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2007 Tax

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2007 Tax

2007 tax 36. 2007 tax   Earned Income Credit (EIC) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. 2007 tax Rules for EveryoneRule 1. 2007 tax Your AGI Must Be Less Than: Rule 2. 2007 tax You Must Have a Valid Social Security Number (SSN) Rule 3. 2007 tax Your Filing Status Cannot Be Married Filing Separately Rule 4. 2007 tax You Must Be a U. 2007 tax S. 2007 tax Citizen or Resident Alien All Year Rule 5. 2007 tax You Cannot File Form 2555 or Form 2555-EZ Rule 6. 2007 tax Your Investment Income Must Be $3,300 or Less Rule 7. 2007 tax You Must Have Earned Income Part B. 2007 tax Rules If You Have a Qualifying ChildRule 8. 2007 tax Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. 2007 tax Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. 2007 tax You Cannot Be a Qualifying Child of Another Taxpayer Part C. 2007 tax Rules If You Do Not Have a Qualifying ChildRule 11. 2007 tax You Must Be at Least Age 25 but Under Age 65 Rule 12. 2007 tax You Cannot Be the Dependent of Another Person Rule 13. 2007 tax You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. 2007 tax You Must Have Lived in the United States More Than Half of the Year Part D. 2007 tax Figuring and Claiming the EICRule 15. 2007 tax Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. 2007 tax John and Janet Smith (Form 1040A) Example 2. 2007 tax Kelly Green (Form 1040EZ) What's New Earned income amount is more. 2007 tax  The maximum amount of income you can earn and still get the credit has increased. 2007 tax You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). 2007 tax Your adjusted gross income also must be less than the amount in the above list that applies to you. 2007 tax For details, see Rules 1 and 15. 2007 tax Investment income amount is more. 2007 tax  The maximum amount of investment income you can have and still get the credit has increased to $3,300. 2007 tax See Rule 6. 2007 tax Reminders Increased EIC on certain joint returns. 2007 tax  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. 2007 tax As a result, the EIC table has different columns for married persons filing jointly than for everyone else. 2007 tax When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have. 2007 tax Online help. 2007 tax  You can use the EITC Assistant at www. 2007 tax irs. 2007 tax gov/eitc to find out if you are eligible for the credit. 2007 tax The EITC Assistant is available in English and Spanish. 2007 tax EIC questioned by IRS. 2007 tax  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. 2007 tax We will tell you what documents to send us. 2007 tax These may include: birth certificates, school records, medical records, etc. 2007 tax The process of establishing your eligibility will delay your refund. 2007 tax Introduction The earned income credit (EIC) is a tax credit for certain people who work and have less than $51,567 of earned income. 2007 tax A tax credit usually means more money in your pocket. 2007 tax It reduces the amount of tax you owe. 2007 tax The EIC may also give you a refund. 2007 tax How do you get the earned income credit?   To claim the EIC, you must: Qualify by meeting certain rules, and File a tax return, even if you: Do not owe any tax, Did not earn enough money to file a return, or Did not have income taxes withheld from your pay. 2007 tax When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. 2007 tax Or, if you prefer, you can let the IRS figure the credit for you. 2007 tax How will this chapter help you?   This chapter will explain the following. 2007 tax The rules you must meet to qualify for the EIC. 2007 tax How to figure the EIC. 2007 tax Useful Items - You may want to see: Publication 596 Earned Income Credit (EIC) Form (and Instructions) Schedule EIC Earned Income Credit (Qualifying Child Information) 8862 Information To Claim Earned Income Credit After Disallowance Do You Qualify for the Credit? To qualify to claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone . 2007 tax Then you must meet the rules in Part B, Rules If You Have a Qualifying Child , or Part C, Rules If You Do Not Have a Qualifying Child . 2007 tax There is one final rule you must meet in Part D, Figuring and Claiming the EIC . 2007 tax You qualify for the credit if you meet all the rules in each part that applies to you. 2007 tax If you have a qualifying child, the rules in Parts A, B, and D apply to you. 2007 tax If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. 2007 tax Table 36-1, Earned Income Credit in a Nutshell. 2007 tax   Use Table 36–1 as a guide to Parts A, B, C, and D. 2007 tax The table is a summary of all the rules in each part. 2007 tax Do you have a qualifying child?   You have a qualifying child only if you have a child who meets the four tests described in Rule 8 and illustrated in Figure 36–1. 2007 tax If Improper Claim Made in Prior Year If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return to claim the EIC. 2007 tax You must also qualify to claim the EIC by meeting all the rules described in this chapter. 2007 tax However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. 2007 tax For example, if your arithmetic is incorrect, the IRS can correct it. 2007 tax If you do not provide a correct social security number, the IRS can deny the EIC. 2007 tax These kinds of errors are called math or clerical errors. 2007 tax If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. 2007 tax If your error was due to fraud, then you cannot claim the EIC for the next 10 years. 2007 tax More information. 2007 tax   See chapter 5 in Publication 596 for more detailed information about the disallowance period and Form 8862. 2007 tax Part A. 2007 tax Rules for Everyone This part of the chapter discusses Rules 1 through 7. 2007 tax You must meet all seven rules to qualify for the earned income credit. 2007 tax If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the chapter. 2007 tax If you meet all seven rules in this part, then read either Part B or Part C (whichever applies) for more rules you must meet. 2007 tax Rule 1. 2007 tax Your AGI Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2007 tax Adjusted gross income (AGI). 2007 tax   AGI is the amount on line 38 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). 2007 tax If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. 2007 tax Example. 2007 tax Your AGI is $38,550, you are single, and you have one qualifying child. 2007 tax You cannot claim the EIC because your AGI is not less than $37,870. 2007 tax However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. 2007 tax Community property. 2007 tax   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. 2007 tax This is different from the community property rules that apply under Rule 7 . 2007 tax Rule 2. 2007 tax You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). 2007 tax Any qualifying child listed on Schedule EIC also must have a valid SSN. 2007 tax (See Rule 8 if you have a qualifying child. 2007 tax ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. 2007 tax An example of a federally funded benefit is Medicaid. 2007 tax If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. 2007 tax S. 2007 tax citizen or permanent resident, ask the SSA for a new social security card without the legend. 2007 tax U. 2007 tax S. 2007 tax citizen. 2007 tax   If you were a U. 2007 tax S. 2007 tax citizen when you received your SSN, you have a valid SSN. 2007 tax Valid for work only with INS or DHS authorization. 2007 tax   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. 2007 tax SSN missing or incorrect. 2007 tax   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. 2007 tax Other taxpayer identification number. 2007 tax   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). 2007 tax ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. 2007 tax No SSN. 2007 tax   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2007 tax You cannot claim the EIC. 2007 tax Getting an SSN. 2007 tax   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the SSA. 2007 tax You can get Form SS-5 online at www. 2007 tax socialsecurity. 2007 tax gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. 2007 tax Filing deadline approaching and still no SSN. 2007 tax   If the filing deadline is approaching and you still do not have an SSN, you have two choices. 2007 tax Request an automatic 6-month extension of time to file your return. 2007 tax You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. 2007 tax S. 2007 tax Individual Income Tax Return. 2007 tax For more information, see chapter 1 . 