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Form 1040 Ez

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Form 1040 Ez

Form 1040 ez 34. Form 1040 ez   Child Tax Credit Table of Contents Introduction Useful Items - You may want to see: Qualifying Child Amount of CreditLimits on the Credit Claiming the Credit Additional Child Tax Credit Completing Schedule 8812 (Form 1040A or 1040)Part I Parts II–IV Introduction The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your qualifying children. Form 1040 ez The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit. Form 1040 ez This chapter explains the following. Form 1040 ez Who is a qualifying child. Form 1040 ez The amount of the credit. Form 1040 ez How to claim the credit. Form 1040 ez The child tax credit and the additional child tax credit should not be confused with the child and dependent care credit discussed in chapter 32. Form 1040 ez If you have no tax. Form 1040 ez   Credits, such as the child tax credit or the credit for child and dependent care expenses, are used to reduce tax. Form 1040 ez If your tax on Form 1040, line 46, or Form 1040A, line 28, is zero, do not figure the child tax credit because there is no tax to reduce. Form 1040 ez However, you may qualify for the additional child tax credit on line 65 (Form 1040) or line 39 (Form 1040A). Form 1040 ez Useful Items - You may want to see: Publication 972 Child Tax Credit Form (and Instructions) Schedule 8812 (Form 1040A or 1040) Child Tax Credit W-4 Employee's Withholding Allowance Certificate Qualifying Child A qualifying child for purposes of the child tax credit is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was under age 17 at the end of 2013, Did not provide over half of his or her own support for 2013, Lived with you for more than half of 2013 (see Exceptions to time lived with you , later), Is claimed as a dependent on your return, Does not file a joint return for the year (or files it only as a claim for refund), and Was a U. Form 1040 ez S. Form 1040 ez citizen, a U. Form 1040 ez S. Form 1040 ez national, or a resident of the United States. Form 1040 ez If the child was adopted, see Adopted child , later. Form 1040 ez For each qualifying child you must check the box on Form 1040 or Form 1040A, line 6c. Form 1040 ez Example 1. Form 1040 ez Your son turned 17 on December 30, 2013. Form 1040 ez He is a citizen of the United States and you claimed him as a dependent on your return. Form 1040 ez He is not a qualifying child for the child tax credit because he was not under age 17 at the end of 2013. Form 1040 ez Example 2. Form 1040 ez Your daughter turned 8 years old in 2013. Form 1040 ez She is not a citizen of the United States, has an ITIN, and lived in Mexico all of 2013. Form 1040 ez She is not a qualifying child for the child tax credit because she was not a resident of the United States for 2013. Form 1040 ez Filers who have certain child dependents with an Individual Taxpayer Identification Number (ITIN). Form 1040 ez   If you are claiming a child tax credit or additional child tax credit for a child you identified on your tax return with an ITIN instead of an SSN, you must complete Part I of Schedule 8812 (Form 1040A or 1040). Form 1040 ez   Although a child may be your dependent, you may only claim a child tax credit or additional child tax credit for a dependent who is a citizen, national, or resident of the United States. Form 1040 ez To be treated as a resident of the United States, a child generally will need to meet the requirements of the substantial presence test. Form 1040 ez For more information about the substantial presence test, see Publication 519, U. Form 1040 ez S. Form 1040 ez Tax Guide for Aliens. Form 1040 ez Adopted child. Form 1040 ez   An adopted child is always treated as your own child. Form 1040 ez An adopted child includes a child lawfully placed with you for legal adoption. Form 1040 ez   If you are a U. Form 1040 ez S. Form 1040 ez citizen or U. Form 1040 ez S. Form 1040 ez national and your adopted child lived with you all year as a member of your household in 2013, that child meets condition (7) above to be a qualifying child for the child tax credit. Form 1040 ez Exceptions to time lived with you. Form 1040 ez   A child is considered to have lived with you for more than half of 2013 if the child was born or died in 2013 and your home was this child's home for more than half the time he or she was alive. Form 1040 ez Temporary absences by you or the child for special circumstances, such as for school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the child lived with you. Form 1040 ez   There are also exceptions for kidnapped children and children of divorced or separated parents. Form 1040 ez For details, see Residency Test in chapter 3. Form 1040 ez Qualifying child of more than one person. Form 1040 ez   A special rule applies if your qualifying child is the qualifying child of more than one person. Form 1040 ez For details, see Special Rule for Qualifying Child of More Than One Person in chapter 3. Form 1040 ez Amount of Credit The maximum amount you