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Www statetaxforms 12. Www statetaxforms   Other Income Table of Contents Introduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. Www statetaxforms Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. Www statetaxforms Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. Www statetaxforms Method 2. Www statetaxforms RoyaltiesDepletion. Www statetaxforms Coal and iron ore. Www statetaxforms Sale of property interest. Www statetaxforms Part of future production sold. Www statetaxforms Unemployment BenefitsTypes of unemployment compensation. Www statetaxforms Governmental program. Www statetaxforms Repayment of unemployment compensation. Www statetaxforms Tax withholding. Www statetaxforms Repayment of benefits. Www statetaxforms Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. Www statetaxforms Deduction for costs involved in unlawful discrimination suits. Www statetaxforms Energy conservation measure. Www statetaxforms Dwelling unit. Www statetaxforms Current income required to be distributed. Www statetaxforms Current income not required to be distributed. Www statetaxforms How to report. Www statetaxforms Losses. Www statetaxforms Grantor trust. Www statetaxforms Nonemployee compensation. Www statetaxforms Corporate director. Www statetaxforms Personal representatives. Www statetaxforms Manager of trade or business for bankruptcy estate. Www statetaxforms Notary public. Www statetaxforms Election precinct official. Www statetaxforms Difficulty-of-care payments. Www statetaxforms Maintaining space in home. Www statetaxforms Reporting taxable payments. Www statetaxforms Lotteries and raffles. Www statetaxforms Form W-2G. Www statetaxforms Reporting winnings and recordkeeping. Www statetaxforms Inherited pension or IRA. Www statetaxforms Employee awards or bonuses. Www statetaxforms Pulitzer, Nobel, and similar prizes. Www statetaxforms Payment for services. Www statetaxforms VA payments. Www statetaxforms Prizes. Www statetaxforms Strike and lockout benefits. Www statetaxforms Introduction You must include on your return all items of income you receive in the form of money, property, and services unless the tax law states that you do not include them. Www statetaxforms Some items, however, are only partly excluded from income. Www statetaxforms This chapter discusses many kinds of income and explains whether they are taxable or nontaxable. Www statetaxforms Income that is taxable must be reported on your tax return and is subject to tax. Www statetaxforms Income that is nontaxable may have to be shown on your tax return but is not taxable. Www statetaxforms This chapter begins with discussions of the following income items. Www statetaxforms Bartering. Www statetaxforms Canceled debts. Www statetaxforms Sales parties at which you are the host or hostess. Www statetaxforms Life insurance proceeds. Www statetaxforms Partnership income. Www statetaxforms S Corporation income. Www statetaxforms Recoveries (including state income tax refunds). Www statetaxforms Rents from personal property. Www statetaxforms Repayments. Www statetaxforms Royalties. Www statetaxforms Unemployment benefits. Www statetaxforms Welfare and other public assistance benefits. Www statetaxforms These discussions are followed by brief discussions of other income items. Www statetaxforms Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 544 Sales and Other Dispositions of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Bartering Bartering is an exchange of property or services. Www statetaxforms You must include in your income, at the time received, the fair market value of property or services you receive in bartering. Www statetaxforms If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. Www statetaxforms Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Www statetaxforms However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead. Www statetaxforms Example 1. Www statetaxforms You are a self-employed attorney who performs legal services for a client, a small corporation. Www statetaxforms The corporation gives you shares of its stock as payment for your services. Www statetaxforms You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them. Www statetaxforms Example 2. Www statetaxforms You are self-employed and a member of a barter club. Www statetaxforms The club uses “credit units” as a means of exchange. Www statetaxforms It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. Www statetaxforms The club subtracts credit units from your account when you receive goods or services from other members. Www statetaxforms You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. Www statetaxforms Example 3. Www statetaxforms You own a small apartment building. Www statetaxforms In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. Www statetaxforms You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. Www statetaxforms Form 1099-B from barter exchange. Www statetaxforms   If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 18, 2014. Www statetaxforms It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2013. Www statetaxforms The IRS also will receive a copy of Form 1099-B. Www statetaxforms Canceled Debts In most cases, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. Www statetaxforms You have no income from the canceled debt if it is intended as a gift to you. Www statetaxforms A debt includes any indebtedness for which you are liable or which attaches to property you hold. Www statetaxforms If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. Www statetaxforms If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer). Www statetaxforms Form 1099-C. Www statetaxforms   If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Www statetaxforms The amount of the canceled debt is shown in box 2. Www statetaxforms Interest included in canceled debt. Www statetaxforms   If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. Www statetaxforms Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible when you paid it. Www statetaxforms See Deductible debt under Exceptions, later. Www statetaxforms   If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. Www statetaxforms If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3). Www statetaxforms Discounted mortgage loan. Www statetaxforms   If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. Www statetaxforms You must include the canceled amount in your income. Www statetaxforms Mortgage relief upon sale or other disposition. Www statetaxforms   If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. Www statetaxforms To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt , later. Www statetaxforms Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21. Www statetaxforms    You may be able to exclude part of the mortgage relief on your principal residence. Www statetaxforms See Excluded debt, later. Www statetaxforms   If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. Www statetaxforms You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. Www statetaxforms Report any gain on nonbusiness property as a capital gain. Www statetaxforms   See Publication 4681 for more information. Www statetaxforms Stockholder debt. Www statetaxforms   If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. Www statetaxforms For more information, see Publication 542, Corporations. Www statetaxforms   If you are a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally do not realize income. Www statetaxforms This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled. Www statetaxforms Repayment of canceled debt. Www statetaxforms   If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. Www statetaxforms You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. Www statetaxforms The statute of limitations generally does not end until 3 years after the due date of