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H&r block advantage 5. H&r block advantage   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. H&r block advantage S. H&r block advantage PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. H&r block advantage S. H&r block advantage possessions, and How to report deductions. H&r block advantage Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. H&r block advantage Items Related to Excluded Income U. H&r block advantage S. H&r block advantage citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. H&r block advantage If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. H&r block advantage This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. H&r block advantage You can deduct only those expenses connected with earning includible income. H&r block advantage These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. H&r block advantage These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. H&r block advantage For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. H&r block advantage If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. H&r block advantage Example. H&r block advantage In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. H&r block advantage You did not have a housing exclusion. H&r block advantage Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. H&r block advantage In 2013, you received a $12,000 bonus for work you did abroad in 2012. H&r block advantage You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. H&r block advantage Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. H&r block advantage This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). H&r block advantage Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. H&r block advantage S. H&r block advantage tax purposes and is not the dependent of another U. H&r block advantage S. H&r block advantage taxpayer. H&r block advantage You also can claim exemptions for individuals who qualify as your dependents. H&r block advantage To be your dependent, the individual must be a U. H&r block advantage S. H&r block advantage citizen, U. H&r block advantage S. H&r block advantage national, U. H&r block advantage S. H&r block advantage resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. H&r block advantage Children. H&r block advantage   Children usually are citizens or residents of the same country as their parents. H&r block advantage If you were a U. H&r block advantage S. H&r block advantage citizen when your child was born, your child generally is a U. H&r block advantage S. H&r block advantage citizen. H&r block advantage This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. H&r block advantage   If you have a legally adopted child who is not a U. H&r block advantage S. H&r block advantage citizen, U. H&r block advantage S. H&r block advantage resident, or U. H&r block advantage S. H&r block advantage national, the child meets the citizen requirement if you are a U. H&r block advantage S. H&r block advantage citizen or U. H&r block advantage S. H&r block advantage national and the child lived with you as a member of your household all year. H&r block advantage Social security number. H&r block advantage   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. H&r block advantage To get a social security number for a dependent, apply at a Social Security office or U. H&r block advantage S. H&r block advantage consulate. H&r block advantage You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. H&r block advantage   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. H&r block advantage Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. H&r block advantage   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. H&r block advantage To apply for an ITIN, file Form W-7 with the IRS. H&r block advantage It usually takes 6 to 10 weeks to get an ITIN. H&r block advantage Enter your dependent's ITIN wherever an SSN is requested on your tax return. H&r block advantage More information. H&r block advantage   For more information about exemptions, see Publication 501. H&r block advantage Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. H&r block advantage Exceptions are explained under Canadian, Mexican, and Israeli charities, later. H&r block advantage You can deduct contributions to a U. H&r block advantage S. H&r block advantage organization that transfers funds to a charitable foreign organization if the U. H&r block advantage S. H&r block advantage organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. H&r block advantage S. H&r block advantage organization. H&r block advantage Canadian, Mexican, and Israeli charities. H&r block advantage   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. H&r block advantage Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. H&r block advantage See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. H&r block advantage Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. H&r block advantage Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. H&r block advantage See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. H&r block advantage Foreign moves. H&r block advantage   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. H&r block advantage A foreign move does not include a move back to the United States or its possessions. H&r block advantage Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. H&r block advantage If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. H&r block advantage Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. H&r block advantage Year to which expense is connected. H&r block advantage   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. H&r block advantage It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. H&r block advantage   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. H&r block advantage The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. H&r block advantage