tax software online For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Free tax software online Credit For Pension Plan Startup Costs The credit for pension plan startup costs is now allowed for plans that become effective after December 31, 2001. Free tax software online Previously, the credit was only allowed for plans established after December 31, 2001. Free tax software online For more information on the credit, see Important Changes for 2002 in Publication 560, Retirement Plans for Small Business. Free tax software online Welfare-to-Work Credit Extended The welfare-to-work credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Free tax software online For more information on the welfare-to-work credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Free tax software online Work Opportunity Credit Extended The work opportunity credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Free tax software online For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Free tax software online Electric and Clean-Fuel Vehicles The maximum clean-fuel vehicle deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002 and both were scheduled to be phased out completely by 2005. Free tax software online The full deduction and credit are now allowed for qualified property placed in service in 2002 and 2003. Free tax software online The phaseout of the deduction and the credit will begin in 2004, and no deduction or credit will be allowed for property placed in service after 2006. Free tax software online For more information about electric and clean-fuel vehicles, see chapter 12 in Publication 535, Business Expenses. Free tax software online Renewable Electricity Production Credit The renewable electricity production credit is extended to include electricity produced by facilities placed in service after 2001 and before 2004. Free tax software online Later Changes Special Depreciation Allowance You can claim the special depreciation allowance (an additional 30% depreciation deduction) for new property that you acquire before September 11, 2004, and place in service for your business generally before January 1, 2005, if you meet the other requirements for qualified property covered in chapter 5. Free tax software online Accordingly, you will generally no longer be able to claim the special depreciation allowance for the qualified property if you acquire it after September 10, 2004, or place it in service for your business after December 31, 2004. Free tax software online However, you will be able to claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for most qualified property if you place it in service in the Liberty Zone after December 31, 2004, and generally before January 1, 2007, provided you meet the other requirements for qualified Liberty Zone property covered in chapter 5. Free tax software online Extension of Placed in Service Date To qualify for the special depreciation allowance, your property must meet certain tests, including the placed in service date test, as well as the other requirements covered in chapter 5 of this publication. Free tax software online To meet the placed in service date test, your property must generally be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Free tax software online However, certain property placed in service before January 1, 2006, may meet this test. Free tax software online Transportation property and property with a recovery period of 10 years or longer meet the test if one of the following applies. Free tax software online The property has an estimated production period of more than 2 years. Free tax software online The property has an estimated production period of more than 1 year and it costs more than $1 million. Free tax software online Transportation property is any tangible personal property used in the trade or business of transporting persons or property. Free tax software online For property that qualifies for the special depreciation allowance solely because of the one-year extension of the placed in service date, only the part of the basis attributable to manufacture, construction, or production before September 11, 2004, is eligible for the special depreciation allowance. Free tax software online Special Liberty Zone Depreciation Allowance for New and Used Property You can claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for used property that you acquire after September 10, 2001, if the property meets the requirements listed under Qualified Liberty Zone Property in chapter 5 of this publication. Free tax software online You will be able to claim the allowance for both new and used property that you acquire after September 10, 2004, provided the property meets the other requirements for qualified Liberty Zone property. Free tax software online Depreciation of Property Used on Indian Reservations The special depreciation rules that apply to qualified property used on an Indian reservation were scheduled to expire for property placed in service after 2003. Free tax software online These special rules have been extended to include property placed in service in 2004. Free tax software online For more information about these rules, see Publication 946, How To Depreciate Property. Free tax software online Indian Employment Credit Extended The Indian employment credit that was scheduled to expire for tax years beginning after 2003 has been extended to include a tax year beginning in 2004. Free tax software online For more information about this credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Free tax software online Prev  Up  Next   Home   More Online Publications