your original return. Www statetaxforms Exceptions There are several exceptions to the inclusion of canceled debt in income. Www statetaxforms These are explained next. Www statetaxforms Student loans. Www statetaxforms   Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. Www statetaxforms   You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required. Www statetaxforms To qualify, the loan must have been made by: The Federal Government, a state or local government, or an instrumentality, agency, or subdivision thereof, A tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, and whose employees are considered public employees under state law, or An educational institution: Under an agreement with an entity described in (1) or (2) that provided the funds to the institution to make the loan, or As part of a program of the institution designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt organization described in section 501(c)(3). Www statetaxforms   A loan to refinance a qualified student loan also will qualify if it was made by an educational institution or a qualified tax-exempt organization under its program designed as described in (3)(b) above. Www statetaxforms Education loan repayment assistance. Www statetaxforms   Education loan repayments made to you by the National Health Service Corps Loan Repayment Program (NHSC Loan Repayment Program), a state education loan repayment program eligible for funds under the Public Health Service Act, or any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas are not taxable. Www statetaxforms    The provision relating to the “other state loan repayment or loan forgiveness program” was added to this exclusion for amounts received in tax years beginning after December 31, 2008. Www statetaxforms If you included these amounts in income in 2010, 2011, or 2012, you should file an amended tax return to exclude this income. Www statetaxforms See Form 1040X and its instructions for details on filing. Www statetaxforms Deductible debt. Www statetaxforms   You do not have income from the cancellation of a debt if your payment of the debt would be deductible. Www statetaxforms This exception applies only if you use the cash method of accounting. Www statetaxforms For more information, see chapter 5 of Publication 334, Tax Guide for Small Business. Www statetaxforms Price reduced after purchase. Www statetaxforms   In most cases, if the seller reduces the amount of debt you owe for property you purchased, you do not have income from the reduction. Www statetaxforms The reduction of the debt is treated as a purchase price adjustment and reduces your basis in the property. Www statetaxforms Excluded debt. Www statetaxforms   Do not include a canceled debt in your gross income in the following situations. Www statetaxforms The debt is canceled in a bankruptcy case under title 11 of the U. Www statetaxforms S. Www statetaxforms Code. Www statetaxforms See Publication 908, Bankruptcy Tax Guide. Www statetaxforms The debt is canceled when you are insolvent. Www statetaxforms However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent. Www statetaxforms See Publication 908. Www statetaxforms The debt is qualified farm debt and is canceled by a qualified person. Www statetaxforms See chapter 3 of Publication 225, Farmer's Tax Guide. Www statetaxforms The debt is qualified real property business debt. Www statetaxforms See chapter 5 of Publication 334. Www statetaxforms The cancellation is intended as a gift. Www statetaxforms The debt is qualified principal residence indebtedness. Www statetaxforms See Publication 525 for additional information. Www statetaxforms Host or Hostess If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. Www statetaxforms You must report this item as income at its fair market value. Www statetaxforms Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. Www statetaxforms These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. Www statetaxforms For more information about the 50% limit for meal and entertainment expenses, see chapter 26. Www statetaxforms Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Www statetaxforms This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Www statetaxforms However, interest income received as a result of life insurance proceeds may be taxable. Www statetaxforms Proceeds not received in installments. Www statetaxforms   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Www statetaxforms If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Www statetaxforms Proceeds received in installments. Www statetaxforms   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Www statetaxforms   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Www statetaxforms Include anything over this excluded part in your income as interest. Www statetaxforms Surviving spouse. Www statetaxforms   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. Www statetaxforms If you remarry, you can continue to take the exclusion. Www statetaxforms Surrender of policy for cash. Www statetaxforms   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Www statetaxforms In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Www statetaxforms    You should receive a Form 1099-R showing the total proceeds and the taxable part. Www statetaxforms Report these amounts on lines 16a and 16b of Form 1040 or lines 12a and 12b of Form 1040A. Www statetaxforms More information. Www statetaxforms   For more information, see Life Insurance Proceeds in Publication 525. Www statetaxforms Endowment Contract Proceeds An endowment contract is a policy under which you are paid a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Www statetaxforms Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Www statetaxforms To determine your cost, subtract any amount that you previously received under the contract and excluded from your income from the total premiums (or other consideration) paid for the contract. Www statetaxforms Include the part of the lump sum payment that is more than your cost in your income. Www statetaxforms Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill. Www statetaxforms Viatical settlement. Www statetaxforms   This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. Www statetaxforms A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code. Www statetaxforms Exclusion for terminal illness. Www statetaxforms    Accelerated death benefits are fully excludable if the insured is a terminally ill individual. Www statetaxforms This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. Www statetaxforms Exclusion for chronic illness. Www statetaxforms    If the insured is a chronically ill individual who is not terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Www statetaxforms Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. Www statetaxforms This limit applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. Www statetaxforms For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits in Publication 525. Www statetaxforms Exception. Www statetaxforms   The exclusion does not apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the person, or Has a financial interest in the person's business. Www statetaxforms Form 8853. Www statetaxforms   To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Www statetaxforms You do not have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred. Www statetaxforms Public Safety Officer Killed in the Line of Duty If you are a survivor of a public safety officer who was killed in the line of duty, you may be able to exclude from income certain amounts you receive. Www statetaxforms For this purpose, the term public safety officer includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. Www statetaxforms For more information, see Publication 559, Survivors, Executors, and Administrators. Www statetaxforms Partnership Income A