2007 tax File the return on time without claiming the EIC. 2007 tax After receiving the SSN, file an amended return (Form 1040X, Amended U. 2007 tax S. 2007 tax Individual Income Tax Return) claiming the EIC. 2007 tax Attach a filled-in Schedule EIC if you have a qualifying child. 2007 tax Table 36-1. 2007 tax Earned Income Credit in a Nutshell First, you must meet all the rules in this column. 2007 tax Second, you must meet all the rules in one of these columns, whichever applies. 2007 tax Third, you must meet the rule in this column. 2007 tax Part A. 2007 tax  Rules for Everyone Part B. 2007 tax  Rules If You Have a Qualifying Child Part C. 2007 tax  Rules If You Do Not Have a Qualifying Child Part D. 2007 tax  Figuring and Claiming the EIC 1. 2007 tax Your adjusted gross income (AGI) must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2007 tax 2. 2007 tax You must have a valid social security number. 2007 tax  3. 2007 tax Your filing status cannot be “Married filing separately. 2007 tax ” 4. 2007 tax You must be a U. 2007 tax S. 2007 tax citizen or resident alien all year. 2007 tax  5. 2007 tax You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). 2007 tax  6. 2007 tax Your investment income must be $3,300 or less. 2007 tax  7. 2007 tax You must have earned income. 2007 tax 8. 2007 tax Your child must meet the relationship, age, residency, and joint return tests. 2007 tax  9. 2007 tax Your qualifying child cannot be used by more than one person to claim the EIC. 2007 tax  10. 2007 tax You cannot be a qualifying child of another person. 2007 tax 11. 2007 tax You must be at least age 25 but under age 65. 2007 tax  12. 2007 tax You cannot be the dependent of another person. 2007 tax  13. 2007 tax You cannot be a qualifying child of another person. 2007 tax  14. 2007 tax You must have lived in the United States more than half of the year. 2007 tax 15. 2007 tax Your earned income must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2007 tax Rule 3. 2007 tax Your Filing Status Cannot Be Married Filing Separately If you are married, you usually must file a joint return to claim the EIC. 2007 tax Your filing status cannot be “Married filing separately. 2007 tax ” Spouse did not live with you. 2007 tax   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. 2007 tax In that case, you may be able to claim the EIC. 2007 tax For detailed information about filing as head of household, see chapter 2 . 2007 tax Rule 4. 2007 tax You Must Be a U. 2007 tax S. 2007 tax Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. 2007 tax You can use that filing status only if one spouse is a U. 2007 tax S. 2007 tax citizen or resident alien and you choose to treat the nonresident spouse as a U. 2007 tax S. 2007 tax resident. 2007 tax If you make this choice, you and your spouse are taxed on your worldwide income. 2007 tax If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). 2007 tax If you need more information on making this choice, get Publication 519, U. 2007 tax S. 2007 tax Tax Guide for Aliens. 2007 tax Rule 5. 2007 tax You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 2007 tax You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. 2007 tax U. 2007 tax S. 2007 tax possessions are not foreign countries. 2007 tax See Publication 54, Tax Guide for U. 2007 tax S. 2007 tax Citizens and Resident Aliens Abroad, for more detailed information. 2007 tax Rule 6. 2007 tax Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. 2007 tax If your investment income is more than $3,300, you cannot claim the credit. 2007 tax For most people, investment income is the total of the following amounts. 2007 tax Taxable interest (line 8a of Form 1040 or 1040A). 2007 tax Tax-exempt interest (line 8b of Form 1040 or 1040A). 2007 tax Dividend income (line 9a of Form 1040 or 1040A). 2007 tax Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). 2007 tax If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. 2007 tax However, see Rule 6 in chapter 1 of Publication 596 if: You are filing Schedule E (Form 1040), Form 4797, or Form 8814, or You are reporting income from the rental of personal property on Form 1040, line 21. 2007 tax Rule 7. 2007 tax You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. 2007 tax If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. 2007 tax If you are an employee, earned income includes all the taxable income you get from your employer. 2007 tax If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the instructions for Form 1040. 2007 tax Earned Income Earned income includes all of the following types of income. 2007 tax Wages, salaries, tips, and other taxable employee pay. 2007 tax Employee pay is earned income only if it is taxable. 2007 tax Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2007 tax But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below. 2007 tax Net earnings from self-employment. 2007 tax Gross income received as a statutory employee. 2007 tax Wages, salaries, and tips. 2007 tax   Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. 2007 tax You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). 2007 tax Nontaxable combat pay election. 2007 tax   You can elect to include your nontaxable combat pay in earned income for the earned income credit. 2007 tax Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. 2007 tax Figure the credit with and without your nontaxable combat pay before making the election. 2007 tax   If you make the election, you must include in earned income all nontaxable combat pay you received. 2007 tax If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. 2007 tax In other words, if one of you makes the election, the other one can also make it but does not have to. 2007 tax   The amount of your nontaxable combat pay should be shown in box 12 of your Form W-2 with code “Q. 2007 tax ” Self-employed persons and statutory employees. 2007 tax   If you are self-employed or received income as a statutory employee, you must use the Form 1040 instructions to see if you qualify to get the EIC. 2007 tax Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. 2007 tax Each approved form exempts certain income from social security taxes. 2007 tax Each form is discussed here in terms of what is or is not earned income for the EIC. 2007 tax Form 4361. 2007 tax   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. 2007 tax This includes wages, salaries, tips, and other taxable employee compensation. 2007 tax A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. 2007 tax Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. 2007 tax Examples include fees for performing marriages and honoraria for delivering speeches. 2007 tax Form 4029. 2007 tax   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. 2007 tax However, amounts you received as a self-employed individual do not count as earned income. 2007 tax Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. 2007 tax Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. 2007 tax Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. 2007 tax You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. 2007 tax Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. 2007 tax Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b). 2007 tax Disability insurance payments. 2007 tax   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. 2007 tax It does not matter whether you have reached minimum retirement age. 2007 tax If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. 2007 tax ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. 2007 tax Do not include any of these items in your earned income. 2007 tax Earnings while an inmate. 2007 tax   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. 2007 tax This includes amounts for work performed while in a work release program or while in a halfway house. 2007 tax Workfare payments. 2007 tax   Nontaxable workfare payments are not earned income for the EIC. 2007 tax These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if private sector employment is not available, or (2) community service program activities. 2007 tax Community property. 2007 tax   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. 2007 tax That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. 2007 tax Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. 2007 tax Nevada, Washington, and California domestic partners. 2007 tax   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. 2007 tax Your earned income for the EIC does not include any amount earned by your partner. 2007 tax Your earned income includes the entire amount you earned. 2007 tax For details, see Publication 555. 2007 tax Conservation Reserve Program (CRP) payments. 2007 tax   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. 2007 tax Nontaxable military pay. 2007 tax   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. 2007 tax Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). 