The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. H&r block advantage Amount allocable to excluded income. H&r block advantage   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. H&r block advantage The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. H&r block advantage Example. H&r block advantage On November 1, 2012, you transfer to Monaco. H&r block advantage Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. H&r block advantage In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. H&r block advantage You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. H&r block advantage The reimbursement is included in your income. H&r block advantage Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. H&r block advantage Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. H&r block advantage Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. H&r block advantage You have no housing exclusion. H&r block advantage The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). H&r block advantage To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. H&r block advantage The result, $5,562, is your nondeductible amount. H&r block advantage    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. H&r block advantage In the preceding example, this year was 2012. H&r block advantage You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. H&r block advantage Move between foreign countries. H&r block advantage   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. H&r block advantage New place of work in U. H&r block advantage S. H&r block advantage   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. H&r block advantage If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. H&r block advantage Storage expenses. H&r block advantage   These expenses are attributable to work you do during the year in which you incur the storage expenses. H&r block advantage You cannot deduct the amount allocable to excluded income. H&r block advantage Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. H&r block advantage By then, you should have all the information needed to properly figure the moving expense deduction. H&r block advantage See Extensions under When To File and Pay in chapter 1. H&r block advantage If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. H&r block advantage You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. H&r block advantage Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. H&r block advantage If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. H&r block advantage You cannot claim it on the return for the second year. H&r block advantage Forms To File Report your moving expenses on Form 3903. H&r block advantage Report your moving expense deduction on line 26 of Form 1040. H&r block advantage If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. H&r block advantage For more information about figuring moving expenses, see Publication 521. H&r block advantage Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. H&r block advantage In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. H&r block advantage Do not reduce your compensation by the foreign housing deduction. H&r block advantage If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. H&r block advantage This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. H&r block advantage Other modifications are also required. H&r block advantage For more information on IRAs, see Publication 590. H&r block advantage Taxes of Foreign Countries and U. H&r block advantage S. H&r block advantage Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. H&r block advantage S. H&r block advantage possession. H&r block advantage Taken as a deduction, foreign income taxes reduce your taxable income. H&r block advantage Taken as a credit, foreign income taxes reduce your tax liability. H&r block advantage You must treat all foreign income taxes the same way. H&r block advantage If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. H&r block advantage However, you may be able to deduct other foreign taxes. H&r block advantage See Deduction for Other Foreign Taxes, later. H&r block advantage There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. H&r block advantage In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. H&r block advantage S. H&r block advantage tax liability, rather than as a deduction in figuring taxable income. H&r block advantage However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. H&r block advantage S. H&r block advantage income is small, a lower final tax may result from deducting the foreign income taxes. H&r block advantage In any event, you should figure your tax liability both ways and then use the one that is better for you. H&r block advantage You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. H&r block advantage Foreign income taxes. H&r block advantage   These are generally income taxes you pay to any foreign country or possession of the United States. H&r block advantage Foreign income taxes on U. H&r block advantage S. H&r block advantage return. H&r block advantage   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. H&r block advantage These amounts cannot be included as withheld income taxes on Form 1040, line 62. H&r block advantage Foreign taxes paid on excluded income. H&r block advantage   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. H&r block advantage Foreign earned income exclusion. H&r block advantage Foreign housing exclusion. H&r block advantage Possession exclusion. H&r block advantage If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. H&r block advantage   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. H&r block advantage You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. H&r block advantage The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). H&r block advantage The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). H&r block advantage   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. H&r