partnership generally is not a taxable entity. Www statetaxforms The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner's distributive share of these items. Www statetaxforms Schedule K-1 (Form 1065). Www statetaxforms    Although a partnership generally pays no tax, it must file an information return on Form 1065, U. Www statetaxforms S. Www statetaxforms Return of Partnership Income, and send Schedule K-1 (Form 1065) to each partner. Www statetaxforms In addition, the partnership will send each partner a copy of the Partner's Instructions for Schedule K-1 (Form 1065) to help each partner report his or her share of the partnership's income, deductions, credits, and tax preference items. Www statetaxforms Keep Schedule K-1 (Form 1065) for your records. Www statetaxforms Do not attach it to your Form 1040, unless you are specifically required to do so. Www statetaxforms For more information on partnerships, see Publication 541, Partnerships. Www statetaxforms Qualified joint venture. Www statetaxforms   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Www statetaxforms To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Www statetaxforms For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return. Www statetaxforms S Corporation Income In most cases, an S corporation does not pay tax on its income. Www statetaxforms Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder's pro rata share. Www statetaxforms Schedule K-1 (Form 1120S). Www statetaxforms   An S corporation must file a return on Form 1120S, U. Www statetaxforms S. Www statetaxforms Income Tax Return for an S Corporation, and send Schedule K-1 (Form 1120S) to each shareholder. Www statetaxforms In addition, the S corporation will send each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S) to help each shareholder report his or her share of the S corporation's income, losses, credits, and deductions. Www statetaxforms Keep Schedule K-1 (Form 1120S) for your records. Www statetaxforms Do not attach it to your Form 1040, unless you are specifically required to do so. Www statetaxforms For more information on S corporations and their shareholders, see the Instructions for Form 1120S. Www statetaxforms Recoveries A recovery is a return of an amount you deducted or took a credit for in an earlier year. Www statetaxforms The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). Www statetaxforms You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit. Www statetaxforms Tax benefit rule. Www statetaxforms   You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. Www statetaxforms For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. Www statetaxforms For more information, see Publication 525. Www statetaxforms Federal income tax refund. Www statetaxforms   Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income. Www statetaxforms State tax refund. Www statetaxforms   If you received a state or local income tax refund (or credit or offset) in 2013, you generally must include it in income if you deducted the tax in an earlier year. Www statetaxforms The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2014. Www statetaxforms The IRS also will receive a copy of the Form 1099-G. Www statetaxforms If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2013 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. Www statetaxforms See Publication 525 for when you must use another worksheet. Www statetaxforms   If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. Www statetaxforms For examples, see Publication 525. Www statetaxforms Mortgage interest refund. Www statetaxforms    If you received a refund or credit in 2013 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. Www statetaxforms Do not subtract the refund amount from the interest you paid in 2013. Www statetaxforms You may have to include it in your income under the rules explained in the following discussions. Www statetaxforms Interest on recovery. Www statetaxforms   Interest on any of the amounts you recover must be reported as interest income in the year received. Www statetaxforms For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a. Www statetaxforms Recovery and expense in same year. Www statetaxforms   If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income. Www statetaxforms Recovery for 2 or more years. Www statetaxforms   If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. Www statetaxforms This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. Www statetaxforms For information on how to compute the allocation, see Recoveries in Publication 525. Www statetaxforms Itemized Deduction Recoveries If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it. Www statetaxforms Where to report. Www statetaxforms   Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. Www statetaxforms You cannot use Form 1040A or Form 1040EZ. Www statetaxforms Standard deduction limit. Www statetaxforms   You generally are allowed to claim the standard deduction if you do not itemize your deductions. Www statetaxforms Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). Www statetaxforms If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of: Your recoveries, or The amount by which your itemized deductions exceeded the standard deduction. Www statetaxforms Example. Www statetaxforms For 2012, you filed a joint return. Www statetaxforms Your taxable income was $60,000 and you were not entitled to any tax credits. Www statetaxforms Your standard deduction was $11,900, and you had itemized deductions of $14,000. Www statetaxforms In 2013, you received the following recoveries for amounts deducted on your 2012 return: Medical expenses $200 State and local income tax refund 400 Refund of mortgage interest 325 Total recoveries $925 None of the recoveries were more than the deductions taken for 2012. Www statetaxforms The difference between the state and local income tax you deducted and your local general sales tax was more than $400. Www statetaxforms Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 11,900 = $2,100), so you must include your total recoveries in your income for 2013. Www statetaxforms Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21. Www statetaxforms Standard deduction for earlier years. Www statetaxforms   To determine if amounts recovered in 2013 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. Www statetaxforms Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year. Www statetaxforms Example. Www statetaxforms You filed a joint return on Form 1040 for 2012 with taxable income of $45,000. Www statetaxforms Your itemized deductions were $12,350. Www statetaxforms The standard deduction that you could have claimed was $11,900. Www statetaxforms In 2013, you recovered $2,100 of your 2012 itemized deductions. Www statetaxforms None of the recoveries were more than the actual deductions for 2012. Www statetaxforms Include $450 of the recoveries in your 2013 income. Www statetaxforms This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,350 − $11,900 = $450). Www statetaxforms Recovery limited to deduction. Www statetaxforms   You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. Www statetaxforms The amount you include in your income is limited to the smaller of: The amount deducted on Schedule A (Form 1040), or The amount recovered. Www statetaxforms Example. Www statetaxforms During 2012 you paid $1,700 for medical expenses. Www statetaxforms From this amount you subtracted $1,500, which was 7. Www statetaxforms 5% of your adjusted gross income. Www statetaxforms Your actual medical expense deduction was $200. Www statetaxforms In 2013, you received a $500 reimbursement from your medical insurance for your 2012 expenses. Www statetaxforms The only amount of the $500 reimbursement that must be included in your income for 2013 is $200—the amount actually deducted. Www statetaxforms Other recoveries. Www