can claim for the credit is $1,000 for each qualifying child. Form 1040 ez Limits on the Credit You must reduce your child tax credit if either (1) or (2) applies. Form 1040 ez The amount on Form 1040, line 46, or Form 1040A, line 28, is less than the credit. Form 1040 ez If this amount is zero, you cannot take this credit because there is no tax to reduce. Form 1040 ez But you may be able to take the additional child tax credit. Form 1040 ez See Additional Child Tax Credit , later. Form 1040 ez Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status. Form 1040 ez Married filing jointly - $110,000. Form 1040 ez Single, head of household, or qualifying widow(er) - $75,000. Form 1040 ez Married filing separately - $55,000. Form 1040 ez Modified AGI. Form 1040 ez   For purposes of the child tax credit, your modified AGI is your AGI plus the following amounts that may apply to you. Form 1040 ez Any amount excluded from income because of the exclusion of income from  Puerto Rico. Form 1040 ez On the dotted line next to Form 1040, line 38, enter the amount excluded and identify it as “EPRI. Form 1040 ez ” Also attach a copy of any Form(s) 499R-2/W-2PR to your return. Form 1040 ez Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. Form 1040 ez Any amount on line 18 of Form 2555-EZ, Foreign Earned Income Exclusion. Form 1040 ez Any amount on line 15 of Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa. Form 1040 ez   If you do not have any of the above, your modified AGI is the same as your AGI. Form 1040 ez AGI. Form 1040 ez   Your AGI is the amount on Form 1040, line 38, or Form 1040A, line 22. Form 1040 ez Claiming the Credit To claim the child tax credit, you must file Form 1040 or Form 1040A. Form 1040 ez You cannot claim the child tax credit on Form 1040EZ. Form 1040 ez You must provide the name and identification number (usually a social security number) on your tax return for each qualifying child. Form 1040 ez If you claim the child tax credit with a child identified by an ITIN, you must also file Schedule 8812. Form 1040 ez To figure your credit, first review the Child Tax Credit Worksheet in your Form 1040 or 1040A instructions. Form 1040 ez If you are instructed to use Publication 972, you may not use the worksheet in your tax return instructions; instead, you must use Publication 972 to figure the credit. Form 1040 ez If you are not instructed to use Publication 972, you may use the Child Tax Credit Worksheet in your Form 1040 or 1040A instructions or Publication 972 to figure the credit. Form 1040 ez Additional Child Tax Credit This credit is for certain individuals who get less than the full amount of the child tax credit. Form 1040 ez The additional child tax credit may give you a refund even if you do not owe any tax. Form 1040 ez How to claim the additional child tax credit. Form 1040 ez   To claim the additional child tax credit, follow the steps below. Form 1040 ez Make sure you figured the amount, if any, of your child tax credit. Form 1040 ez See Claiming the Credit , earlier. Form 1040 ez If you answered “Yes” on line 9 or line 10 of the Child Tax Credit Worksheet in the Form 1040 or Form 1040A instructions, or line 13 of the Child Tax Credit Worksheet in Publication 972, use Parts II through IV of Schedule 8812 to see if you can take the additional child tax credit. Form 1040 ez If you have an additional child tax credit on line 13 of Schedule 8812, carry it to Form 1040, line 65, or Form 1040A, line 39. Form 1040 ez Completing Schedule 8812 (Form 1040A or 1040) Schedule 8812 contains four parts, but can really be thought of as two sections. Form 1040 ez Part I is distinct and separate from Parts II–IV. Form 1040 ez If all your children are identified by social security numbers or IRS adoption taxpayer identification numbers and you are not claiming the additional child tax credit, you do not need to complete or attach Schedule 8812 to your tax return. Form 1040 ez Part I You only need to complete Part I if you are claiming the child tax credit for a child identified by an IRS individual taxpayer identification number (ITIN). Form 1040 ez When completing Part I, only answer the questions with regard to children identified by an ITIN; you do not need to complete Part I of Schedule 8812 for any child that is identified by a social security number (SSN) or an IRS adoption taxpayer identification number (ATIN). Form 1040 ez If all the children for whom you checked the box in column 4 of line 6c on your Form 1040 or Form 1040A are identified by an SSN or an ATIN, you do not need to complete Part I of Schedule 8812. Form 1040 ez Parts II–IV Parts II–IV help you figure your additional child tax credit. Form 1040 ez Generally, you should only complete Parts II–IV if you are instructed to do so after completing the Child Tax Credit Worksheet in your tax return instructions or Publication 972. Form 1040 ez See How to claim the additional child tax credit , earlier. Form 1040 ez Prev  Up  Next   Home   More Online Publications
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IRS Releases the Dirty Dozen Tax Scams for 2013