block advantage    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. H&r block advantage Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. H&r block advantage Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. H&r block advantage Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. H&r block advantage The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. H&r block advantage The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. H&r block advantage You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. H&r block advantage Subsidies. H&r block advantage   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. H&r block advantage This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. H&r block advantage   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. H&r block advantage A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. H&r block advantage Limit The foreign tax credit is limited to the part of your total U. H&r block advantage S. H&r block advantage tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. H&r block advantage The allowable foreign tax credit cannot be more than your actual foreign tax liability. H&r block advantage Exemption from limit. H&r block advantage   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. H&r block advantage Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. H&r block advantage ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). H&r block advantage Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. H&r block advantage You elect this procedure. H&r block advantage If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. H&r block advantage Separate limit. H&r block advantage   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). H&r block advantage Figuring the limit. H&r block advantage   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. H&r block advantage Do not take any excluded amount into account. H&r block advantage   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. H&r block advantage   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. H&r block advantage The numerator (top number) of the fraction is your gross foreign income in the separate limit category. H&r block advantage The denominator (bottom number) of the fraction is your gross income from all sources. H&r block advantage For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. H&r block advantage You must use special rules for deducting interest expenses. H&r block advantage For more information on allocating and apportioning your deductions, see Publication 514. H&r block advantage Exemptions. H&r block advantage   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. H&r block advantage Recapture of foreign losses. H&r block advantage   If you have an overall foreign loss and the loss reduces your U. H&r block advantage S. H&r block advantage source income (resulting in a reduction of your U. H&r block advantage S. H&r block advantage tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. H&r block advantage This is done by treating a part of your taxable income from foreign sources in later years as U. H&r block advantage S. H&r block advantage source income. H&r block advantage This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. H&r block advantage Recapture of domestic losses. H&r block advantage   If you have an overall domestic loss (resulting in no U. H&r block advantage S. H&r block advantage tax liability), you cannot claim a foreign tax credit for taxes paid during that year. H&r block advantage You must recapture the loss in later years when you have U. H&r block advantage S. H&r block advantage source taxable income. H&r block advantage This is done by treating a part of your taxable income from U. H&r block advantage S. H&r block advantage sources in later years as foreign source income. H&r block advantage This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. H&r block advantage Foreign tax credit carryback and carryover. H&r block advantage   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. H&r block advantage   More information on figuring the foreign tax credit can be found in Publication 514. H&r block advantage Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). H&r block advantage You can deduct only foreign income taxes paid on income that is subject to U. H&r block advantage S. H&r block advantage tax. H&r block advantage You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. H&r block advantage Foreign earned income exclusion. H&r block advantage Foreign housing exclusion. H&r block advantage Possession exclusion. H&r block advantage Example. H&r block advantage You are a U. H&r block advantage S. H&r block advantage citizen and qualify to exclude your foreign earned income. H&r block advantage Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. H&r block advantage You received dividends from Country X of $2,000 on which you paid income tax of $600. H&r block advantage You can deduct the $600 tax payment because the dividends relating to it are subject to U. H&r block advantage S. H&r block advantage tax. H&r block advantage Because you exclude your wages, you cannot deduct the income tax of $10,000. H&r block advantage If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. H&r block advantage Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. H&r block advantage You take this deduction on Schedule A (Form 1040). H&r block advantage You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. H&r block advantage On the other hand, you generally can deduct personal property taxes when you pay them to U. H&r block advantage S. H&r block advantage possessions. H&r block advantage But if you claim the possession exclusion, see Publication 570. H&r block advantage The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. H&r block advantage You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. H&r block advantage How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. H&r