2007 tax See Publication 3, Armed Forces' Tax Guide, for more information. 2007 tax    Combat pay. 2007 tax You can elect to include your nontaxable combat pay in earned income for the EIC. 2007 tax See Nontaxable combat pay election, earlier. 2007 tax Part B. 2007 tax Rules If You Have a Qualifying Child If you have met all of the rules in Part A , read Part B to see if you have a qualifying child. 2007 tax Part B discusses Rules 8 through 10. 2007 tax You must meet all three of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit with a qualifying child. 2007 tax You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. 2007 tax (You cannot file Form 1040EZ. 2007 tax ) You also must complete Schedule EIC and attach it to your return. 2007 tax If you meet all the rules in Part A and this part, read Part D to find out what to do next. 2007 tax If you do not meet Rule 8, you do not have a qualifying child. 2007 tax Read Part C to find out if you can get the earned income credit without a qualifying child. 2007 tax Rule 8. 2007 tax Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. 2007 tax The four tests are: Relationship, Age, Residency, and Joint return. 2007 tax The four tests are illustrated in Figure 36–1. 2007 tax The paragraphs that follow contain more information about each test. 2007 tax Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). 2007 tax The following definitions clarify the relationship test. 2007 tax Adopted child. 2007 tax   An adopted child is always treated as your own child. 2007 tax The term “adopted child” includes a child who was lawfully placed with you for legal adoption. 2007 tax Foster child. 2007 tax   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction. 2007 tax An authorized placement agency includes a state or local government agency. 2007 tax It also includes a tax-exempt organization licensed by a state. 2007 tax In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. 2007 tax Example. 2007 tax Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. 2007 tax Debbie is your foster child. 2007 tax Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during 2013, regardless of age. 2007 tax    The following examples and definitions clarify the age test. 2007 tax Example 1—child not under age 19. 2007 tax Your son turned 19 on December 10. 2007 tax Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. 2007 tax Example 2—child not younger than you or your spouse. 2007 tax Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. 2007 tax He is not disabled. 2007 tax Both you and your spouse are 21 years old and you file a joint return. 2007 tax Your brother is not your qualifying child because he is not younger than you or your spouse. 2007 tax Example 3—child younger than your spouse but not younger than you. 2007 tax The facts are the same as in Example 2 except that your spouse is 25 years old. 2007 tax Because your brother is younger than your spouse, he is your qualifying child even though he is not younger than you. 2007 tax Student defined. 2007 tax   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. 2007 tax The 5 calendar months need not be consecutive. 2007 tax   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. 2007 tax School defined. 2007 tax   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. 2007 tax However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. 2007 tax Vocational high school students. 2007 tax   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. 2007 tax Permanently and totally disabled. 2007 tax   Your child is permanently and totally disabled if both of the following apply. 2007 tax He or she cannot engage in any substantial gainful activity because of a physical or mental condition. 2007 tax A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. 2007 tax Residency Test Your child must have lived with you in the United States for more than half of 2013. 2007 tax The following definitions clarify the residency test. 2007 tax United States. 2007 tax   This means the 50 states and the District of Columbia. 2007 tax It does not include Puerto Rico or U. 2007 tax S. 2007 tax possessions such as Guam. 2007 tax Homeless shelter. 2007 tax   Your home can be any location where you regularly live. 2007 tax You do not need a traditional home. 2007 tax For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. 2007 tax Military personnel stationed outside the United States. 2007 tax    U. 2007 tax S. 2007 tax military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. 2007 tax Figure 36-1. 2007 tax Tests for Qualifying Child Please click here for the text description of the image. 2007 tax Qualifying child Extended active duty. 2007 tax   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. 2007 tax Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. 2007 tax Birth or death of a child. 2007 tax   A child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. 2007 tax Temporary absences. 2007 tax   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. 2007 tax Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. 2007 tax Kidnapped child. 2007 tax    A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. 2007 tax The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. 2007 tax This treatment applies for all years until the child is returned. 2007 tax However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. 2007 tax   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. 2007 tax Joint Return Test To meet this test, the child cannot file a joint return for the year. 2007 tax Exception. 2007 tax   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. 2007 tax Example 1—child files joint return. 2007 tax You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. 2007 tax He earned $25,000 for the year. 2007 tax The couple files a joint return. 2007 tax Because your daughter and her husband filed a joint return, she is not your qualifying child. 2007 tax Example 2—child files joint return only to claim a refund of withheld tax. 2007 tax Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. 2007 tax They do not have a child. 2007 tax Neither is required to file a tax return. 2007 tax Taxes were taken out of their pay, so they filed a joint return only to get a refund of the withheld taxes. 2007 tax The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. 2007 tax Example 3—child files joint return to claim American opportunity credit. 2007 tax The facts are the same as in Example 2 except no taxes were taken out of your son's pay. 2007 tax He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. 2007 tax Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. 2007 tax The exception to the joint return test does not apply, so your son is not your qualifying child. 2007 tax Married child. 2007 tax   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) , described later. 2007 tax Social security number. 2007 tax   The qualifying child must have a valid social security number (SSN) unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. 2007 tax You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. 2007 tax   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. 2007 tax For more information about SSNs, see Rule 2 . 2007 tax Rule 9. 2007 tax Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. 2007 tax However, only one of these persons can actually treat the child as a qualifying child. 2007 tax Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). 2007 tax The exemption for the child. 2007 tax The child tax credit. 2007 tax Head of household filing status. 2007 tax The credit for child and dependent care expenses. 2007 tax The exclusion for dependent care benefits. 2007 tax The EIC. 2007 tax The other person cannot take any of these benefits based on this qualifying child. 2007 tax In other words, you and the other person cannot agree to divide these tax benefits between you. 2007 tax The other person cannot take any of these tax benefits unless he or she has a different qualifying child. 2007 tax The tiebreaker rules explained next explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. 2007 tax However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. 2007 tax Tiebreaker rules. 2007 tax   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. 2007 tax If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. 2007 tax If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. 2007 tax If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. 2007 tax If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. 2007 tax If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. 2007 tax If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. 2007 tax If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. 2007 tax See Example 8 . 