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Amending Irs Return

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Amending Irs Return

Amending irs return 5. Amending irs return   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. Amending irs return S. Amending irs return PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. Amending irs return S. Amending irs return possessions, and How to report deductions. Amending irs return Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. Amending irs return Items Related to Excluded Income U. Amending irs return S. Amending irs return citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. Amending irs return If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Amending irs return This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. Amending irs return You can deduct only those expenses connected with earning includible income. Amending irs return These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. Amending irs return These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. Amending irs return For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. Amending irs return If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. Amending irs return Example. Amending irs return In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. Amending irs return You did not have a housing exclusion. Amending irs return Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. Amending irs return In 2013, you received a $12,000 bonus for work you did abroad in 2012. Amending irs return You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. Amending irs return Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. Amending irs return This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). Amending irs return Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. Amending irs return S. Amending irs return tax purposes and is not the dependent of another U. Amending irs return S. Amending irs return taxpayer. Amending irs return You also can claim exemptions for individuals who qualify as your dependents. Amending irs return To be your dependent, the individual must be a U. Amending irs return S. Amending irs return citizen, U. Amending irs return S. Amending irs return national, U. Amending irs return S. Amending irs return resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. Amending irs return Children. Amending irs return   Children usually are citizens or residents of the same country as their parents. Amending irs return If you were a U. Amending irs return S. Amending irs return citizen when your child was born, your child generally is a U. Amending irs return S. Amending irs return citizen. Amending irs return This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. Amending irs return   If you have a legally adopted child who is not a U. Amending irs return S. Amending irs return citizen, U. Amending irs return S. Amending irs return resident, or U. Amending irs return S. Amending irs return national, the child meets the citizen requirement if you are a U. Amending irs return S. Amending irs return citizen or U. Amending irs return S. Amending irs return national and the child lived with you as a member of your household all year. Amending irs return Social security number. Amending irs return   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. Amending irs return To get a social security number for a dependent, apply at a Social Security office or U. Amending irs return S. Amending irs return consulate. Amending irs return You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. Amending irs return   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. Amending irs return Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. Amending irs return   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. Amending irs return To apply for an ITIN, file Form W-7 with the IRS. Amending irs return It usually takes 6 to 10 weeks to get an ITIN. Amending irs return Enter your dependent's ITIN wherever an SSN is requested on your tax return. Amending irs return More information. Amending irs return   For more information about exemptions, see Publication 501. Amending irs return Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. Amending irs return Exceptions are explained under Canadian, Mexican, and Israeli charities, later. Amending irs return You can deduct contributions to a U. Amending irs return S. Amending irs return organization that transfers funds to a charitable foreign organization if the U. Amending irs return S. Amending irs return organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. Amending irs return S. Amending irs return organization. Amending irs return Canadian, Mexican, and Israeli charities. Amending irs return   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. Amending irs return Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Amending irs return See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. Amending irs return Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. Amending irs return Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. Amending irs return See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. Amending irs return Foreign moves. Amending irs return   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. Amending irs return A foreign move does not include a move back to the United States or its possessions. Amending irs return Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. Amending irs return If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. Amending irs return Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Amending irs return Year to which expense is connected. Amending irs return   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. Amending irs return It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. Amending irs return   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. Amending irs return The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. Amending irs return The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. Amending irs return Amount allocable to excluded income. Amending irs return   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. Amending irs return