block advantage If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. H&r block advantage Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. H&r block advantage Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. H&r block advantage If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. H&r block advantage You figure that amount by subtracting from the total deduction the amount related to excluded income. H&r block advantage Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. H&r block advantage Attach a statement to your return showing how you figured the deductible amount. H&r block advantage Example 1. H&r block advantage You are a U. H&r block advantage S. H&r block advantage citizen employed as an accountant. H&r block advantage Your tax home is in Germany for the entire tax year. H&r block advantage You meet the physical presence test. H&r block advantage Your foreign earned income for the year was $122,000 and your investment income was $10,380. H&r block advantage After excluding $97,600, your AGI is $34,780. H&r block advantage You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. H&r block advantage These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). H&r block advantage You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. H&r block advantage You must fill out Form 2106. H&r block advantage On that form, reduce your deductible meal and entertainment expenses by 50% ($250). H&r block advantage You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. H&r block advantage You carry the remaining total of $450 to line 21 of Schedule A. H&r block advantage Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. H&r block advantage On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. H&r block advantage Enter $254 on line 27 of Schedule A. H&r block advantage Example 2. H&r block advantage You are a U. H&r block advantage S. H&r block advantage citizen, have a tax home in Spain, and meet the physical presence test. H&r block advantage You are self-employed and personal services produce the business income. H&r block advantage Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. H&r block advantage You choose the foreign earned income exclusion and exclude $97,600 of your gross income. H&r block advantage Since your excluded income is 83. H&r block advantage 47% of your total income, 83. H&r block advantage 47% of your business expenses are not deductible. H&r block advantage Report your total income and expenses on Schedule C (Form 1040). H&r block advantage On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. H&r block advantage 47% × $66,895) business expenses attributable to the exclusion. H&r block advantage In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. H&r block advantage Example 3. H&r block advantage Assume in Example 2 that both capital and personal services combine to produce the business income. H&r block advantage No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. H&r block advantage Your exclusion of $15,011 is 12. H&r block advantage 84% of your gross income ($15,011 ÷ $116,931). H&r block advantage Because you excluded 12. H&r block advantage 84% of your total income, $8,589 (. H&r block advantage 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. H&r block advantage Example 4. H&r block advantage You are a U. H&r block advantage S. H&r block advantage citizen, have a tax home in Brazil, and meet the physical presence test. H&r block advantage You are self-employed and both capital and personal services combine to produce business income. H&r block advantage Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. H&r block advantage A reasonable allowance for the services you performed for the business is $77,000. H&r block advantage Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. H&r block advantage The $77,000 is foreign earned income. H&r block advantage If you choose to exclude the $77,000, you exclude 52. H&r block advantage 74% of your gross income ($77,000 ÷ $146,000), and 52. H&r block advantage 74% of your business expenses ($90,713) is attributable to that income and is not deductible. H&r block advantage Show your total income and expenses on Schedule C (Form 1040). H&r block advantage On Form 2555, exclude $77,000 and show $90,713 on line 44. H&r block advantage Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. H&r block advantage Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. H&r block advantage In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. H&r block advantage If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. H&r block advantage To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. H&r block advantage See Choosing the Exclusion in chapter 4. H&r block advantage Example 5. H&r block advantage You are a U. H&r block advantage S. H&r block advantage citizen, have a tax home in Panama, and meet the bona fide residence test. H&r block advantage You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. H&r block advantage Capital investment is not material in producing the partnership's income. H&r block advantage Under the terms of the partnership agreement, you are to receive 50% of the net profits. H&r block advantage The partnership received gross income of $244,000 and incurred operating expenses of $98,250. H&r block advantage Of the net profits of $145,750, you received $72,875 as your distributive share. H&r block advantage You choose to exclude $97,600 of your share of the gross income. H&r block advantage Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. H&r block advantage 80 × $49,125). H&r block advantage Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. H&r block advantage On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. H&r block advantage Your exclusion on Form 2555 is $58,300. H&r block advantage In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. H&r block advantage Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in North Dakota