2007 tax   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. 2007 tax See Examples 1 through 13 . 2007 tax   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in Part C for people who do not have a qualifying child. 2007 tax If the other person cannot claim the EIC. 2007 tax   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. 2007 tax See Examples 6 and 7 . 2007 tax But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier. 2007 tax Examples. 2007 tax The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. 2007 tax Example 1. 2007 tax You and your 2-year-old son Jimmy lived with your mother all year. 2007 tax You are 25 years old, unmarried, and your AGI is $9,000. 2007 tax Your only income was $9,000 from a part-time job. 2007 tax Your mother's only income was $20,000 from her job, and her AGI is $20,000. 2007 tax Jimmy's father did not live with you or Jimmy. 2007 tax The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. 2007 tax Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. 2007 tax However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier for which that person qualifies). 2007 tax He is not a qualifying child of anyone else, including his father. 2007 tax If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). 2007 tax Example 2. 2007 tax The facts are the same as in Example 1 except your AGI is $25,000. 2007 tax Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. 2007 tax Only you can claim him. 2007 tax Example 3. 2007 tax The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. 2007 tax In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. 2007 tax The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. 2007 tax Example 4. 2007 tax The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. 2007 tax Only one of you can claim each child. 2007 tax However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. 2007 tax For example, if you claim one child, your mother can claim the other two. 2007 tax Example 5. 2007 tax The facts are the same as in Example 1 except that you are only 18 years old. 2007 tax This means you are a qualifying child of your mother. 2007 tax Because of Rule 10 , discussed next, you cannot claim the EIC and cannot claim Jimmy as a qualifying child. 2007 tax Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. 2007 tax If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. 2007 tax Example 6. 2007 tax The facts are the same as in Example 1 except that your mother earned $50,000 from her job. 2007 tax Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. 2007 tax Example 7. 2007 tax The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. 2007 tax Your earned income is too high for you to claim the EIC. 2007 tax But your mother cannot claim the EIC either, because her AGI is not higher than yours. 2007 tax Example 8. 2007 tax The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have an AGI of $30,000 on a joint return. 2007 tax If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. 2007 tax Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. 2007 tax In other words, each parent's AGI can be treated as $15,000. 2007 tax Example 9. 2007 tax You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. 2007 tax In August and September, Joey lived with you. 2007 tax For the rest of the year, Joey lived with your husband, who is Joey's father. 2007 tax Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. 2007 tax At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. 2007 tax You and your husband will file separate returns. 2007 tax Your husband agrees to let you treat Joey as a qualifying child. 2007 tax This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. 2007 tax However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. 2007 tax See Rule 3 . 2007 tax Example 10. 2007 tax The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. 2007 tax In this case, only your husband will be allowed to treat Joey as a qualifying child. 2007 tax This is because, during 2013, the boy lived with him longer than with you. 2007 tax You cannot claim the EIC (either with or without a qualifying child). 2007 tax However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. 2007 tax See Rule 3 . 2007 tax Example 11. 2007 tax You, your 5-year-old son and your son's father lived together all year. 2007 tax You and your son's father are not married. 2007 tax Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. 2007 tax Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. 2007 tax Neither of you had any other income. 2007 tax Your son's father agrees to let you treat the child as a qualifying child. 2007 tax This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. 2007 tax Example 12. 2007 tax The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. 2007 tax In this case, only your son's father will be allowed to treat your son as a qualifying child. 2007 tax This is because his AGI, $14,000, is more than your AGI, $12,000. 2007 tax You cannot claim the EIC (either with or without a qualifying child). 2007 tax Example 13. 2007 tax You and your 7-year-old niece, your sister's child, lived with your mother all year. 2007 tax You are 25 years old, and your AGI is $9,300. 2007 tax Your only income was from a part-time job. 2007 tax Your mother's AGI is $15,000. 2007 tax Her only income was from her job. 2007 tax Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. 2007 tax Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. 2007 tax However, only your mother can treat her as a qualifying child. 2007 tax This is because your mother's AGI, $15,000, is more than your AGI, $9,300. 2007 tax Special rule for divorced or separated parents (or parents who live apart). 2007 tax   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. 2007 tax The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of 2013, whether or not they are or were married. 2007 tax The child received over half of his or her support for the year from the parents. 2007 tax The child is in the custody of one or both parents for more than half of 2013. 2007 tax Either of the following statements is true. 2007 tax The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. 2007 tax If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. 2007 tax A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. 2007 tax  For details, see chapter 3. 2007 tax Also see Applying Rule 9 to divorced or separated parents (or parents who live apart) , next. 2007 tax Applying Rule 9 to divorced or separated parents (or parents who live apart). 2007 tax   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. 2007 tax However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. 2007 tax If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. 2007 tax Example 1. 2007 tax You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. 2007 tax Your AGI is $10,000. 2007 tax Your mother’s AGI is $25,000. 2007 tax Your son's father did not live with you or your son. 2007 tax Under the special rule for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. 2007 tax However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. 2007 tax You and your mother did not have any child care expenses or dependent care benefits. 2007 tax If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. 2007 tax Example 2. 2007 tax The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. 2007 tax Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. 2007 tax Example 3. 2007 tax The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. 2007 tax Your mother also claims him as a qualifying child for head of household filing status. 2007 tax You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. 2007 tax The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. 2007 tax Rule 10. 2007 tax You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2007 tax ) if all of the following statements are true. 2007 tax You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2007 tax Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). 2007 tax You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2007 tax You lived with that person in the United States for more than half of the year. 2007 tax You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2007 tax For more details about the tests to be a qualifying child, see Rule 8 . 2007 tax If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2007 tax This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2007 tax Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). 2007 tax Example. 2007 tax You and your daughter lived with your mother all year. 2007 tax You are 22 years old, unmarried, and attended a trade school full time. 2007 tax You had a part-time job and earned $5,700. 2007 tax You had no other income. 2007 tax Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. 