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Dirty Dozen: English | Spanish | ASL

IR-2013-33, March 26, 2013

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

"This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud," said IRS Acting Commissioner Steven T. Miller. "The Dirty Dozen list shows that scams come in many forms during filing season. Don't let a scam artist steal from you or talk you into doing something you will regret later."

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

Combating identity theft and refund fraud is a top priority for the IRS, and we are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. We have dramatically enhanced our systems, and we are committed to continuing to improve our prevention, detection and assistance efforts.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. We are continually reviewing our processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

This January, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions in January, including 298 indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012. The Criminal Investigation unit has devoted more than 500,000 staff-hours to fighting this issue.

We know identity theft is a frustrating and complex process for victims. The IRS has 3,000 people working on identity theft related cases — more than double the number in late 2011. And we have trained 35,000 employees who work with taxpayers to help with identity theft situations.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information that can help you protect yourself from email scams.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has created a new web page to assist taxpayers. For tips about choosing a preparer, red flags, details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 38,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $5.5 billion so far from people who participated in offshore voluntary disclosure programs since 2009.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money. They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits. For example, some promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. Con artists also falsely claim that refunds are available even if the victim went to school decades ago. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. As in the case of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

  • To help disaster victims, donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits  a contribution from you. Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.
 

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Page Last Reviewed or Updated: 07-Mar-2014