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City  Street Address  Days/Hours of Service  Telephone* 
Bismarck 

4503 Coleman St.
Suite 101
Bismarck, ND  58503 

Monday-Friday - 8:30 a.m. - 4:30 p.m.
(Closed for lunch 11:00 a.m. - 12:00 noon)

 

**This office will be closed 4/17**

 

Services Provided

(701) 221-5834 
Fargo  657 Second Ave. N.
Fargo, ND 58102 

Monday-Friday - 8:30 a.m. - 4:30 p.m.

 

Services Provided

(701) 232-4710 
Grand Forks  102 N. Fourth St.
Grand Forks, ND 58203 

Monday-Friday - 8:30 a.m. - 4:30 p.m.
(Closed for lunch 11:00 a.m. - 12:00 noon)

 

**This office will be closed 3/31**

 

Services Provided

(701) 746-5283 
Minot  315 S. Main St.
Suite 316
Minot, ND 58701 

Monday-Friday - 8:30 a.m. - 4:30 p.m.
(Closed for lunch 11:00 a.m. - 12:00 noon)

 

Services Provided

(701) 839-7741 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (701) 237-8342 in Fargo or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS.

For further information, see Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
657 2nd Ave., North
Fargo, ND 58102

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The H&r Block Advantage

H&r block advantage 3. H&r block advantage   Limit on Annual Additions Table of Contents Ministers and church employees. H&r block advantage Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. H&r block advantage This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. H&r block advantage The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. H&r block advantage More than one 403(b) account. H&r block advantage If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. H&r block advantage Ministers and church employees. H&r block advantage   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. H&r block advantage For more information, see chapter 5. H&r block advantage Participation in a qualified plan. H&r block advantage If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. H&r block advantage You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. H&r block advantage Includible Compensation for Your Most Recent Year of Service Definition. H&r block advantage   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. H&r block advantage When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. H&r block advantage This can happen if your tax year is not the same as your employer's annual work period. H&r block advantage When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. H&r block advantage Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. H&r block advantage Tax year different from employer's annual work period. H&r block advantage   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. H&r block advantage Example. H&r block advantage A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). H&r block advantage To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. H&r block advantage Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. H&r block advantage A full year of service is equal to full-time employment for your employer's annual work period. H&r block advantage After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. H&r block advantage Part-time or employed only part of the year. H&r block advantage   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. H&r block advantage To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. H&r block advantage Example. H&r block advantage You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). H&r block advantage Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). H&r block advantage Not yet employed for 1 year. H&r block advantage   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. H&r block advantage Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. H&r block advantage Includible compensation is not the same as income included on your tax return. H&r block advantage Compensation is a combination of income and benefits received in exchange for services provided to your employer. H&r block advantage Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. H&r block advantage Includible compensation includes the following amounts. H&r block advantage Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). H&r block advantage Amounts contributed or deferred by your employer under a section 125 cafeteria plan. H&r block advantage Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). H&r block advantage  Note. H&r block advantage For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. H&r block advantage Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. H&r block advantage Income otherwise excluded under the foreign earned income exclusion. H&r block advantage Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. H&r block advantage Includible compensation does not include the following items. H&r block advantage Your employer's contributions to your 403(b) account. H&r block advantage Compensation earned while your employer was not an eligible employer. H&r block advantage Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. H&r block advantage The cost of incidental life insurance. H&r block advantage See Cost of Incidental Life Insurance, later. H&r block advantage If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. H&r block advantage Contributions after retirement. H&r block advantage   Nonelective contributions may be made for an employee for up to 5 years after retirement. H&r block advantage These contributions would be based on includible compensation for the last year of service before retirement. H&r block advantage Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. H&r block advantage If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. H&r block advantage If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. H&r block advantage If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. H&r block advantage Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. H&r block advantage Not all annuity contracts