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Freefile taxes 8. Freefile taxes   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. Freefile taxes Half-time student. Freefile taxes How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. Freefile taxes ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. Freefile taxes Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. Freefile taxes If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. Freefile taxes You cannot deduct either payments or contributions to a QTP. Freefile taxes For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. Freefile taxes What is the tax benefit of a QTP. Freefile taxes   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. Freefile taxes See Are Distributions Taxable , later, for more information. Freefile taxes    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. Freefile taxes See Coordination With American Opportunity and Lifetime Learning Credits, later. Freefile taxes What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. Freefile taxes QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. Freefile taxes The program must meet certain requirements. Freefile taxes Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. Freefile taxes Qualified education expenses. Freefile taxes   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). Freefile taxes As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. Freefile taxes See Half-time student , later. Freefile taxes The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. Freefile taxes Tuition and fees. Freefile taxes Books, supplies, and equipment. Freefile taxes Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. Freefile taxes Expenses for room and board must be incurred by students who are enrolled at least half-time. Freefile taxes The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Freefile taxes The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Freefile taxes The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Freefile taxes You will need to contact the eligible educational institution for qualified room and board costs. Freefile taxes    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. Freefile taxes Designated beneficiary. Freefile taxes   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. Freefile taxes The designated beneficiary can be changed after participation in the QTP begins. Freefile taxes If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. Freefile taxes Half-time student. Freefile taxes   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Freefile taxes Eligible educational institution. Freefile taxes   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Freefile taxes S. Freefile taxes Department of Education. Freefile taxes It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Freefile taxes The educational institution should be able to tell you if it is an eligible educational institution. Freefile taxes   Certain educational institutions located outside the United States also participate in the U. Freefile taxes S. Freefile taxes Department of Education's Federal Student Aid (FSA) programs. Freefile taxes   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. Freefile taxes There are no income restrictions on the individual contributors. Freefile taxes You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. Freefile taxes   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. Freefile taxes This is a return of the investment in the plan. Freefile taxes The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). Freefile taxes Earnings and return of investment. Freefile taxes    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. Freefile taxes The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). Freefile taxes Form 1099-Q should be sent to you by January 31, 2014. Freefile taxes Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. Freefile taxes Adjusted qualified education expenses. Freefile taxes   This amount is the total qualified education expenses reduced by any tax-free educational assistance. Freefile taxes Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Freefile taxes Taxable earnings. Freefile taxes   Use the following steps to figure the taxable part. Freefile taxes Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. Freefile taxes The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. Freefile taxes Subtract the amount figured in (1) from the total distributed earnings. Freefile taxes The result is the amount the beneficiary must include in income. Freefile taxes Report it on Form 1040 or Form 1040NR, line 21. Freefile taxes Example 1. Freefile taxes In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. Freefile taxes Over the years they contributed $18,000 to the account. Freefile taxes The total balance in the account was $27,000 on the date the distribution was made. Freefile taxes In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. Freefile taxes She paid her college expenses from the following sources. Freefile taxes   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. Freefile taxes   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. Freefile taxes Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. Freefile taxes Sara figures the taxable part of the distributed earnings as follows. Freefile taxes   1. Freefile taxes $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. Freefile taxes $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. Freefile taxes Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Freefile taxes This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. Freefile taxes Example 2. Freefile taxes Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). Freefile taxes   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. Freefile taxes   1. Freefile taxes $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. Freefile taxes $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). Freefile taxes This represents distributed earnings not used for adjusted qualified education expenses. Freefile taxes Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. Freefile taxes For purposes of this allocation, disregard any qualified elementary and secondary education expenses. Freefile taxes Example 3. Freefile taxes Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. Freefile taxes In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. Freefile taxes   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. Freefile taxes Note. Freefile taxes If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . Freefile taxes Coordination With Tuition and Fees Deduction. Freefile taxes   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Freefile taxes Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. Freefile taxes You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Freefile taxes Your basis is the total amount of contributions to that QTP account. Freefile taxes You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Freefile taxes If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. Freefile taxes ) from all such accounts in order to determine your taxable earnings for the year. Freefile taxes By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. Freefile taxes Example 1. Freefile taxes In 2013, Taylor received a final distribution of $1,000 from QTP #1. Freefile taxes His unrecovered basis in that account before the distribution was $3,000. Freefile taxes If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). Freefile taxes Example 2. Freefile taxes Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. Freefile taxes His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). Freefile taxes Taylor's adjusted qualified education expenses for 2013 totaled $6,000. Freefile taxes