statetaxforms   See Recoveries in Publication 525 if: You have recoveries of items other than itemized deductions, or You received a recovery for an item for which you claimed a tax credit (other than investment credit or foreign tax credit) in a prior year. Www statetaxforms Rents from Personal Property If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by: Whether or not the rental activity is a business, and Whether or not the rental activity is conducted for profit. Www statetaxforms In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. Www statetaxforms See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities. Www statetaxforms Reporting business income and expenses. Www statetaxforms    If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Www statetaxforms The form instructions have information on how to complete them. Www statetaxforms Reporting nonbusiness income. Www statetaxforms   If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. Www statetaxforms List the type and amount of the income on the dotted line next to line 21. Www statetaxforms Reporting nonbusiness expenses. Www statetaxforms   If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. Www statetaxforms Also enter the amount and “PPR” on the dotted line next to line 36. Www statetaxforms   If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. Www statetaxforms See Activity not for profit , under Other Income, later. Www statetaxforms Repayments If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Www statetaxforms Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Www statetaxforms Generally, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. Www statetaxforms Type of deduction. Www statetaxforms   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Www statetaxforms You generally deduct the repayment on the same form or schedule on which you previously reported it as income. Www statetaxforms For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Www statetaxforms If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). Www statetaxforms If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040). Www statetaxforms Repaid social security benefits. Www statetaxforms   If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 11. Www statetaxforms Repayment of $3,000 or less. Www statetaxforms   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Www statetaxforms If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. Www statetaxforms Repayment over $3,000. Www statetaxforms   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained under Type of deduction , earlier). Www statetaxforms However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. Www statetaxforms This means that at the time you included the income, it appeared that you had an unrestricted right to it. Www statetaxforms If you qualify for this choice, figure your tax under both methods and compare the results. Www statetaxforms Use the method (deduction or credit) that results in less tax. Www statetaxforms When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. Www statetaxforms Each instance of repayment is not considered separately. Www statetaxforms Method 1. Www statetaxforms   Figure your tax for 2013 claiming a deduction for the repaid amount. Www statetaxforms If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 28. Www statetaxforms Method 2. Www statetaxforms   Figure your tax for 2013 claiming a credit for the repaid amount. Www statetaxforms Follow these steps. Www statetaxforms Figure your tax for 2013 without deducting the repaid amount. Www statetaxforms Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Www statetaxforms Subtract the tax in (2) from the tax shown on your return for the earlier year. Www statetaxforms This is the credit. Www statetaxforms Subtract the answer in (3) from the tax for 2013 figured without the deduction (Step 1). Www statetaxforms   If method 1 results in less tax, deduct the amount repaid. Www statetaxforms If method 2 results in less tax, claim the credit figured in (3) above on Form 1040, line 71, by adding the amount of the credit to any other credits on this line, and entering “I. Www statetaxforms R. Www statetaxforms C. Www statetaxforms 1341” in the column to the right of line 71. Www statetaxforms   An example of this computation can be found in Publication 525. Www statetaxforms Repaid wages subject to social security and Medicare taxes. Www statetaxforms   If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. Www statetaxforms If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. Www statetaxforms File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Www statetaxforms Repaid wages subject to Additional Medicare Tax. Www statetaxforms   Employers cannot make an adjustment or file a claim for refund for Additional Medicare Tax withholding when there is a repayment of wages received by an employee in a prior year because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. Www statetaxforms If you had to repay an amount that you included in your wages or compensation in an earlier year, and on which Additional Medicare Tax was paid, you may be able to recover the Additional Medicare Tax paid on the amount. Www statetaxforms To recover Additional Medicare Tax on the repaid wages or compensation, you must file Form 1040X, Amended U. Www statetaxforms S. Www statetaxforms Individual Income Tax Return, for the prior year in which the wages or compensation were originally received. Www statetaxforms See the Instructions for Form 1040X. Www statetaxforms Royalties Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. Www statetaxforms In most cases you report royalties in Part I of Schedule E (Form 1040). Www statetaxforms However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc. Www statetaxforms , report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Www statetaxforms Copyrights and patents. Www statetaxforms   Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. Www statetaxforms Royalties generally are based on the number of units sold, such as the number of books, tickets to a performance, or machines sold. Www statetaxforms Oil, gas, and minerals. Www statetaxforms   Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. Www statetaxforms The royalties are based on units, such as barrels, tons, etc. Www statetaxforms , and are paid to you by a person or company who leases the property from you. Www statetaxforms Depletion. Www statetaxforms   If you are the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. Www statetaxforms For information on this subject, see chapter 9 of Publication 535. Www statetaxforms Coal and iron ore. Www statetaxforms   Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. Www statetaxforms For information about gain or loss from the sale of coal and iron ore, see Publication 544. Www statetaxforms Sale of property interest. Www statetaxforms   If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income. Www statetaxforms Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). Www statetaxforms For more information on selling section 1231 property, see chapter 3 of Publication 544. Www statetaxforms   If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance. Www statetaxforms Part of future production sold. Www statetaxforms   If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. Www statetaxforms Do not include it in your income or take depletion based on it. Www statetaxforms   When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property. Www statetaxforms Unemployment Benefits The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. Www statetaxforms Unemployment compensation. Www statetaxforms   You must include in income all unemployment compensation you receive. Www statetaxforms You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. Www statetaxforms