The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. Amending irs return Example. Amending irs return On November 1, 2012, you transfer to Monaco. Amending irs return Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. Amending irs return In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. Amending irs return You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. Amending irs return The reimbursement is included in your income. Amending irs return Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. Amending irs return Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. Amending irs return Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. Amending irs return You have no housing exclusion. Amending irs return The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). Amending irs return To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. Amending irs return The result, $5,562, is your nondeductible amount. Amending irs return    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. Amending irs return In the preceding example, this year was 2012. Amending irs return You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. Amending irs return Move between foreign countries. Amending irs return   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. Amending irs return New place of work in U. Amending irs return S. Amending irs return   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. Amending irs return If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. Amending irs return Storage expenses. Amending irs return   These expenses are attributable to work you do during the year in which you incur the storage expenses. Amending irs return You cannot deduct the amount allocable to excluded income. Amending irs return Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. Amending irs return By then, you should have all the information needed to properly figure the moving expense deduction. Amending irs return See Extensions under When To File and Pay in chapter 1. Amending irs return If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. Amending irs return You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Amending irs return Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. Amending irs return If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. Amending irs return You cannot claim it on the return for the second year. Amending irs return Forms To File Report your moving expenses on Form 3903. Amending irs return Report your moving expense deduction on line 26 of Form 1040. Amending irs return If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. Amending irs return For more information about figuring moving expenses, see Publication 521. Amending irs return Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. Amending irs return In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Amending irs return Do not reduce your compensation by the foreign housing deduction. Amending irs return If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. Amending irs return This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Amending irs return Other modifications are also required. Amending irs return For more information on IRAs, see Publication 590. Amending irs return Taxes of Foreign Countries and U. Amending irs return S. Amending irs return Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. Amending irs return S. Amending irs return possession. Amending irs return Taken as a deduction, foreign income taxes reduce your taxable income. Amending irs return Taken as a credit, foreign income taxes reduce your tax liability. Amending irs return You must treat all foreign income taxes the same way. Amending irs return If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. Amending irs return However, you may be able to deduct other foreign taxes. Amending irs return See Deduction for Other Foreign Taxes, later. Amending irs return There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. Amending irs return In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. Amending irs return S. Amending irs return tax liability, rather than as a deduction in figuring taxable income. Amending irs return However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. Amending irs return S. Amending irs return income is small, a lower final tax may result from deducting the foreign income taxes. Amending irs return In any event, you should figure your tax liability both ways and then use the one that is better for you. Amending irs return You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. Amending irs return Foreign income taxes. Amending irs return   These are generally income taxes you pay to any foreign country or possession of the United States. Amending irs return Foreign income taxes on U. Amending irs return S. Amending irs return return. Amending irs return   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. Amending irs return These amounts cannot be included as withheld income taxes on Form 1040, line 62. Amending irs return Foreign taxes paid on excluded income. Amending irs return   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. Amending irs return Foreign earned income exclusion. Amending irs return Foreign housing exclusion. Amending irs return Possession exclusion. Amending irs return If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. Amending irs return   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. Amending irs return You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. Amending irs return The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). Amending irs return The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Amending irs return   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. Amending irs return    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. Amending irs return Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. Amending irs return Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. Amending irs return Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. Amending irs return The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. Amending irs return The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. Amending irs return