include life insurance. H&r block advantage Contact your plan administrator to determine if your contract includes incidental life insurance. H&r block advantage If it does, you will need to figure the cost of life insurance each year the policy is in effect. H&r block advantage Figuring the cost of incidental life insurance. H&r block advantage If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. H&r block advantage To determine the amount of the life insurance premiums, you will need to know the following information. H&r block advantage The value of your life insurance contract, which is the amount payable upon your death. H&r block advantage The cash value of your life insurance contract at the end of the tax year. H&r block advantage Your age on your birthday nearest the beginning of the policy year. H&r block advantage Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. H&r block advantage You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. H&r block advantage Example. H&r block advantage Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. H&r block advantage Your cash value in the contract at the end of the first year is zero. H&r block advantage Your current life insurance protection for the first year is $10,000 ($10,000 − 0). H&r block advantage The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). H&r block advantage The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . H&r block advantage The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. H&r block advantage Figure 3-1. H&r block advantage Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. H&r block advantage 70   35 $0. H&r block advantage 99   70 $20. H&r block advantage 62 1 0. H&r block advantage 41   36 1. H&r block advantage 01   71 22. H&r block advantage 72 2 0. H&r block advantage 27   37 1. H&r block advantage 04   72 25. H&r block advantage 07 3 0. H&r block advantage 19   38 1. H&r block advantage 06   73 27. H&r block advantage 57 4 0. H&r block advantage 13   39 1. H&r block advantage 07   74 30. H&r block advantage 18 5 0. H&r block advantage 13   40 1. H&r block advantage 10   75 33. H&r block advantage 05 6 0. H&r block advantage 14   41 1. H&r block advantage 13   76 36. H&r block advantage 33 7 0. H&r block advantage 15   42 1. H&r block advantage 20   77 40. H&r block advantage 17 8 0. H&r block advantage 16   43 1. H&r block advantage 29   78 44. H&r block advantage 33 9 0. H&r block advantage 16   44 1. H&r block advantage 40   79 49. H&r block advantage 23 10 0. H&r block advantage 16   45 1. H&r block advantage 53   80 54. H&r block advantage 56 11 0. H&r block advantage 19   46 1. H&r block advantage 67   81 60. H&r block advantage 51 12 0. H&r block advantage 24   47 1. H&r block advantage 83   82 66. H&r block advantage 74 13 0. H&r block advantage 28   48 1. H&r block advantage 98   83 73. H&r block advantage 07 14 0. H&r block advantage 33   49 2. H&r block advantage 13   84 80. H&r block advantage 35 15 0. H&r block advantage 38   50 2. H&r block advantage 30   85 88. H&r block advantage 76 16 0. H&r block advantage 52   51 2. H&r block advantage 52   86 99. H&r block advantage 16 17 0. H&r block advantage 57   52 2. H&r block advantage 81   87 110. H&r block advantage 40 18 0. H&r block advantage 59   53 3. H&r block advantage 20   88 121. H&r block advantage 85 19 0. H&r block advantage 61   54 3. H&r block advantage 65   89 133. H&r block advantage 40 20 0. H&r block advantage 62   55 4. H&r block advantage 15   90 144. H&r block advantage 30 21 0. H&r block advantage 62   56 4. H&r block advantage 68   91 155. H&r block advantage 80 22 0. H&r block advantage 64   57 5. H&r block advantage 20   92 168. H&r block advantage 75 23 0. H&r block advantage 66   58 5. H&r block advantage 66   93 186. H&r block advantage 44 24 0. H&r block advantage 68   59 6. H&r block advantage 06   94 206. H&r block advantage 70 25 0. H&r block advantage 71   60 6. H&r block advantage 51   95 228. H&r block advantage 35 26 0. H&r block advantage 73   61 7. H&r block advantage 11   96 250. H&r block advantage 01 27 0. H&r block advantage 76   62 7. H&r block advantage 96   97 265. H&r block advantage 09 28 0. H&r block advantage 80   63 9. H&r block advantage 08   98 270. H&r block advantage 11 29 0. H&r block advantage 83   64 10. H&r block advantage 41   99 281. H&r block advantage 05 30 0. H&r block advantage 87   65 11. H&r block advantage 90       31 0. H&r block advantage 90   66 13. H&r block advantage 51       32 0. H&r block advantage 93   67 15. H&r block advantage 20       33 0. H&r block advantage 96   68 16. H&r block advantage 92       34 0. H&r block advantage 98   69 18. H&r block advantage 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. H&r block advantage Example 1. H&r block advantage Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. H&r block advantage The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. H&r block advantage Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. H&r block advantage Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. H&r block advantage When figuring her includible compensation for this year, Lynne will subtract $28. H&r block advantage Table 3-1. H&r block advantage Worksheet A. H&r block advantage Cost of Incidental Life Insurance Note. H&r block advantage Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. H&r block advantage This amount will be used to figure includible compensation for your most recent year of service. H&r block advantage 1. H&r block advantage Enter the value of the contract (amount payable upon your death) 1. H&r block advantage $20,000. H&r block advantage 00 2. H&r block advantage Enter the cash value in the contract at the end of the year 2. H&r block advantage 0. H&r block advantage 00 3. H&r block advantage Subtract line 2 from line 1. H&r block advantage This is the value of your current life insurance protection 3. H&r block advantage $20,000. H&r block advantage 00 