In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Www statetaxforms Types of unemployment compensation. Www statetaxforms   Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. Www statetaxforms It includes the following benefits. Www statetaxforms Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund. Www statetaxforms State unemployment insurance benefits. Www statetaxforms Railroad unemployment compensation benefits. Www statetaxforms Disability payments from a government program paid as a substitute for unemployment compensation. Www statetaxforms (Amounts received as workers' compensation for injuries or illness are not unemployment compensation. Www statetaxforms See chapter 5 for more information. Www statetaxforms ) Trade readjustment allowances under the Trade Act of 1974. Www statetaxforms Unemployment assistance under the Disaster Relief and Emergency Assistance Act. Www statetaxforms Unemployment assistance under the Airline Deregulation Act of 1974 Program. Www statetaxforms Governmental program. Www statetaxforms   If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. Www statetaxforms If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income. Www statetaxforms Repayment of unemployment compensation. Www statetaxforms   If you repaid in 2013 unemployment compensation you received in 2013, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Www statetaxforms On the dotted line next to your entry enter “Repaid” and the amount you repaid. Www statetaxforms If you repaid unemployment compensation in 2013 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. Www statetaxforms If the amount is more than $3,000, see Repayments , earlier. Www statetaxforms Tax withholding. Www statetaxforms   You can choose to have federal income tax withheld from your unemployment compensation. Www statetaxforms To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. Www statetaxforms Tax will be withheld at 10% of your payment. Www statetaxforms    If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. Www statetaxforms If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Www statetaxforms For more information on estimated tax, see chapter 4. Www statetaxforms Supplemental unemployment benefits. Www statetaxforms   Benefits received from an employer-financed fund (to which the employees did not contribute) are not unemployment compensation. Www statetaxforms They are taxable as wages and are subject to withholding for income tax. Www statetaxforms They may be subject to social security and Medicare taxes. Www statetaxforms For more information, see Supplemental Unemployment Benefits in section 5 of Publication 15-A, Employer's Supplemental Tax Guide. Www statetaxforms Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Www statetaxforms Repayment of benefits. Www statetaxforms   You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. Www statetaxforms If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. Www statetaxforms If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them. Www statetaxforms   Deduct the repayment in the later year as an adjustment to gross income on Form 1040. Www statetaxforms (You cannot use Form 1040A or Form 1040EZ. Www statetaxforms ) Include the repayment on Form 1040, line 36, and enter “Sub-Pay TRA” and the amount on the dotted line next to line 36. Www statetaxforms If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. Www statetaxforms For more information on this, see Repayments , earlier. Www statetaxforms Private unemployment fund. Www statetaxforms   Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. Www statetaxforms Report the taxable amount on Form 1040, line 21. Www statetaxforms Payments by a union. Www statetaxforms   Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. Www statetaxforms However, if you contribute to a special union fund and your payments to the fund are not deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions. Www statetaxforms Guaranteed annual wage. Www statetaxforms   Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. Www statetaxforms Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Www statetaxforms State employees. Www statetaxforms   Payments similar to a state's unemployment compensation may be made by the state to its employees who are not covered by the state's unemployment compensation law. Www statetaxforms Although the payments are fully taxable, do not report them as unemployment compensation. Www statetaxforms Report these payments on Form 1040, line 21. Www statetaxforms Welfare and Other Public Assistance Benefits Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law. Www statetaxforms Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. Www statetaxforms Do not deduct medical expenses that are reimbursed by such a fund. Www statetaxforms You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently. Www statetaxforms Reemployment Trade Adjustment Assistance (RTAA) payments. Www statetaxforms   RTAA payments received from a state must be included in your income. Www statetaxforms The state must send you Form 1099-G to advise you of the amount you should include in income. Www statetaxforms The amount should be reported on Form 1040, line 21. Www statetaxforms Persons with disabilities. Www statetaxforms   If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. Www statetaxforms However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. Www statetaxforms Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. Www statetaxforms Disaster relief grants. Www statetaxforms    Do not include post-disaster grants received under the Robert T. Www statetaxforms Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, child care, or funeral expenses. Www statetaxforms Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. Www statetaxforms If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. Www statetaxforms See Recoveries , earlier. Www statetaxforms Unemployment assistance payments under the Act are taxable unemployment compensation. Www statetaxforms See Unemployment compensation under Unemployment Benefits, earlier. Www statetaxforms Disaster relief payments. Www statetaxforms   You can exclude from income any amount you receive that is a qualified disaster relief payment. Www statetaxforms A qualified disaster relief payment is an amount paid to you: To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster; To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster; By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster; or By a federal, state, or local government, or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare. Www statetaxforms You can exclude this amount only to the extent any expense it pays for is not paid for by insurance or otherwise. Www statetaxforms The exclusion does not apply if you were a participant or conspirator in a terrorist action or a representative of one. Www statetaxforms   A qualified disaster is: A disaster which results from a terrorist or military action; A federally declared disaster; or A disaster which results from an accident involving a common carrier, or from any other event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate. Www statetaxforms   For amounts paid under item (4), a disaster is qualified if it is determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality. Www statetaxforms Disaster mitigation payments. Www statetaxforms   You also can exclude from income any amount you receive that is a qualified disaster mitigation payment. Www statetaxforms Qualified disaster mitigation payments are also most commonly paid to you in the period immediately following damage to property as a result of a natural disaster. Www statetaxforms However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. Www statetaxforms They are paid to you through state and local governments based on the provisions of the Robert T. Www