You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. Amending irs return Subsidies. Amending irs return   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. Amending irs return This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. Amending irs return   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Amending irs return A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. Amending irs return Limit The foreign tax credit is limited to the part of your total U. Amending irs return S. Amending irs return tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. Amending irs return The allowable foreign tax credit cannot be more than your actual foreign tax liability. Amending irs return Exemption from limit. Amending irs return   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. Amending irs return Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. Amending irs return ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). Amending irs return Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. Amending irs return You elect this procedure. Amending irs return If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. Amending irs return Separate limit. Amending irs return   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). Amending irs return Figuring the limit. Amending irs return   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. Amending irs return Do not take any excluded amount into account. Amending irs return   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. Amending irs return   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. Amending irs return The numerator (top number) of the fraction is your gross foreign income in the separate limit category. Amending irs return The denominator (bottom number) of the fraction is your gross income from all sources. Amending irs return For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. Amending irs return You must use special rules for deducting interest expenses. Amending irs return For more information on allocating and apportioning your deductions, see Publication 514. Amending irs return Exemptions. Amending irs return   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. Amending irs return Recapture of foreign losses. Amending irs return   If you have an overall foreign loss and the loss reduces your U. Amending irs return S. Amending irs return source income (resulting in a reduction of your U. Amending irs return S. Amending irs return tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. Amending irs return This is done by treating a part of your taxable income from foreign sources in later years as U. Amending irs return S. Amending irs return source income. Amending irs return This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. Amending irs return Recapture of domestic losses. Amending irs return   If you have an overall domestic loss (resulting in no U. Amending irs return S. Amending irs return tax liability), you cannot claim a foreign tax credit for taxes paid during that year. Amending irs return You must recapture the loss in later years when you have U. Amending irs return S. Amending irs return source taxable income. Amending irs return This is done by treating a part of your taxable income from U. Amending irs return S. Amending irs return sources in later years as foreign source income. Amending irs return This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. Amending irs return Foreign tax credit carryback and carryover. Amending irs return   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. Amending irs return   More information on figuring the foreign tax credit can be found in Publication 514. Amending irs return Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). Amending irs return You can deduct only foreign income taxes paid on income that is subject to U. Amending irs return S. Amending irs return tax. Amending irs return You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. Amending irs return Foreign earned income exclusion. Amending irs return Foreign housing exclusion. Amending irs return Possession exclusion. Amending irs return Example. Amending irs return You are a U. Amending irs return S. Amending irs return citizen and qualify to exclude your foreign earned income. Amending irs return Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. Amending irs return You received dividends from Country X of $2,000 on which you paid income tax of $600. Amending irs return You can deduct the $600 tax payment because the dividends relating to it are subject to U. Amending irs return S. Amending irs return tax. Amending irs return Because you exclude your wages, you cannot deduct the income tax of $10,000. Amending irs return If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. Amending irs return Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. Amending irs return You take this deduction on Schedule A (Form 1040). Amending irs return You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Amending irs return On the other hand, you generally can deduct personal property taxes when you pay them to U. Amending irs return S. Amending irs return possessions. Amending irs return But if you claim the possession exclusion, see Publication 570. Amending irs return The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Amending irs return You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. Amending irs return How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. Amending irs return If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. Amending irs return Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Amending irs return Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. Amending irs return If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. Amending irs return You figure that amount by subtracting from the total deduction the amount related to excluded income. Amending irs return Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Amending irs return Attach a statement to your return showing how you figured the deductible amount. Amending irs return Example 1. Amending irs return You are a U. Amending irs return S. Amending irs return citizen employed as an accountant. Amending irs return Your tax home is