4. H&r block advantage Enter your age on your birthday nearest the beginning of the policy year 4. H&r block advantage 44 5. H&r block advantage Enter the 1-year term premium for $1,000 of life insurance based on your age. H&r block advantage (From Figure 3-1) 5. H&r block advantage $1. H&r block advantage 40 6. H&r block advantage Divide line 3 by $1,000 6. H&r block advantage 20 7. H&r block advantage Multiply line 6 by line 5. H&r block advantage This is the cost of your incidental life insurance 7. H&r block advantage $28. H&r block advantage 00 Example 2. H&r block advantage Lynne's cash value in the contract at the end of the second year is $1,000. H&r block advantage In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. H&r block advantage In year two, Lynne's employer will include $29. H&r block advantage 07 in her current year's income. H&r block advantage Lynne will subtract this amount when figuring her includible compensation. H&r block advantage Table 3-2. H&r block advantage Worksheet A. H&r block advantage Cost of Incidental Life Insurance Note. H&r block advantage Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. H&r block advantage This amount will be used to figure includible compensation for your most recent year of service. H&r block advantage 1. H&r block advantage Enter the value of the contract (amount payable upon your death) 1. H&r block advantage $20,000. H&r block advantage 00 2. H&r block advantage Enter the cash value in the contract at the end of the year 2. H&r block advantage $1,000. H&r block advantage 00 3. H&r block advantage Subtract line 2 from line 1. H&r block advantage This is the value of your current life insurance protection 3. H&r block advantage $19,000. H&r block advantage 00 4. H&r block advantage Enter your age on your birthday nearest the beginning of the policy year 4. H&r block advantage 45 5. H&r block advantage Enter the 1-year term premium for $1,000 of life insurance based on your age. H&r block advantage (From Figure 3-1) 5. H&r block advantage $1. H&r block advantage 53 6. H&r block advantage Divide line 3 by $1,000 6. H&r block advantage 19 7. H&r block advantage Multiply line 6 by line 5. H&r block advantage This is the cost of your incidental life insurance 7. H&r block advantage $29. H&r block advantage 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. H&r block advantage Example. H&r block advantage Floyd has been periodically working full-time for a local hospital since September 2011. H&r block advantage He needs to figure his limit on annual additions for 2014. H&r block advantage The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. H&r block advantage During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. H&r block advantage Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. H&r block advantage Floyd has never worked abroad and there is no life insurance provided under the plan. H&r block advantage Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. H&r block advantage Table 3-3. H&r block advantage Floyd's Compensation Note. H&r block advantage This table shows information Floyd will use to figure includible compensation for his most recent year of service. H&r block advantage   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. H&r block advantage Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. H&r block advantage If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. H&r block advantage He figures his most recent year of service shown in the following list. H&r block advantage Time he will work in 2014 is 6/12 of a year. H&r block advantage Time worked in 2013 is 4/12 of a year. H&r block advantage All of this time will be used to determine Floyd's most recent year of service. H&r block advantage Time worked in 2012 is 4/12 of a year. H&r block advantage Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. H&r block advantage Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. H&r block advantage Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). H&r block advantage His includible compensation for his most recent year of service is figured as shown in Table 3-4. H&r block advantage After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. H&r block advantage Table 3-4. H&r block advantage Worksheet B. H&r block advantage Includible Compensation for Your Most Recent Year of Service1 Note. H&r block advantage Use this worksheet to figure includible compensation for your most recent year of service. H&r block advantage 1. H&r block advantage Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. H&r block advantage $66,000 2. H&r block advantage Enter elective deferrals excluded from your gross income for your most recent year of service2 2. H&r block advantage 4,4753 3. H&r block advantage Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. H&r block advantage -0- 4. H&r block advantage Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. H&r block advantage -0- 5. H&r block advantage Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. H&r block advantage -0- 6. H&r block advantage Enter your foreign earned income exclusion for your most recent year of service 6. H&r block advantage -0- 7. H&r block advantage Add lines 1, 2, 3, 4, 5, and 6 7. H&r block advantage 70,475 8. H&r block advantage Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. H&r block advantage -0- 9. H&r block advantage Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. H&r block advantage -0- 10. H&r block advantage Add lines 8 and 9 10. H&r block advantage -0- 11. H&r block advantage Subtract line 10 from line 7. H&r block advantage This is your includible compensation for your most recent year of service 11. H&r block advantage 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. H&r block advantage 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. H&r block advantage  3$4,475 ($2,000 + $1,650 + $825). H&r block advantage Prev  Up  Next   Home   More Online Publications