2007 tax She can claim the EIC if she meets all the other requirements. 2007 tax Because you are your mother's qualifying child, you cannot claim the EIC. 2007 tax This is so even if your mother cannot or does not claim the EIC. 2007 tax Child of person not required to file a return. 2007 tax   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2007 tax Example. 2007 tax The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2007 tax As a result, you are not your mother's qualifying child. 2007 tax You can claim the EIC if you meet all the other requirements to do so. 2007 tax   See Rule 10 in Publication 596 for additional examples. 2007 tax Part C. 2007 tax Rules If You Do Not Have a Qualifying Child Read this part if you: Do not have a qualifying child, and Have met all the rules in Part A . 2007 tax  Part C discusses Rules 11 through 14. 2007 tax You must meet all four of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit without a qualifying child. 2007 tax If you have a qualifying child, the rules in this part do not apply to you. 2007 tax You can claim the credit only if you meet all the rules in Parts A, B, and D. 2007 tax See Rule 8 to find out if you have a qualifying child. 2007 tax Rule 11. 2007 tax You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. 2007 tax If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. 2007 tax It does not matter which spouse meets the age test, as long as one of the spouses does. 2007 tax You meet the age test if you were born after December 31, 1948, and before January 2, 1989. 2007 tax If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. 2007 tax If neither you nor your spouse meets the age test, you cannot claim the EIC. 2007 tax Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2007 tax Death of spouse. 2007 tax   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. 2007 tax Example 1. 2007 tax You are age 28 and unmarried. 2007 tax You meet the age test. 2007 tax Example 2—spouse meets age test. 2007 tax You are married and filing a joint return. 2007 tax You are age 23 and your spouse is age 27. 2007 tax You meet the age test because your spouse is at least age 25 but under age 65. 2007 tax Example 3—spouse dies in 2013. 2007 tax You are married and filing a joint return with your spouse who died in August 2013. 2007 tax You are age 67. 2007 tax Your spouse would have become age 65 in November 2013. 2007 tax Because your spouse was under age 65 when she died, you meet the age test. 2007 tax Rule 12. 2007 tax You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. 2007 tax If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. 2007 tax If you are not sure whether someone else can claim you (or your spouse, if filing a joint return) as a dependent, read the rules for claiming a dependent in chapter 3. 2007 tax If someone else can claim you (or your spouse, if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the credit. 2007 tax Example 1. 2007 tax In 2013, you were age 25, single, and living at home with your parents. 2007 tax You worked and were not a student. 2007 tax You earned $7,500. 2007 tax Your parents cannot claim you as a dependent. 2007 tax When you file your return, you claim an exemption for yourself by not checking the “You” box on line 5 of your Form 1040EZ and by entering $10,000 on that line. 2007 tax You meet this rule. 2007 tax You can claim the EIC if you meet all the other requirements. 2007 tax Example 2. 2007 tax The facts are the same as in Example 1 , except that you earned $2,000. 2007 tax Your parents can claim you as a dependent but decide not to. 2007 tax You do not meet this rule. 2007 tax You cannot claim the credit because your parents could have claimed you as a dependent. 2007 tax Joint returns. 2007 tax   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. 2007 tax   However, another person may be able to claim you as a dependent if you and your spouse file a joint return only to get a refund of income tax withheld or estimated tax paid. 2007 tax But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. 2007 tax Example 1. 2007 tax You are 26 years old. 2007 tax You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. 2007 tax Neither you nor your wife is required to file a tax return. 2007 tax You do not have a child. 2007 tax Taxes were taken out of your pay, so you file a joint return only to get a refund of the withheld taxes. 2007 tax Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. 2007 tax They can claim exemptions for you and your wife if all the other tests to do so are met. 2007 tax Example 2. 2007 tax The facts are the same as in Example 1 except no taxes were taken out of your pay. 2007 tax Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. 2007 tax Because claiming the EIC is your reason for filing the return, you are not filing it only to get a refund of income tax withheld or estimated tax paid. 2007 tax Your parents cannot claim an exemption for either you or your wife. 2007 tax Rule 13. 2007 tax You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2007 tax ) if all of the following statements are true. 2007 tax You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2007 tax Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). 2007 tax You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student (as defined in Rule 8 ), and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2007 tax You lived with that person in the United States for more than half of the year. 2007 tax You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2007 tax For more details about the tests to be a qualifying child, see Rule 8 . 2007 tax If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2007 tax This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2007 tax Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2007 tax Example. 2007 tax You lived with your mother all year. 2007 tax You are age 26, unmarried, and permanently and totally disabled. 2007 tax Your only income was from a community center where you went three days a week to answer telephones. 2007 tax You earned $5,000 for the year and provided more than half of your own support. 2007 tax Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. 2007 tax She can claim the EIC if she meets all the other requirements. 2007 tax Because you are a qualifying child of your mother, you cannot claim the EIC. 2007 tax This is so even if your mother cannot or does not claim the EIC. 2007 tax Joint returns. 2007 tax   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. 2007 tax   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return for the year only to get a refund of income tax withheld or estimated tax paid. 2007 tax But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. 2007 tax Child of person not required to file a return. 2007 tax   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2007 tax Example. 2007 tax You lived all year with your father. 2007 tax You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. 2007 tax You have no other income, no children, and provided more than half of your own support. 2007 tax Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2007 tax As a result, you are not your father's qualifying child. 2007 tax You can claim the EIC if you meet all the other requirements to do so. 2007 tax   See Rule 13 in Publication 596 for additional examples. 2007 tax Rule 14. 2007 tax You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. 2007 tax If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2007 tax United States. 2007 tax   This means the 50 states and the District of Columbia. 2007 tax It does not include Puerto Rico or U. 2007 tax S. 2007 tax possessions such as Guam. 2007 tax Homeless shelter. 2007 tax   Your home can be any location where you regularly live. 2007 tax You do not need a traditional home. 2007 tax If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. 2007 tax Military personnel stationed outside the United States. 2007 tax   U. 2007 tax S. 2007 tax military personnel stationed outside the United States on extended active duty (defined in Rule 8 ) are considered to live in the United States during that duty period for purposes of the EIC. 2007 tax Part D. 2007 tax Figuring and Claiming the EIC Read this part if you have met all the rules in Parts A and B, or all the rules in Parts A and C. 2007 tax Part D discusses Rule 15 . 2007 tax You must meet this rule, in addition to the rules in Parts A and B , or Parts A and C , to qualify for the earned income credit. 2007 tax This part of the chapter also explains how to figure the amount of your credit. 2007 tax You have two choices. 2007 tax Have the IRS figure the EIC for you. 2007 tax If you want to do this, see IRS Will Figure the EIC for You . 2007 tax Figure the EIC yourself. 