in Germany for the entire tax year. Amending irs return You meet the physical presence test. Amending irs return Your foreign earned income for the year was $122,000 and your investment income was $10,380. Amending irs return After excluding $97,600, your AGI is $34,780. Amending irs return You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. Amending irs return These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). Amending irs return You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. Amending irs return You must fill out Form 2106. Amending irs return On that form, reduce your deductible meal and entertainment expenses by 50% ($250). Amending irs return You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. Amending irs return You carry the remaining total of $450 to line 21 of Schedule A. Amending irs return Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. Amending irs return On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. Amending irs return Enter $254 on line 27 of Schedule A. Amending irs return Example 2. Amending irs return You are a U. Amending irs return S. Amending irs return citizen, have a tax home in Spain, and meet the physical presence test. Amending irs return You are self-employed and personal services produce the business income. Amending irs return Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. Amending irs return You choose the foreign earned income exclusion and exclude $97,600 of your gross income. Amending irs return Since your excluded income is 83. Amending irs return 47% of your total income, 83. Amending irs return 47% of your business expenses are not deductible. Amending irs return Report your total income and expenses on Schedule C (Form 1040). Amending irs return On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. Amending irs return 47% × $66,895) business expenses attributable to the exclusion. Amending irs return In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. Amending irs return Example 3. Amending irs return Assume in Example 2 that both capital and personal services combine to produce the business income. Amending irs return No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. Amending irs return Your exclusion of $15,011 is 12. Amending irs return 84% of your gross income ($15,011 ÷ $116,931). Amending irs return Because you excluded 12. Amending irs return 84% of your total income, $8,589 (. Amending irs return 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. Amending irs return Example 4. Amending irs return You are a U. Amending irs return S. Amending irs return citizen, have a tax home in Brazil, and meet the physical presence test. Amending irs return You are self-employed and both capital and personal services combine to produce business income. Amending irs return Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. Amending irs return A reasonable allowance for the services you performed for the business is $77,000. Amending irs return Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. Amending irs return The $77,000 is foreign earned income. Amending irs return If you choose to exclude the $77,000, you exclude 52. Amending irs return 74% of your gross income ($77,000 ÷ $146,000), and 52. Amending irs return 74% of your business expenses ($90,713) is attributable to that income and is not deductible. Amending irs return Show your total income and expenses on Schedule C (Form 1040). Amending irs return On Form 2555, exclude $77,000 and show $90,713 on line 44. Amending irs return Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. Amending irs return Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. Amending irs return In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. Amending irs return If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. Amending irs return To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. Amending irs return See Choosing the Exclusion in chapter 4. Amending irs return Example 5. Amending irs return You are a U. Amending irs return S. Amending irs return citizen, have a tax home in Panama, and meet the bona fide residence test. Amending irs return You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. Amending irs return Capital investment is not material in producing the partnership's income. Amending irs return Under the terms of the partnership agreement, you are to receive 50% of the net profits. Amending irs return The partnership received gross income of $244,000 and incurred operating expenses of $98,250. Amending irs return Of the net profits of $145,750, you received $72,875 as your distributive share. Amending irs return You choose to exclude $97,600 of your share of the gross income. Amending irs return Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. Amending irs return 80 × $49,125). Amending irs return Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. Amending irs return On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. Amending irs return Your exclusion on Form 2555 is $58,300. Amending irs return In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. Amending irs return Prev  Up  Next   Home   More Online Publications
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Circular 230 Tax Professionals

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The Amending Irs Return