The Form 1040 Ez

Form 1040 ez 1. Form 1040 ez   Traditional IRAs Table of Contents What's New for 2013 What's New for 2014 Introduction Who Can Open a Traditional IRA?What Is Compensation? When Can a Traditional IRA Be Opened? How Can a Traditional IRA Be Opened?Individual Retirement Account Individual Retirement Annuity Individual Retirement Bonds Simplified Employee Pension (SEP) Employer and Employee Association Trust Accounts Required Disclosures How Much Can Be Contributed?Limit. Form 1040 ez When repayment contributions can be made. Form 1040 ez No deduction. Form 1040 ez Reserve component. Form 1040 ez Figuring your IRA deduction. Form 1040 ez Reporting the repayment. Form 1040 ez Example. Form 1040 ez General Limit Kay Bailey Hutchison Spousal IRA Limit Filing Status Less Than Maximum Contributions More Than Maximum Contributions When Can Contributions Be Made? How Much Can You Deduct?Kay Bailey Hutchison Spousal IRA. Form 1040 ez Are You Covered by an Employer Plan? Limit if Covered by Employer Plan Reporting Deductible Contributions Nondeductible Contributions Examples — Worksheet for Reduced IRA Deduction for 2013 What if You Inherit an IRA?Treating it as your own. Form 1040 ez Can You Move Retirement Plan Assets?Transfers to Roth IRAs from other retirement plans. Form 1040 ez Trustee-to-Trustee Transfer Rollovers Transfers Incident To Divorce Converting From Any Traditional IRA Into a Roth IRA Recharacterizations When Can You Withdraw or Use Assets?Contributions Returned Before Due Date of Return When Must You Withdraw Assets? (Required Minimum Distributions)IRA Owners IRA Beneficiaries Which Table Do You Use To Determine Your Required Minimum Distribution? What Age(s) Do You Use With the Table(s)? Miscellaneous Rules for Required Minimum Distributions Are Distributions Taxable?January 2013 QCDs treated as made in 2012. Form 1040 ez 2013 Reporting. Form 1040 ez Additional reporting requirements if you made the election to treat a January 2013 QCD as made in 2012. Form 1040 ez One-time transfer. Form 1040 ez Testing period rules apply. Form 1040 ez More information. Form 1040 ez Distributions Fully or Partly Taxable Figuring the Nontaxable and Taxable Amounts Recognizing Losses on Traditional IRA Investments Other Special IRA Distribution Situations Reporting and Withholding Requirements for Taxable Amounts What Acts Result in Penalties or Additional Taxes?Prohibited Transactions Investment in Collectibles Excess Contributions Early Distributions Excess Accumulations (Insufficient Distributions) Reporting Additional Taxes What's New for 2013 Traditional IRA contribution and deduction limit. Form 1040 ez  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Form 1040 ez If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Form 1040 ez For more information, see How Much Can Be Contributed? in this chapter. Form 1040 ez Modified AGI limit for traditional IRA contributions increased. Form 1040 ez  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Form 1040 ez If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Form 1040 ez If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Form 1040 ez See How Much Can You Deduct? in this chapter. Form 1040 ez Net Investment Income Tax. Form 1040 ez  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). Form 1040 ez However, these distributions are taken into account when determining the modified adjusted gross income threshold. Form 1040 ez Distributions from a nonqualified retirement plan are included in net investment income. Form 1040 ez See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Form 1040 ez What's New for 2014 Modified AGI limit for traditional IRA contributions increased. Form 1040 ez  For 2014, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $96,000 but less than $116,000 for a married couple filing a joint return or a qualifying widow(er), More than $60,000 but less than $70,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Form 1040 ez If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. Form 1040 ez If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. Form 1040 ez Introduction This chapter discusses the original IRA. Form 1040 ez In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Form 1040 ez ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Form 1040 ez The following are two advantages of a traditional IRA: You may be able to deduct some or all of your contributions to it, depending on your circumstances. Form 1040 ez Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Form 1040 ez Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. Form 1040 ez You can have a traditional IRA whether or not you are covered by any other retirement plan. Form 1040 ez However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. Form 1040 ez See How Much Can You Deduct , later. Form 1040 ez Both spouses have compensation. Form 1040 ez   If both you and your spouse have compensation and are under age 70½, each of you can open an IRA. Form 1040 ez You cannot both participate in the same IRA. Form 1040 ez If you file a joint return, only one of you needs to have compensation. Form 1040 ez What Is Compensation? Generally, compensation is what you earn from working. Form 1040 ez For a summary of what compensation does and does not include, see Table 1-1. Form 1040 ez Compensation includes all of the items discussed next (even if you have more than one type). Form 1040 ez Wages, salaries, etc. Form 1040 ez   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. Form 1040 ez The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Form 1040 ez Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2. Form 1040 ez Commissions. Form 1040 ez   An amount you receive that is a percentage of profits or sales price is compensation. Form 1040 ez Self-employment income. Form 1040 ez   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deduction allowed for the deductible part of your self-employment taxes. Form 1040 ez   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Form 1040 ez Self-employment loss. Form 1040 ez   If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. Form 1040 ez Alimony and separate maintenance. Form 1040 ez   For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. Form 1040 ez Nontaxable combat pay. Form 1040 ez   If you were a member