2007 tax If you want to do this, see How To Figure the EIC Yourself . 2007 tax Rule 15. 2007 tax Your Earned Income Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2007 tax Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. 2007 tax Employee pay is earned income only if it is taxable. 2007 tax Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2007 tax But there is an exception for nontaxable combat pay, which you can choose to include in earned income. 2007 tax Earned income is explained in detail in Rule 7 . 2007 tax Figuring earned income. 2007 tax   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. 2007 tax   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. 2007 tax   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). 2007 tax You will then reduce that amount by any amount included on that line and described in the following list: Scholarship or fellowship grants not reported on a Form W-2, Inmate's income, and Pension or annuity from deferred compensation plans. 2007 tax Scholarship or fellowship grants not reported on a Form W-2. 2007 tax   A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. 2007 tax Inmate's income. 2007 tax   Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. 2007 tax This includes amounts received for work performed while in a work release program or while in a halfway house. 2007 tax If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2007 tax Pension or annuity from deferred compensation plans. 2007 tax   A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. 2007 tax If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2007 tax This amount may be reported in box 11 of your Form W-2. 2007 tax If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity. 2007 tax Clergy. 2007 tax   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also reported on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b. 2007 tax Put “Clergy” on the dotted line next to line 64a (Form 1040). 2007 tax Church employees. 2007 tax    A church employee means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. 2007 tax If you received wages as a
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The 2007 Tax

2007 tax 28. 2007 tax   Miscellaneous Deductions Table of Contents What's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses What's New Standard mileage rate. 2007 tax  The 2013 rate for business use of a vehicle is 56½ cents per mile. 2007 tax Introduction This chapter explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). 2007 tax You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. 2007 tax This chapter covers the following topics. 2007 tax Deductions subject to the 2% limit. 2007 tax Deductions not subject to the 2% limit. 2007 tax Expenses you cannot deduct. 2007 tax You must keep records to verify your deductions. 2007 tax You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. 2007 tax For more information on recordkeeping, get Publication 552, Record- keeping for Individuals. 2007 tax Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). 2007 tax You can claim the amount of expenses that is more than 2% of your adjusted gross income. 2007 tax You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. 2007 tax Your adjusted gross income is the amount on Form 1040, line 38. 2007 tax Generally, you apply the 2% limit after you apply any other deduction limit. 2007 tax For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed in chapter 26) before you apply the 2% limit. 2007 tax Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A (Form 1040). 2007 tax Unreimbursed employee expenses (line 21). 2007 tax Tax preparation fees (line 22). 2007 tax Other expenses (line 23). 2007 tax Unreimbursed Employee Expenses (Line 21) Generally, you can deduct on Schedule A (Form 1040), line 21, unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. 2007 tax An expense is ordinary if it is common and accepted in your trade, business, or profession. 2007 tax An expense is necessary if it is appropriate and helpful to your business. 2007 tax An expense does not have to be required to be considered necessary. 2007 tax Examples of unreimbursed employee expenses are listed next. 2007 tax The list is followed by discussions of additional unreimbursed employee expenses. 2007 tax Business bad debt of an employee. 2007 tax Education that is work related. 2007 tax (See chapter 27. 2007 tax ) Legal fees related to your job. 2007 tax Licenses and regulatory fees. 2007 tax Malpractice insurance premiums. 2007 tax Medical examinations required by an employer. 2007 tax Occupational taxes. 2007 tax Passport for a business trip. 2007 tax Subscriptions to professional journals and trade magazines related to your work. 2007 tax Travel, transportation, entertainment, and gifts related to your work. 2007 tax (See chapter 26. 2007 tax ) Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. 2007 tax Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer that are attributable to the pay you received from that employer. 2007 tax Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. 2007 tax For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer, see Publication 529. 2007 tax Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. 2007 tax Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. 2007 tax Lobbying and political activities. 2007 tax   You may not be able to deduct that part of your dues that is for certain lobbying and political activities. 2007 tax See Dues used for lobbying under Nondeductible Expenses, later. 2007 tax Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. 2007 tax If you file Form 1040A, you can deduct these expenses on line 16. 2007 tax If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. 2007 tax However, neither spouse can deduct more than $250 of his or her qualified expenses. 2007 tax Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. 2007 tax You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. 2007 tax The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. 2007 tax See Publication 587 for more detailed information and a worksheet. 2007 tax Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. 2007 tax You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. 2007 tax Employment and outplacement agency fees. 2007 tax   You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. 2007 tax Employer pays you back. 2007 tax   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. 2007 tax (See Recoveries in chapter 12. 2007 tax ) Employer pays the employment agency. 2007 tax   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. 2007 tax Résumé. 2007 tax   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. 2007 tax Travel and transportation expenses. 2007 tax   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. 2007 tax You can deduct the travel expenses if the trip is primarily to look for a new job. 2007 tax The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. 2007 tax   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. 2007 tax   You can choose to use the standard mileage rate to figure your car expenses. 2007 tax The 2013 rate for business use of a vehicle is 56½ cents per mile. 2007 tax See chapter 26 for more information. 2007 tax Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. 2007 tax Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. 2007 tax If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. 2007 tax Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. 2007 tax If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. 2007 tax Research Expenses of a College Professor If you are a college professor, you can deduct research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. 2007 tax You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. 2007 tax However, you cannot deduct the cost of travel as a form of education. 2007 tax Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. 2007 tax You can depreciate the cost of tools that have a useful life substantially beyond the tax year. 2007 tax For more information about depreciation, see Publication 946. 2007 tax Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. 2007 tax You can also deduct assessments for benefit payments to unemployed union members. 2007 tax However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. 2007 tax Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions. 2007 tax You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. 2007 tax See Lobbying Expenses under Nondeductible Expenses, later. 2007 tax Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. 2007 tax You must wear them as a condition of your employment. 2007 tax The clothes are not suitable for everyday wear. 2007 tax It is not enough that you wear distinctive clothing. 