Amending irs return 4. Amending irs return   Limit on Elective Deferrals Table of Contents Excess elective deferrals. Amending irs return General Limit 15-Year RuleYears of Service Figuring the Limit on Elective DeferralsExample The second and final component of MAC is the limit on elective deferrals. Amending irs return This is a limit on the amount of contributions that can be made to your account through a salary reduction agreement. Amending irs return A salary reduction agreement is an agreement between you and your employer that allows for a portion of your compensation to be directly invested in a 403(b) account on your behalf. Amending irs return You can enter into more than one salary reduction agreement during a year. Amending irs return More than one 403(b) account. Amending irs return If, for any year, elective deferrals are contributed to more than one 403(b) account for you (whether or not with the same employer), you must combine all the elective deferrals to determine whether the total is more than the limit for that year. Amending irs return 403(b) plan and another retirement plan. Amending irs return If, during the year, contributions in the form of elective deferrals are made to other retirement plans on your behalf, you must combine all of the elective deferrals to determine if they are more than your limit on elective deferrals. Amending irs return The limit on elective deferrals applies to amounts contributed to: 401(k) plans, to the extent excluded from income, Roth contribution programs, Section 501(c)(18) plans, to the extent excluded from income, Savings incentive match plan for employees (SIMPLE plans), Simplified employee pension (SEP) plans, and All 403(b) plans. Amending irs return Roth contribution program. Amending irs return   Your 403(b) plan may allow you to designate all or a portion of your elective deferrals as Roth contributions. Amending irs return Elective deferrals designated as Roth contributions must be maintained in a separate Roth account and are not excludable from your gross income. Amending irs return   The maximum amount of contributions allowed under a Roth contribution program is your limit on elective deferrals, less your elective deferrals not designated as Roth contributions. Amending irs return For more information on the Roth contribution program, see Publication 560, Retirement Plans for Small Business. Amending irs return Excess elective deferrals. Amending irs return   If the amount contributed is more than the allowable limit, you must include the excess that is not a Roth contribution in your gross income for the year contributed. Amending irs return General Limit Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement is $17,500 for 2013 and 2014. Amending irs return This limit applies without regard to community property laws. Amending irs return 15-Year Rule If you have at least 15 years of service with an educational organization (such as a public or private school), hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), the limit on elective deferrals to your 403(b) account is increased by the least of: $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in prior years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Amending irs return If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013 and 2014. Amending irs return To determine whether you have 15 years of service with your employer, see Years of Service , next. Amending irs return Years of Service To determine if you are eligible for the increased limit on elective deferrals, you will first need to figure your years of service. Amending irs return How you figure your years of service depends on whether you were a full-time or a part-time employee, whether you worked for the full year or only part of the year, and whether you have worked for your employer for an entire year. Amending irs return You must figure years of service for each year during which you worked for the employer who is maintaining your 403(b) account. Amending irs return If more than one employer maintains a 403(b) account for you in the same year, you must figure years of service separately for each employer. Amending irs return Definition Your years of service are the total number of years you have worked as a full time employee for the employer maintaining your 403(b) account as of the end of the year. Amending irs return Figuring Your Years of Service Take the following rules into account when figuring your years of service. Amending irs return Status of employer. Amending irs return   Your years of service include only periods during which your employer was a qualified employer. Amending irs return Your plan administrator can tell you whether or not your employer was qualified during all your periods of service. Amending irs return Service with one employer. Amending irs return   Generally, you cannot count service for any employer other than the one who maintains your 403(b) account. Amending irs return Church employee. Amending irs return   If you are a church employee, treat all of your years of service with related church organizations as years of service with the same employer. Amending irs return For more information about church employees, see chapter 5. Amending irs return Self-employed ministers. Amending irs return   If you are a self-employed minister, your years of service include full and part years in which you have been treated as employed by a tax-exempt organization that is a qualified employer. Amending irs return Total years of service. Amending irs return   When figuring prior years of service, figure each year individually and then add the individual years of service to determine your total years of service. Amending irs return Example. Amending irs return The annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Amending irs return Marsha began working with ABC schools in September 2009. Amending irs return She has always worked full-time for each annual work period. Amending irs return At the end of 2013, Marsha had 4. Amending irs return 5 years of service with ABC Public Schools, as shown in Table 4-1. Amending irs return Table 4-1. Amending irs return Marsha's Years of Service Note. Amending irs return This table shows how Marsha figures her years of service, as explained in the previous example. Amending irs return Year Period Worked Portion of Work Period Years of Service 2009 Sept. Amending irs return –Dec. Amending irs return . Amending irs return 5 year . Amending irs return 5 year 2010 Feb. Amending irs return –May . Amending irs return 5 year 1 year Sept. Amending irs return –Dec. Amending irs return . Amending irs return 5 year 2011 Feb. Amending irs return –May . Amending irs return 5 year 1 year Sept. Amending irs return –Dec. Amending irs return . Amending irs return 5 year 2012 Feb. Amending irs return –May . Amending irs return 5 year 1 year Sept. Amending irs return –Dec. Amending irs return . Amending irs return 5 year 2013 Feb. Amending irs return –May . Amending irs return 5 year 1 year Sept. Amending irs return –Dec. Amending irs return . Amending irs return 5 year Total years of service 4. Amending irs return 5 years