statetaxforms Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. Www statetaxforms   You cannot increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments. Www statetaxforms Home Affordable Modification Program (HAMP). Www statetaxforms   If you benefit from Pay-for-Performance Success Payments under HAMP, the payments are not taxable. Www statetaxforms Mortgage assistance payments under section 235 of the National Housing Act. Www statetaxforms   Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's income. Www statetaxforms Interest paid for the homeowner under the mortgage assistance program cannot be deducted. Www statetaxforms Medicare. Www statetaxforms   Medicare benefits received under title XVIII of the Social Security Act are not includible in the gross income of the individuals for whom they are paid. Www statetaxforms This includes basic (part A (Hospital Insurance Benefits for the Aged)) and supplementary (part B (Supplementary Medical Insurance Benefits for the Aged)). Www statetaxforms Old-age, survivors, and disability insurance benefits (OASDI). Www statetaxforms   Generally, OASDI payments under section 202 of title II of the Social Security Act are not includible in the gross income of the individuals to whom they are paid. Www statetaxforms This applies to old-age insurance benefits, and insurance benefits for wives, husbands, children, widows, widowers, mothers and fathers, and parents, as well as the lump-sum death payment. Www statetaxforms Nutrition Program for the Elderly. Www statetaxforms    Food benefits you receive under the Nutrition Program for the Elderly are not taxable. Www statetaxforms If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. Www statetaxforms Payments to reduce cost of winter energy. Www statetaxforms   Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable. Www statetaxforms Other Income The following brief discussions are arranged in alphabetical order. Www statetaxforms Other income items briefly discussed below are referenced to publications which provide more topical information. Www statetaxforms Activity not for profit. Www statetaxforms   You must include on your return income from an activity from which you do not expect to make a profit. Www statetaxforms An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Www statetaxforms Enter this income on Form 1040, line 21. Www statetaxforms Deductions for expenses related to the activity are limited. Www statetaxforms They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). Www statetaxforms See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit. Www statetaxforms Alaska Permanent Fund dividend. Www statetaxforms   If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on line 21 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Www statetaxforms The state of Alaska sends each recipient a document that shows the amount of the payment with the check. Www statetaxforms The amount also is reported to IRS. Www statetaxforms Alimony. Www statetaxforms   Include in your income on Form 1040, line 11, any alimony payments you receive. Www statetaxforms Amounts you receive for child support are not income to you. Www statetaxforms Alimony and child support payments are discussed in chapter 18. Www statetaxforms Bribes. Www statetaxforms   If you receive a bribe, include it in your income. Www statetaxforms Campaign contributions. Www statetaxforms   These contributions are not income to a candidate unless they are diverted to his or her personal use. Www statetaxforms To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. Www statetaxforms However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL, U. Www statetaxforms S. Www statetaxforms Income Tax Return for Certain Political Organizations. Www statetaxforms Excess campaign funds transferred to an office account must be included in the officeholder's income on Form 1040, line 21, in the year transferred. Www statetaxforms Car pools. Www statetaxforms   Do not include in your income amounts you receive from the passengers for driving a car in a car pool to and from work. Www statetaxforms These amounts are considered reimbursement for your expenses. Www statetaxforms However, this rule does not apply if you have developed car pool arrangements into a profit-making business of transporting workers for hire. Www statetaxforms Cash rebates. Www statetaxforms   A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. Www statetaxforms Example. Www statetaxforms You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. Www statetaxforms The $2,000 is not income to you. Www statetaxforms Your basis in the car is $22,000. Www statetaxforms This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business. Www statetaxforms Casualty insurance and other reimbursements. Www statetaxforms   You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft. Www statetaxforms See chapter 25 for more information. Www statetaxforms Child support payments. Www statetaxforms   You should not report these payments on your return. Www statetaxforms See chapter 18 for more information. Www statetaxforms Court awards and damages. Www statetaxforms   To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Www statetaxforms The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Www statetaxforms Include the following as ordinary income. Www statetaxforms Interest on any award. Www statetaxforms Compensation for lost wages or lost profits in most cases. Www statetaxforms Punitive damages, in most cases. Www statetaxforms It does not matter if they relate to a physical injury or physical sickness. Www statetaxforms Amounts received in settlement of pension rights (if you did not contribute to the plan). Www statetaxforms Damages for: Patent or copyright infringement, Breach of contract, or Interference with business operations. Www statetaxforms Back pay and damages for emotional distress received to satisfy a claim under title VII of the Civil Rights Act of 1964. Www statetaxforms Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income. Www statetaxforms   Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments). Www statetaxforms Emotional distress. Www statetaxforms   Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Www statetaxforms Do not include them in your income. Www statetaxforms   If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Www statetaxforms Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders. Www statetaxforms Deduction for costs involved in unlawful discrimination suits. Www statetaxforms   You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. Www statetaxforms For more information, see Publication 525. Www statetaxforms Credit card insurance. Www statetaxforms   In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. Www statetaxforms These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability, or unemployment. Www statetaxforms Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year. Www statetaxforms Down payment assistance. Www statetaxforms   If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. Www statetaxforms If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. Www statetaxforms If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis. Www statetaxforms Employment agency fees. Www statetaxforms   If you get a job through an employment agency, and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. Www statetaxforms However, if you pay it and your employer reimburses you for it, it is includible in your income. Www statetaxforms Energy conservation subsidies. Www statetaxforms   You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit. Www statetaxforms Energy conservation measure. Www statetaxforms   This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. Www statetaxforms Dwelling unit. Www statetaxforms   This includes a house, apartment, condominium, mobile home, boat, or