of the U. Form 1040 ez S. Form 1040 ez Armed Forces, compensation includes any nontaxable combat pay you received. Form 1040 ez This amount should be reported in box 12 of your 2013 Form W-2 with code Q. Form 1040 ez Table 1-1. Form 1040 ez Compensation for Purposes of an IRA Includes . Form 1040 ez . Form 1040 ez . Form 1040 ez Does not include . Form 1040 ez . Form 1040 ez . Form 1040 ez   earnings and profits from property. Form 1040 ez wages, salaries, etc. Form 1040 ez     interest and dividend income. Form 1040 ez commissions. Form 1040 ez     pension or annuity income. Form 1040 ez self-employment income. Form 1040 ez     deferred compensation. Form 1040 ez alimony and separate maintenance. Form 1040 ez     income from certain  partnerships. Form 1040 ez nontaxable combat pay. Form 1040 ez     any amounts you exclude from income. Form 1040 ez     What Is Not Compensation? Compensation does not include any of the following items. Form 1040 ez Earnings and profits from property, such as rental income, interest income, and dividend income. Form 1040 ez Pension or annuity income. Form 1040 ez Deferred compensation received (compensation payments postponed from a past year). Form 1040 ez Income from a partnership for which you do not provide services that are a material income-producing factor. Form 1040 ez Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Form 1040 ez Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Form 1040 ez When Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Form 1040 ez However, the time for making contributions for any year is limited. Form 1040 ez See When Can Contributions Be Made , later. Form 1040 ez How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of organizations. Form 1040 ez You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Form 1040 ez You can also open an IRA through your stockbroker. Form 1040 ez Any IRA must meet Internal Revenue Code requirements. Form 1040 ez The requirements for the various arrangements are discussed below. Form 1040 ez Kinds of traditional IRAs. Form 1040 ez   Your traditional IRA can be an individual retirement account or annuity. Form 1040 ez It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Form 1040 ez Individual Retirement Account An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. Form 1040 ez The account is created by a written document. Form 1040 ez The document must show that the account meets all of the following requirements. Form 1040 ez The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. Form 1040 ez The trustee or custodian generally cannot accept contributions of more than the deductible amount for the year. Form 1040 ez However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount. Form 1040 ez Contributions, except for rollover contributions, must be in cash. Form 1040 ez See Rollovers , later. Form 1040 ez You must have a nonforfeitable right to the amount at all times. Form 1040 ez Money in your account cannot be used to buy a life insurance policy. Form 1040 ez Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund. Form 1040 ez You must start receiving distributions by April 1 of the year following the year in which you reach age 70½. Form 1040 ez See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Form 1040 ez Individual Retirement Annuity You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. Form 1040 ez An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments. Form 1040 ez An individual retirement annuity must meet all the following requirements. Form 1040 ez Your entire interest in the contract must be nonforfeitable. Form 1040 ez The contract must provide that you cannot transfer any portion of it to any person other than the issuer. Form 1040 ez There must be flexible premiums so that if your compensation changes, your payment can also change. Form 1040 ez This provision applies to contracts issued after November 6, 1978. Form 1040 ez The contract must provide that contributions cannot be more than the deductible amount for an IRA for the year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits before the end of the calendar year after the year in which you receive the refund. Form 1040 ez Distributions must begin by April 1 of the year following the year in which you reach age 70½. Form 1040 ez See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Form 1040 ez Individual Retirement Bonds The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. Form 1040 ez The bonds have the following features. Form 1040 ez They stop earning interest when you reach age 70½. Form 1040 ez If you die, interest will stop 5 years after your death, or on the date you would have reached age 70½, whichever is earlier. Form 1040 ez You cannot transfer the bonds. Form 1040 ez If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. Form 1040 ez See Age 59½ Rule under Early Distributions, later. Form 1040 ez You can roll over redemption proceeds into IRAs. Form 1040 ez Simplified Employee Pension (SEP) A simplified employee pension (SEP) is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. Form 1040 ez Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. Form 1040 ez See Publication 560 for more information about SEPs. Form 1040 ez Employer and Employee Association Trust Accounts Your employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members. Form 1040 ez The requirements for individual retirement accounts apply to these traditional IRAs. Form 1040 ez Required Disclosures The trustee or issuer (sometimes called the sponsor) of your traditional IRA generally must give you a disclosure statement at least 7 days before you open your IRA. Form 1040 ez However, the sponsor does not have to give you the statement until the date you open (or purchase, if earlier) your IRA, provided you are given at least 7 days from that date to revoke the IRA. Form 1040 ez The disclosure statement must explain certain items in plain language. Form 1040 ez For example, the statement should explain when and how you can revoke the IRA, and include the name, address, and telephone number of the person to receive the notice of cancellation. Form 1040 ez This explanation must appear at the beginning of the disclosure statement. Form 1040 ez If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. Form 1040 ez