Full-time or part-time. Amending irs return   To figure your years of service, you must analyze each year individually and determine whether you worked full-time for the full year or something other than full-time. Amending irs return When determining whether you worked full-time or something other than full-time, use your employer's annual work period as the standard. Amending irs return Employer's annual work period. Amending irs return   Your employer's annual work period is the usual amount of time an individual working full-time in a specific position is required to work. Amending irs return Generally, this period of time is expressed in days, weeks, months, or semesters, and can span 2 calendar years. Amending irs return Note. Amending irs return You cannot accumulate more than 1 year of service in a 12-month period. Amending irs return Example. Amending irs return All full-time teachers at ABC Public Schools are required to work both the September through December semester and the February through May semester. Amending irs return Therefore, the annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Amending irs return Teachers at ABC Public Schools who work both semesters in the same calendar year are considered working a full year of service in that calendar year. Amending irs return Full-Time Employee for the Full Year Count each full year during which you were employed full-time as 1 year of service. Amending irs return In determining whether you were employed full-time, compare the amount of work you were required to perform with the amount of work normally required of others who held the same position with the same employer and who generally received most of their pay from the position. Amending irs return How to compare. Amending irs return   You can use any method that reasonably and accurately reflects the amount of work required. Amending irs return For example, if you are a teacher, you can use the number of hours of classroom instruction as a measure of the amount of work required. Amending irs return   In determining whether positions with the same employer are the same, consider all of the facts and circumstances concerning the positions, including the work performed, the methods by which pay is determined, and the descriptions (or titles) of the positions. Amending irs return Example. Amending irs return An assistant professor employed in the English department of a university will be considered a full-time employee if the amount of work that he or she is required to perform is the same as the amount of work normally required of assistant professors of English at that university who get most of their pay from that position. Amending irs return   If no one else works for your employer in the same position, compare your work with the work normally required of others who held the same position with similar employers or similar positions with your employer. Amending irs return Full year of service. Amending irs return   A full year of service for a particular position means the usual annual work period of anyone employed full-time in that general type of work at that place of employment. Amending irs return Example. Amending irs return If a doctor works for a hospital 12 months of a year except for a 1-month vacation, the doctor will be considered as employed for a full year if the other doctors at that hospital also work 11 months of the year with a 1-month vacation. Amending irs return Similarly, if the usual annual work period at a university consists of the fall and spring semesters, an instructor at that university who teaches these semesters will be considered as working a full year. Amending irs return Other Than Full-Time for the Full Year If, during any year, you were employed full-time for only part of your employer's annual work period, part-time for the entire annual work period, or part-time for only part of the work period, your year of service for that year is a fraction of your employer's annual work period. Amending irs return Full-time for part of the year. Amending irs return   If, during a year, you were employed full-time for only part of your employer's annual work period, figure the fraction for that year as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. Amending irs return The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. Amending irs return Example. Amending irs return Jason was employed as a full-time instructor by a local college for the 4 months of the 2013 spring semester (February 2013 through May 2013). Amending irs return The annual work period for the college is 8 months (February through May and July through October). Amending irs return Given these facts, Jason was employed full-time for part of the annual work period and provided ½ of a year of service. Amending irs return Jason's years of service computation for 2013 is as follows: Number of months Jason worked = 4 = 1 Number of months in annual work period 8 2 Part-time for the full year. Amending irs return   If, during a year, you were employed part-time for the employer's entire annual work period, you figure the fraction for that year as follows: The numerator (top number) is the number of hours or days you worked. Amending irs return The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. Amending irs return Example. Amending irs return Vance teaches one course at a local medical school. Amending irs return He teaches 3 hours per week for two semesters. Amending irs return Other faculty members at the same school teach 9 hours per week for two semesters. Amending irs return The annual work period of the medical school is two semesters. Amending irs return An instructor teaching 9 hours a week for two semesters is considered a full-time employee. Amending irs return Given these facts, Vance has worked part-time for a full annual work period. Amending irs return Vance has completed 1/3 of a year of service, figured as shown below. Amending irs return Number of hours per week Vance worked = 3 = 1 Number of hours per week considered full-time 9 3 Part-time for part of the year. Amending irs return   If, during any year, you were employed part-time for only part of your employer's annual work period, you figure your fraction for that year by multiplying