similar property. Www statetaxforms If a building or structure contains both dwelling and other units, any subsidy must be properly allocated. Www statetaxforms Estate and trust income. Www statetaxforms    An estate or trust, unlike a partnership, may have to pay federal income tax. Www statetaxforms If you are a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. Www statetaxforms However, there is never a double tax. Www statetaxforms Estates and trusts file their returns on Form 1041, U. Www statetaxforms S. Www statetaxforms Income Tax Return for Estates and Trusts, and your share of the income is reported to you on Schedule K-1 (Form 1041). Www statetaxforms Current income required to be distributed. Www statetaxforms   If you are the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it. Www statetaxforms Current income not required to be distributed. Www statetaxforms    If you are the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report: All income that is required to be distributed to you, whether or not it is actually distributed, plus All other amounts actually paid or credited to you, up to the amount of your share of distributable net income. Www statetaxforms How to report. Www statetaxforms   Treat each item of income the same way that the estate or trust would treat it. Www statetaxforms For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. Www statetaxforms The same rule applies to distributions of tax-exempt interest and capital gains. Www statetaxforms   The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you are allowed on your individual income tax return. Www statetaxforms Losses. Www statetaxforms   Losses of estates and trusts generally are not deductible by the beneficiaries. Www statetaxforms Grantor trust. Www statetaxforms   Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. Www statetaxforms (The grantor is the one who transferred property to the trust. Www statetaxforms ) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse. Www statetaxforms   Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property. Www statetaxforms Expenses paid by another. Www statetaxforms   If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. Www statetaxforms But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment is not includible in your income. Www statetaxforms Fees for services. Www statetaxforms   Include all fees for your services in your income. Www statetaxforms Examples of these fees are amounts you receive for services you perform as: A corporate director, An executor, administrator, or personal representative of an estate, A manager of a trade or business you operated before declaring Chapter 11 bankruptcy, A notary public, or An election precinct official. Www statetaxforms Nonemployee compensation. Www statetaxforms   If you are not an employee and the fees for your services from the same payer total $600 or more for the year, you may receive a Form 1099-MISC. Www statetaxforms You may need to report your fees as self-employment income. Www statetaxforms See Self-Employed Persons , in chapter 1, for a discussion of when you are considered self-employed. Www statetaxforms Corporate director. Www statetaxforms   Corporate director fees are self-employment income. Www statetaxforms Report these payments on Schedule C or Schedule C-EZ (Form 1040). Www statetaxforms Personal representatives. Www statetaxforms   All personal representatives must include in their gross income fees paid to them from an estate. Www statetaxforms If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on Form 1040, line 21. Www statetaxforms If you are in the trade or business of being an executor, report these fees as self-employment income on Schedule C or Schedule C-EZ (Form 1040). Www statetaxforms The fee is not includible in income if it is waived. Www statetaxforms Manager of trade or business for bankruptcy estate. Www statetaxforms   Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. Www statetaxforms Report this income on Form 1040, line 21. Www statetaxforms Notary public. Www statetaxforms    Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). Www statetaxforms These payments are not subject to self-employment tax. Www statetaxforms See the separate instructions for Schedule SE (Form 1040) for details. Www statetaxforms Election precinct official. Www statetaxforms    You should receive a Form W-2 showing payments for services performed as an election official or election worker. Www statetaxforms Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Www statetaxforms Foster care providers. Www statetaxforms   Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income. Www statetaxforms However, you must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments. Www statetaxforms   A qualified foster individual is a person who: Is living in a foster family home, and Was placed there by: An agency of a state or one of its political subdivisions, or A qualified foster care placement agency. Www statetaxforms Difficulty-of-care payments. Www statetaxforms   These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. Www statetaxforms A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home. Www statetaxforms   You must include in your income difficulty-of-care payments received for more than: 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older. Www statetaxforms Maintaining space in home. Www statetaxforms   If you are paid to maintain space in your home for emergency foster care, you must include the payment in your income. Www statetaxforms Reporting taxable payments. Www statetaxforms    If you receive payments that you must include in your income, you are in business as a foster care provider and you are self-employed. Www statetaxforms Report the payments on Schedule C or Schedule C-EZ (Form 1040). Www statetaxforms See Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home. Www statetaxforms Found property. Www statetaxforms   If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession. Www statetaxforms Free tour. Www statetaxforms   If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Www statetaxforms Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. Www statetaxforms You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. Www statetaxforms If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (Form 1040). Www statetaxforms Gambling winnings. Www statetaxforms   You must include your gambling winnings in income on Form 1040, line 21. Www statetaxforms If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. Www statetaxforms Lotteries and raffles. Www statetaxforms   Winnings from lotteries and raffles are gambling winnings. Www statetaxforms In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes. Www statetaxforms    If you win a state lottery prize payable in installments, see Publication 525 for more information. Www statetaxforms Form W-2G. Www statetaxforms   You may have received a Form W-2G, Certain Gambling Winnings, showing the amount of your gambling winnings and any tax taken out of them. Www statetaxforms Include the amount from box 1 on Form 1040, line 21. Www statetaxforms Include the amount shown in box 4 on Form 1040, line 62, as federal income tax withheld. Www statetaxforms Reporting winnings and recordkeeping. Www statetaxforms   For more information on reporting gam
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Understanding Your CP288 Notice

We accepted your election to be treated as a Qualified Subchapter S Trust (QSST).


What you need to do

  • File Form 1041, U.S. Income Tax Return for Estates and Trusts, timely.
  • Include Schedule K-1, Beneficiary’s Share of Income, Deductions, Credits, etc., reflecting your ownership in the S corporation.
  • Keep this notice for your records.

You may want to


  • Answers to Common Questions

    How do I terminate the QSST election?