The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a trustee-to-trustee transfer) and the amount returned to you. Form 1040 ez These requirements apply to all sponsors. Form 1040 ez How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Form 1040 ez These limits and rules are explained below. Form 1040 ez Community property laws. Form 1040 ez   Except as discussed later under Kay Bailey Hutchison Spousal IRA Limit , each spouse figures his or her limit separately, using his or her own compensation. Form 1040 ez This is the rule even in states with community property laws. Form 1040 ez Brokers' commissions. Form 1040 ez   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Form 1040 ez For information about whether you can deduct brokers' commissions, see Brokers' commissions , later, under How Much Can You Deduct. Form 1040 ez Trustees' fees. Form 1040 ez   Trustees' administrative fees are not subject to the contribution limit. Form 1040 ez For information about whether you can deduct trustees' fees, see Trustees' fees , later, under How Much Can You Deduct. Form 1040 ez Qualified reservist repayments. Form 1040 ez   If you were a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined later under Early Distributions) you received. Form 1040 ez You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Form 1040 ez To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or a similar arrangement. Form 1040 ez Limit. Form 1040 ez   Your qualified reservist repayments cannot be more than your qualified reservist distributions, explained under Early Distributions , later. Form 1040 ez When repayment contributions can be made. Form 1040 ez   You cannot make these repayment contributions later than the date that is 2 years after your active duty period ends. Form 1040 ez No deduction. Form 1040 ez   You cannot deduct qualified reservist repayments. Form 1040 ez Reserve component. Form 1040 ez   The term “reserve component” means the: Army National Guard of the United States, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National Guard of the United States, Air Force Reserve, Coast Guard Reserve, or Reserve Corps of the Public Health Service. Form 1040 ez Figuring your IRA deduction. Form 1040 ez   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. Form 1040 ez Reporting the repayment. Form 1040 ez   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. Form 1040 ez Example. Form 1040 ez   In 2013, your IRA contribution limit is $5,500. Form 1040 ez However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. Form 1040 ez You can make a nondeductible contribution of $2,000 ($5,500 - $3,500). Form 1040 ez In an earlier year you received a $3,000 qualified reservist distribution, which you would like to repay this year. Form 1040 ez   For 2013, you can contribute a total of $8,500 to your IRA. Form 1040 ez This is made up of the maximum deductible contribution of $3,500; a nondeductible contribution of $2,000; and a $3,000 qualified reservist repayment. Form 1040 ez You contribute the maximum allowable for the year. Form 1040 ez Since you are making a nondeductible contribution ($2,000) and a qualified reservist repayment ($3,000), you must file Form 8606 with your return and include $5,000 ($2,000 + $3,000) on line 1 of Form 8606. Form 1040 ez The qualified reservist repayment is not deductible. Form 1040 ez Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Form 1040 ez See chapter 2 for information about Roth IRAs. Form 1040 ez General Limit For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation (defined earlier) for the year. Form 1040 ez Note. Form 1040 ez This limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). Form 1040 ez This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Form 1040 ez (See Nondeductible Contributions , later. Form 1040 ez ) Qualified reservist repayments do not affect this limit. Form 1040 ez Examples. Form 1040 ez George, who is 34 years old and single, earns $24,000 in 2013. Form 1040 ez His IRA contributions for 2013 are limited to $5,500. Form 1040 ez Danny, an unmarried college student working part time, earns $3,500 in 2013. Form 1040 ez His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Form 1040 ez More than one IRA. Form 1040 ez   If you have more than one IRA, the limit applies to the total contributions made on your behalf to all your traditional IRAs for the year. Form 1040 ez Annuity or endowment contracts. Form 1040 ez   If you invest in an annuity or endowment contract under an individual retirement annuity, no more than $5,500 ($6,500 if you are age 50 or older) can be contributed toward its cost for the tax year, including the cost of life insurance coverage. Form 1040 ez If more than this amount is contributed, the annuity or endowment contract is disqualified. Form 1040 ez Kay Bailey Hutchison Spousal IRA Limit For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts: $5,500 ($6,500 if you are age 50 or older), or The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Form 1040 ez Your spouse's IRA contribution for the year to a traditional IRA. Form 1040 ez Any contributions for the year to a Roth IRA on behalf of your spouse. Form 1040 ez This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is age 50 or older or $13,000 if both of you are age 50 or older). Form 1040 ez Note. Form 1040 ez This traditional IRA limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). Form 1040 ez Example. Form 1040 ez Kristin, a full-time student with no taxable compensation, marries Carl during the year. Form 1040 ez Neither of them was age 50 by the end of 2013. Form 1040 ez For the year, Carl has taxable compensation of $30,000. Form 1040 ez He plans to contribute (and deduct) $5,500 to a traditional IRA. Form 1040 ez If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. Form 1040 ez This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution ($30,000 − $5,500 = $24,500), to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. Form 1040 ez In her case, $5,500 is her contribution limit, because $5,500 is less than $24,500 (her compensation for purposes of figuring her contribution limit). Form 1040 ez Filing Status Generally, except as discussed earlier under Kay Bailey Hutchison Spousal IRA Limit , your filing status has no effect on the amount of allowable contributions