In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. Freefile taxes   1. Freefile taxes $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. Freefile taxes $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. Freefile taxes $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. Freefile taxes Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). Freefile taxes Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. Freefile taxes Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Freefile taxes Exceptions. Freefile taxes   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Freefile taxes Made because the designated beneficiary is disabled. Freefile taxes A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Freefile taxes A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Freefile taxes Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Freefile taxes Made on account of the attendance of the designated beneficiary at a U. Freefile taxes S. Freefile taxes military academy (such as the USNA at Annapolis). Freefile taxes This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Freefile taxes S. Freefile taxes Code) attributable to such attendance. Freefile taxes Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. Freefile taxes ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Freefile taxes Figuring the additional tax. Freefile taxes    Use Part II of Form 5329, to figure any additional tax. Freefile taxes Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Freefile taxes Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. Freefile taxes In addition, the designated beneficiary can be changed without transferring accounts. Freefile taxes Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). Freefile taxes An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. Freefile taxes Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Freefile taxes These are not taxable distributions. Freefile taxes Members of the beneficiary's family. Freefile taxes   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Freefile taxes Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Freefile taxes Brother, sister, stepbrother, or stepsister. Freefile taxes Father or mother or ancestor of either. Freefile taxes Stepfather or stepmother. Freefile taxes Son or daughter of a brother or sister. Freefile taxes Brother or sister of father or mother. Freefile taxes Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Freefile taxes The spouse of any individual listed above. Freefile taxes First cousin. Freefile taxes Example. Freefile taxes When Aaron graduated from college last year he had $5,000 left in his QTP. Freefile taxes He wanted to give this money to his younger brother, who was in junior high school. Freefile taxes In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. Freefile taxes If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. Freefile taxes Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. Freefile taxes See Members of the beneficiary's family , earlier. Freefile taxes Example. Freefile taxes Assume the same situation as in the last example. Freefile taxes Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. 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    Freefile taxes 12. Freefile taxes   Filing Form 720 Table of Contents Attachments to Form 720. Freefile taxes Conditions to allowance. Freefile taxes Use Form 720 to report and pay the excise taxes previously discussed in this publication. Freefile taxes File Form 720 for each calendar quarter until you file a final Form 720. Freefile taxes For information on filing Form 720 electronically, visit the IRS e-file website at www. Freefile taxes irs. Freefile taxes gov/efile. Freefile taxes You may be required to file your returns on a monthly or semimonthly basis instead of quarterly if you do not make deposits as required (see Payment of Taxes, later) or are liable for the excise tax on taxable fuels and meet certain conditions. Freefile taxes Form 720 has three parts and three schedules. Freefile taxes Part I consists of excise taxes generally required to be deposited (see Payment of Taxes, later). Freefile taxes Part II consists of excise taxes that are not required to be deposited. Freefile taxes Part III is used to figure your tax liability for the quarter and the amount of any balance due or overpayment. Freefile taxes Schedule A, Excise Tax Liability, is used to record your net tax liability for each semimonthly period in a quarter. Freefile taxes Complete it if you have an entry in Part I. Freefile taxes Schedule C, Claims, is used to make claims. Freefile taxes However, Schedule C can only be used if you are reporting a liability in Part I or Part II. Freefile taxes Schedule T, Two-Party Exchange Information Reporting, is used to report certain exchanges of taxable fuel before or in connection with the removal at the terminal rack. Freefile taxes Attachments to Form 720. Freefile taxes   You may have to attach the following forms. Freefile taxes Form 6197 for the gas guzzler tax. Freefile taxes Form 6627 for environmental taxes. Freefile taxes Form 720X. Freefile taxes   This form is used to make adjustments to Forms 720 filed in prior quarters. Freefile taxes You can file Form 720X by itself or, if it shows a decrease in tax, you can attach it to Form 720. Freefile taxes See Form 720X for more information. Freefile taxes Conditions to allowance. Freefile taxes   For tax decreases, the claimant must check the appropriate box on Form 720X stating that: For adjustments of communications or air transportation taxes, the claimant has: Repaid the tax to the person from whom it was collected, or Obtained the consent of that person to the allowance of the adjustment. Freefile taxes For other adjustments, the claimant has: Not included the tax in the price of the article and not collected the tax from the purchaser, Repaid the tax to the ultimate purchaser, or Attached the written consent of the ultimate purchaser to the allowance of the adjustment. Freefile taxes However, the conditions listed under (2) do not apply to environmental taxes, the ship passenger tax, obligations not in registered form, foreign insurance taxes, fuels used on inland waterways, cellulosic or second generation biofuel sold as but not used as fuel, biodiesel sold as fuel but not used as fuel, and certain fuel taxes if the tax was based on use (for example, dyed diesel fuel used in trains, LPG, and CNG). Freefile taxes Final return. Freefile taxes   File a final return if: You go out of business, or You will not owe excise taxes that are reportable on Form 720 in future quarters. Freefile taxes Due dates. Freefile taxes   Form 720 must be filed by the following due dates. Freefile taxes Quarter Covered Due Dates January, February, March April 30 April, May, June July 31 July, August, September October 31 October, November, December January 31   If any due date falls on a Saturday, Sunday, or legal holiday, you can file the return on the next business day. Freefile taxes One-time filing. Freefile taxes   If you import a gas guzzling automobile, you may be eligible to make a one-time filing using your SSN if you: Do not import gas guzzling automobiles in the course of your trade or business, and Are not required to file Form 720 reporting other excise taxes for the calendar quarter, except for a one-time filing. Freefile taxes   If you meet both requirements above, see Gas guzzler tax (IRS No. Freefile taxes 40) in the Instructions for Form 720 for how to file and pay the tax. Freefile taxes Payment voucher. Freefile taxes   Form 720-V, Payment Voucher, must be included with Form 720 if you have a balance due on line 10 of Form 720 and you are making your payment by check or money order. Freefile taxes Prev  Up  Next   Home   More Online Publications