2007 tax The clothing must be specifically required by your employer. 2007 tax Nor is it enough that you do not, in fact, wear your work clothes away from work. 2007 tax The clothing must not be suitable for taking the place of your regular clothing. 2007 tax Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. 2007 tax ). 2007 tax Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. 2007 tax However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. 2007 tax Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. 2007 tax Protective clothing. 2007 tax   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. 2007 tax   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. 2007 tax Military uniforms. 2007 tax   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. 2007 tax However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. 2007 tax In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. 2007 tax   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. 2007 tax   You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. 2007 tax Tax Preparation Fees (Line 22) You can usually deduct tax preparation fees in the year you pay them. 2007 tax Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. 2007 tax These fees include the cost of tax preparation software programs and tax publications. 2007 tax They also include any fee you paid for electronic filing of your return. 2007 tax Other Expenses (Line 23) You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% limit. 2007 tax On Schedule A (Form 1040), line 23, you can deduct expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. 2007 tax You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. 2007 tax Some of these other expenses are explained in the following discussions. 2007 tax If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses , later, under Nondeductible Expenses. 2007 tax Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. 2007 tax Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. 2007 tax First report the loss in Section B of Form 4684, Casualties and Thefts. 2007 tax You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. 2007 tax To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. 2007 tax For other casualty and theft losses, see chapter 25. 2007 tax Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. 2007 tax Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. 2007 tax The fees are deductible in the year paid. 2007 tax Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). 2007 tax You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. 2007 tax But if you work as an employee and also use the computer in that work, see Publication 946. 2007 tax Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. 2007 tax Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. 2007 tax The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. 2007 tax For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. 2007 tax Fees to Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. 2007 tax But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. 2007 tax You must add the fee to the cost of the property. 2007 tax You cannot deduct the fee you pay to a broker to sell securities. 2007 tax You can use the fee only to figure gain or loss from the sale. 2007 tax See the Instructions for Form 8949 for information on how to report the fee. 2007 tax Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. 2007 tax A hobby is not a business because it is not carried on to make a profit. 2007 tax See Activity not for profit in chapter 12 under Other Income. 2007 tax Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. 2007 tax Deductions of pass-through entities are passed through to the partners or shareholders. 2007 tax The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. 2007 tax Example. 2007 tax You are a member of an investment club that is formed solely to invest in securities. 2007 tax The club is treated as a partnership. 2007 tax The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. 2007 tax In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. 2007 tax However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. 2007 tax Publicly offered mutual funds. 2007 tax   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. 2007 tax A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. 2007 tax   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). 2007 tax This net figure is the amount you report on your return as income. 2007 tax You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. 2007 tax Information returns. 2007 tax   You should receive information returns from pass-through entities. 2007 tax Partnerships and S corporations. 2007 tax   These entities issue Schedule K-1, which lists the items and amounts you must report and identifies the tax return schedules and lines to use. 2007 tax Nonpublicly offered mutual funds. 2007 tax   These funds will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing your share of gross income and investment expenses. 2007 tax You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. 2007 tax Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. 2007 tax Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. 2007 tax You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. 2007 tax You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F), on the appropriate schedule. 2007 tax You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040). 2007 tax See Tax Preparation Fees , earlier. 2007 tax Loss on Deposits For information on whether, and if so, how, you may deduct a loss on your deposit in a qualified financial institution, see Loss on Deposits in chapter 25. 2007 tax Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. 2007 tax If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. 2007 tax If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. 2007 tax Repayments of Social Security Benefits For information on how to deduct your repayments of certain social security benefits, see Repayments More Than Gross Benefits in chapter 11. 2007 tax Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. 2007 tax You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. 2007 tax Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. 2007 tax These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. 2007 tax Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. 2007 tax For more information about IRAs, see chapter 17. 2007 tax Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. 2007 tax They are not subject to the 2% limit. 2007 tax Report these items on Schedule A (Form 1040), line 28. 2007 tax List of Deductions Each of the following items is discussed in detail after the list (except where indicated). 2007 tax Amortizable premium on taxable bonds. 2007 tax Casualty and theft losses from income- producing property. 2007 tax Federal estate tax on income in respect of a decedent. 2007 tax Gambling losses up to the amount of gambling winnings. 2007 tax Impairment-related work expenses of persons with disabilities. 2007 tax Loss from other activities from Schedule K-1 (Form 1065-B), box 2. 2007 tax Losses from Ponzi-type investment schemes. 2007 tax See Losses from Ponzi-type investment schemes under Theft in chapter 25. 2007 tax Repayments of more than $3,000 under a claim of right. 2007 tax Unrecovered investment in an annuity. 2007 tax Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. 2007 tax You can elect to amortize the premium on taxable bonds. 2007 tax The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. 2007 tax Part of the premium on some bonds may be a miscellaneous deduction not subject to the 2% limit. 2007 tax For more information, see Amortizable Premium on Taxable Bonds in Publication 529, and Bond Premium Amortization in chapter 3 of Publication 550, Investment Income and Expenses. 2007 tax Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). 2007 tax First, report the loss in Form 4684, Section B. 2007 tax You may also have to include the loss on Form 4797, Sales of Business Property if you are otherwise required to file that form. 2007 tax To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. 2007 tax For more information on casualty and theft losses, see chapter 25. 2007 tax Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. 2007 tax Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. 2007 tax See Publication 559 for more information. 2007 tax Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. 2007 tax You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. 2007 tax You cannot deduct gambling losses that are more than your winnings. 2007 tax You cannot reduce your gambling winnings by your gambling losses and report the difference. 2007 tax You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. 