two fractions. Amending irs return   Figure the first fraction as though you had worked full-time for part of the annual work period. Amending irs return The fraction is as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. Amending irs return The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. Amending irs return   Figure the second fraction as though you had worked part-time for the entire annual work period. Amending irs return The fraction is as follows: The numerator (top number) is the number of hours or days you worked. Amending irs return The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. Amending irs return   Once you have figured these two fractions, multiply them together to determine the fraction representing your partial year of service for the year. Amending irs return Example. Amending irs return Maria, an attorney, teaches a course for one semester at a law school. Amending irs return She teaches 3 hours per week. Amending irs return The annual work period for teachers at the school is two semesters. Amending irs return All full-time instructors at the school are required to teach 12 hours per week. Amending irs return Based on these facts, Maria is employed part-time for part of the annual work period. Amending irs return Her year of service for this year is determined by multiplying two fractions. Amending irs return Her computation is as follows: Maria's first fraction Number of semesters Maria worked = 1 Number of semesters in annual work period 2 Maria's second fraction Number of hours Maria worked per week = 3 = 1 Number of hours per week considered full-time 12 4 Maria would multiply these fractions to obtain the fractional year of service: 1 x 1 = 1         2 4 8         Figuring the Limit on Elective Deferrals You can use Part II of Worksheet 1 in chapter 9 to figure the limit on elective deferrals. Amending irs return Example Floyd has figured his limit on annual additions. Amending irs return The only other component needed before he can determine his MAC for 2014 is his limit on elective deferrals. Amending irs return Figuring Floyd's limit on elective deferrals. Amending irs return   Floyd has been employed with his current employer for less than 15 years. Amending irs return He is not eligible for the special 15-year increase. Amending irs return Therefore, his limit on elective deferrals for 2014 is $17,500 as shown in Table 4-2. Amending irs return Floyd's employer will not make any nonelective contributions to his 403(b) account and Floyd will not make any after-tax contributions. Amending irs return Additionally, Floyd's employer does not offer a Roth contribution program. Amending irs return Figuring Floyd's MAC Floyd has determined that his limit on annual additions for 2014 is $52,000 and his limit on elective deferrals is $17,500. Amending irs return Because elective deferrals are the only contributions made to Floyd's account, the maximum amount that can be contributed to a 403(b) account on Floyd's behalf in 2014 is $17,500, the lesser of both limits. Amending irs return Table 4-2. Amending irs return Worksheet 1. Amending irs return Maximum Amount Contributable (MAC) Note. Amending irs return Use this worksheet to figure your MAC. Amending irs return Part I. Amending irs return Limit on Annual Additions     1. Amending irs return Enter your includible compensation for your most recent year of service 1. Amending irs return $70,475 2. Amending irs return Maximum: For 2013 enter $51,000 For 2014 enter $52,000 2. Amending irs return 52,000 3. Amending irs return Enter the lesser of line 1 or line 2. Amending irs return This is your limit on annual additions 3. Amending irs return 52,000   Caution: If you had only nonelective contributions, skip Part II and enter the amount from line 3 on line 18. Amending irs return     Part II. Amending irs return Limit on Elective Deferrals     4. Amending irs return Maximum contribution: For 2013, enter $17,500 For 2014, enter $17,500 4. Amending irs return 17,500   Note. Amending irs return If you have at least 15 years of service with a qualifying organization, complete lines 5 through 17. Amending irs return If not, enter zero (-0-) on line 16 and go to line 17. Amending irs return     5. Amending irs return Amount per year of service 5. Amending irs return 5,000 6. Amending irs return Enter your years of service 6. Amending irs return   7. Amending irs return Multiply line 5 by line 6 7. Amending irs return   8. Amending irs return Enter the total of all elective deferrals made for you by the qualifying organization for prior years 8. Amending irs return   9. Amending irs return Subtract line 8 from line 7. Amending irs return If zero or less, enter zero (-0-) 9. Amending irs return   10. Amending irs return Maximum increase in limit for long service 10. Amending irs return 15,000 11. Amending irs return Enter the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11. Amending irs return   12. Amending irs return Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 12. Amending irs return   13. Amending irs return Add lines 11 and 12 13. Amending irs return   14. Amending irs return Subtract line 13 from line 10 14. Amending irs return   15. Amending irs return Maximum additional contributions 15. Amending irs return 3,000 16. Amending irs return Enter the least of lines 9, 14, or 15. Amending irs return This is your increase in the limit for long service 16. Amending irs return -0- 17. Amending irs return Add lines 4 and 16. Amending irs return This is your limit on elective deferrals 17. Amending irs return 17,500   Part III. Amending irs return Maximum Amount Contributable     18. Amending irs return If you had only nonelective contributions, enter the amount from line 3. Amending irs return This is your MAC. Amending irs return    If you had only elective deferrals, enter the lesser of lines 3 or 17. Amending irs return This is your MAC. Amending irs return    If you had both elective deferrals and nonelective contributions, enter the amount from line 3. Amending irs return This is your MAC. Amending irs return (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7. Amending irs return ) 18. Amending irs return $17,500 Prev  Up  Next   Home   More Online Publications