    This election can only be terminated by permission of the Commissioner of Internal Revenue. See IR Bulletin 2012-1 for instructions


    Understanding your notice

    Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

    Notice CP288, Page 1

Page Last Reviewed or Updated: 09-Dec-2013

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Www Statetaxforms

Www statetaxforms Index A Accident benefits, Accident and Health Benefits Achievement awards, Achievement Awards Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. Www statetaxforms Adoption assistance, Adoption Assistance Annual lease value, Annual Lease Value Assistance (see Tax help) Athletic facilities, Athletic Facilities Automobile (see Vehicles) Awards, achievement, Achievement Awards B Bicycle commuting reimbursement, qualified, Qualified bicycle commuting reimbursement. Www statetaxforms C Cafeteria plans, Cafeteria Plans Cents-per-mile rule, What's New, Cents-Per-Mile Rule COBRA premiums, COBRA premiums. Www statetaxforms Comments on publication, Comments and suggestions. Www statetaxforms Commuter highway vehicle, Commuter highway vehicle. Www statetaxforms Commuting rule, Commuting Rule Copying machine use, De Minimis (Minimal) Benefits D Daily lease value, Daily Lease Value De minimis (minimal) benefits In general, De Minimis (Minimal) Benefits Meals, De Minimis Meals Transportation, De Minimis Transportation Benefits Demonstrator cars, Demonstrator cars. Www statetaxforms Dependent care assistance, Dependent Care Assistance Deposit rules, 4. Www statetaxforms Rules for Withholding, Depositing, and Reporting Discounts for employees, Employee Discounts E Educational assistance, Educational Assistance Employee benefit programs Accident and health benefits, Accident and Health Benefits Cafeteria plans, Cafeteria Plans Dependent care assistance, Dependent Care Assistance Educational assistance, Educational Assistance Group-term life insurance, Group-Term Life Insurance Coverage Employee discounts, Employee Discounts Employee stock options, Employee Stock Options Employer-operated eating facility, Employer-operated eating facility for employees. Www statetaxforms Employer-provided cell phones, Employer-Provided Cell Phones Exclusion rules, 2. Www statetaxforms Fringe Benefit Exclusion Rules F Fair market value, Fair market value. Www statetaxforms Fringe benefit overview, 1. Www statetaxforms Fringe Benefit Overview Fringe benefits Special accounting rule, Special accounting rule. Www statetaxforms Valuation rules, 3. Www statetaxforms Fringe Benefit Valuation Rules G General valuation rule, General Valuation Rule Group-term life insurance, Group-Term Life Insurance Coverage H Health benefits, Accident and Health Benefits Health Savings Accounts, Health Savings Accounts Holiday gifts, De Minimis (Minimal) Benefits I Insurance Accident and health, Accident and Health Benefits Group-term life, Group-Term Life Insurance Coverage Long-term care, Exception for certain long-term care benefits. Www statetaxforms L Lease value rule, Lease Value Rule Length of service awards, Achievement Awards Life insurance Group-term, Group-Term Life Insurance Coverage Spouse or dependent, De Minimis (Minimal) Benefits Lodging, Lodging on Your Business Premises Long-term care insurance, Exception for certain long-term care benefits. Www statetaxforms M Meals De minimis, De Minimis Meals On your business premises, Meals on Your Business Premises Medical reimbursement plans, Accident and Health Benefits Minimal benefits, De Minimis (Minimal) Benefits Moving expense reimbursements, Moving Expense Reimbursements N No-additional-cost services, No-Additional-Cost Services Nonpersonal use vehicles, qualified, Qualified nonpersonal use vehicles. Www statetaxforms O Options on stock, Employee Stock Options Outplacement services, Outplacement services. Www statetaxforms P Parking, qualified, Qualified parking. Www statetaxforms Parties, De Minimis (Minimal) Benefits Performance of services, Performance of services. Www statetaxforms Pickup trucks, Pickup trucks. Www statetaxforms Picnics, De Minimis (Minimal) Benefits Prorated annual lease value, Prorated Annual Lease Value Provider defined, Provider of benefit. Www statetaxforms Publications (see Tax help) Q Qualified transportation benefits, Qualified Transportation Benefits R Recipient defined, Recipient of benefit. Www statetaxforms Reimbursements, moving expense, Moving Expense Reimbursements Reporting rules, 4. Www statetaxforms Rules for Withholding, Depositing, and Reporting Retirement planning services, Retirement Planning Services S Safety achievement awards, Achievement Awards Self insurance (medical reimbursement plans), Accident and Health Benefits Services, no-additional-cost, No-Additional-Cost Services Simple Cafeteria Plans, Simple Cafeteria Plans Special accounting rule, Special accounting rule. Www statetaxforms Stock options, employee, Employee Stock Options Suggestions for publication, Comments and suggestions. Www statetaxforms T Tax help, How To Get Tax Help Taxable benefits, Are Fringe Benefits Taxable? Tickets for theater or sporting events, De Minimis (Minimal) Benefits Transit pass, Transit pass. Www statetaxforms Transportation benefits De minimis, De Minimis Transportation Benefits Qualified, Qualified Transportation Benefits TTY/TDD information, How To Get Tax Help Tuition reduction, Tuition Reduction U Unsafe conditions commuting rule, Unsafe Conditions Commuting Rule V Valuation rules, 3. Www statetaxforms Fringe Benefit Valuation Rules Vans, Vans. Www statetaxforms Vehicles Business use of (see Working condition benefits) Commuter highway, Commuter highway vehicle. Www statetaxforms Qualified nonpersonal use, Qualified nonpersonal use vehicles. Www statetaxforms Valuation of, Employer-provided vehicles. Www statetaxforms W Withholding rules, 4. Www statetaxforms Rules for Withholding, Depositing, and Reporting Working condition benefits, Working Condition Benefits Prev  Up     Home   More Online Publications