2007 tax Therefore, your records should show your winnings separately from your losses. 2007 tax Diary of winnings and losses. 2007 tax You must keep an accurate diary or similar record of your losses and winnings. 2007 tax Your diary should contain at least the following information. 2007 tax The date and type of your specific wager or wagering activity. 2007 tax The name and address or location of the gambling establishment. 2007 tax The names of other persons present with you at the gambling establishment. 2007 tax The amount(s) you won or lost. 2007 tax See Publication 529 for more information. 2007 tax Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. 2007 tax Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and for other expenses in connection with your place of work that are necessary for you to be able to work. 2007 tax Self-employed. 2007 tax   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. 2007 tax Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28. 2007 tax It is not subject to the passive activity limitations. 2007 tax Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid or take a credit against your tax. 2007 tax See Repayments in chapter 12 for more information. 2007 tax Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. 2007 tax If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. 2007 tax See chapter 10 for more information about the tax treatment of pensions and annuities. 2007 tax Nondeductible Expenses Examples of nondeductible expenses are listed next. 2007 tax The list is followed by discussions of additional nondeductible expenses. 2007 tax List of Nondeductible Expenses Broker's commissions that you paid in connection with your IRA or other investment property. 2007 tax Burial or funeral expenses, including the cost of a cemetery lot. 2007 tax Capital expenses. 2007 tax Fees and licenses, such as car licenses, marriage licenses, and dog tags. 2007 tax Hobby losses, but see Hobby Expenses , earlier. 2007 tax Home repairs, insurance, and rent. 2007 tax Illegal bribes and kickbacks. 2007 tax See Bribes and kickbacks in chapter 11 of Publication 535. 2007 tax Losses from the sale of your home, furniture, personal car, etc. 2007 tax Personal disability insurance premiums. 2007 tax Personal, living, or family expenses. 2007 tax The value of wages never received or lost vacation time. 2007 tax Adoption Expenses You cannot deduct the expenses of adopting a child, but you may be able to take a credit for those expenses. 2007 tax See chapter 37. 2007 tax Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. 2007 tax These include qualification and registration fees for primary elections. 2007 tax Legal fees. 2007 tax   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. 2007 tax Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. 2007 tax Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. 2007 tax This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. 2007 tax You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. 2007 tax Dues paid to airline, hotel, and luncheon clubs are not deductible. 2007 tax Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). 2007 tax If you haul tools, instruments, or other items, in your car to and from work, you can deduct only the additional cost of hauling the items such as the rent on a trailer to carry the items. 2007 tax Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. 2007 tax This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). 2007 tax Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. 2007 tax Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. 2007 tax Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. 2007 tax However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. 2007 tax See Home Office under Unreimbursed Employee Expenses, earlier, and Security System under Deducting Expenses in Publication 587. 2007 tax Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. 2007 tax Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. 2007 tax You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. 2007 tax See chapter 18 for information on alimony. 2007 tax Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. 2007 tax These include expenses to: Influence legislation, Participate or intervene in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. 2007 tax Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. 2007 tax Dues used for lobbying. 2007 tax   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. 2007 tax See Lobbying Expenses in Publication 529 for information on exceptions. 2007 tax Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. 2007 tax However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. 2007 tax See chapter 25. 2007 tax Example. 2007 tax A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. 2007 tax The diamond falls from the ring and is never found. 2007 tax The loss of the diamond is a casualty. 2007 tax Lunches with Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. 2007 tax See chapter 26 for information on deductible expenses while traveling away from home. 2007 tax Meals While Working Late You cannot deduct the cost of meals while working late. 2007 tax However, you may be able to claim a deduction if the cost of meals is a deductible entertainment expense, or if you are traveling away from home. 2007 tax See chapter 26 for information on deductible entertainment expenses and expenses while traveling away from home. 2007 tax Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. 2007 tax Custody of children. 2007 tax Breach of promise to marry suit. 2007 tax Civil or criminal charges resulting from a personal relationship. 2007 tax Damages for personal injury, except for certain unlawful discrimination and whistleblower claims. 2007 tax Preparation of a title (or defense or perfection of a title). 2007 tax Preparation of a will. 2007 tax Property claims or property settlement in a divorce. 2007 tax You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. 2007 tax Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. 2007 tax Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. 2007 tax Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. 2007 tax Accounting certificate fees paid for the initial right to practice accounting. 2007 tax Bar exam fees and incidental expenses in securing initial admission to the bar. 2007 tax Medical and dental license fees paid to get initial licensing. 2007 tax Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. 2007 tax Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. 2007 tax Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. 2007 tax Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. 2007 tax You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. 2007 tax Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. 2007 tax You cannot deduct interest on a debt incurred or continued to buy or carry  tax-exempt securities. 2007 tax If you have expenses to produce both taxable and tax-exempt income, but you cannot identify the expenses that produce each type of income, you must divide the expenses based on the amount of each type of income to determine the amount that you can deduct. 2007 tax Example. 2007 tax During the year, you received taxable interest of $4,800 and tax-exempt interest of $1,200. 2007 tax In earning this income, you had total expenses of $500 during the year. 2007 tax You cannot identify the amount of each expense item that is for each income item. 2007 tax Therefore, 80% ($4,800/$6,000) of the expense is for the taxable interest and 20% ($1,200/$6,000) is for the tax-exempt interest. 2007 tax You can deduct, subject to the 2% limit, expenses of $400 (80% of $500). 2007 tax Travel Expenses for Another Individual You generally cannot deduct travel expenses you pay or incur for a spouse, dependent, or other individual who accompanies you (or your employee) on business or personal travel unless the spouse, dependent, or other individual is an employee of the taxpayer, the travel is for a bona fide business purpose, and such expenses would otherwise be deductible by the spouse, dependent, or other individual. 2007 tax See chapter 26 for more information on deductible travel expenses. 2007 tax Voluntary Unemployment Benefit Fund Contributions You cannot deduct voluntary unemployment benefit fund contributions you make to a union fund or a private fund. 2007 tax However, you can deduct contributions as taxes if state law requires you to make them to a state unemployment fund that covers you for the loss of wages from unemployment caused by business conditions. 2007 tax Wristwatches You cannot deduct the cost of a wristwatch, even if there is a job requirement that you know the correct time to properly perform your duties. 2007 tax Prev  Up  Next   Home   More Online Publications