to your traditional IRA. Form 1040 ez However, if during the year either you or your spouse was covered by a retirement plan at work, your deduction may be reduced or eliminated, depending on your filing status and income. Form 1040 ez See How Much Can You Deduct , later. Form 1040 ez Example. Form 1040 ez Tom and Darcy are married and both are 53. Form 1040 ez They both work and each has a traditional IRA. Form 1040 ez Tom earned $3,800 and Darcy earned $48,000 in 2013. Form 1040 ez Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though Tom earned less than $6,500, they can contribute up to $6,500 to his IRA for 2013 if they file a joint return. Form 1040 ez They can contribute up to $6,500 to Darcy's IRA. Form 1040 ez If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. Form 1040 ez Less Than Maximum Contributions If contributions to your traditional IRA for a year were less than the limit, you cannot contribute more after the due date of your return for that year to make up the difference. Form 1040 ez Example. Form 1040 ez Rafael, who is 40, earns $30,000 in 2013. Form 1040 ez Although he can contribute up to $5,500 for 2013, he contributes only $3,000. Form 1040 ez After April 15, 2014, Rafael cannot make up the difference between his actual contributions for 2013 ($3,000) and his 2013 limit ($5,500). Form 1040 ez He cannot contribute $2,500 more than the limit for any later year. Form 1040 ez More Than Maximum Contributions If contributions to your IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. Form 1040 ez However, a penalty or additional tax may apply. Form 1040 ez See Excess Contributions , later, under What Acts Result in Penalties or Additional Taxes. Form 1040 ez When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Form 1040 ez Contributions must be in the form of money (cash, check, or money order). Form 1040 ez Property cannot be contributed. Form 1040 ez Although property cannot be contributed, your IRA may invest in certain property. Form 1040 ez For example, your IRA may purchase shares of stock. Form 1040 ez For other restrictions on the use of funds in your IRA, see Prohibited Transactions , later in this chapter. Form 1040 ez You may be able to transfer or roll over certain property from one retirement plan to another. Form 1040 ez See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets . Form 1040 ez You can make a contribution to your IRA by having your income tax refund (or a portion of your refund), if any, paid directly to your traditional IRA, Roth IRA, or SEP IRA. Form 1040 ez For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases). Form 1040 ez Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. Form 1040 ez For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation. Form 1040 ez See Who Can Open a Traditional IRA , earlier. Form 1040 ez Even if contributions cannot be made for the current year, the amounts contributed for years in which you did qualify can remain in your IRA. Form 1040 ez Contributions can resume for any years that you qualify. Form 1040 ez Contributions must be made by due date. Form 1040 ez   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Form 1040 ez For most people, this means that contributions for 2013 must be made by April 15, 2014, and contributions for 2014 must be made by April 15, 2015. Form 1040 ez Age 70½ rule. Form 1040 ez   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Form 1040 ez   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Form 1040 ez If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Form 1040 ez Designating year for which contribution is made. Form 1040 ez   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Form 1040 ez If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Form 1040 ez Filing before a contribution is made. Form 1040 ez    You can file your return claiming a traditional IRA contribution before the contribution is actually made. Form 1040 ez Generally, the contribution must be made by the due date of your return, not including extensions. Form 1040 ez Contributions not required. Form 1040 ez   You do not have to contribute to your traditional IRA for every tax year, even if you can. Form 1040 ez How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if applicable) explained earlier under How Much Can Be Contributed . Form 1040 ez However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Form 1040 ez See Limit if Covered by Employer Plan , later. Form 1040 ez You may be able to claim a credit for contributions to your traditional IRA. Form 1040 ez For more information, see chapter 4. Form 1040 ez Trustees' fees. Form 1040 ez   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Form 1040 ez However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Form 1040 ez For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions. Form 1040 ez Brokers' commissions. Form 1040 ez   These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Form 1040 ez Full deduction. Form 1040 ez   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older), or 100% of your compensation. Form 1040 ez   This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Form 1040 ez Kay Bailey Hutchison Spousal IRA. Form 1040 ez   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of: $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older), or The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Form 1040 ez The IRA deduction for the year of the spouse with the greater compensation. Form 1040 ez Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Form 1040 ez Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Form 1040 ez   This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. Form 1040 ez Note. Form 1040 ez If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Form 1040 ez After a divorce or legal separation, you can deduct only the contributions to your own IRA. Form 1040 ez Your deductions are subject to the rules for single individuals. Form 1040 ez Covered by an employer retirement plan. Form 1040 ez   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Form 1040 ez This is discussed later under Limit if Covered by Employer Plan . Form 1040 ez Limits on the amount you can deduct do not affect the amount that can be contributed. Form 1040 ez Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Form 1040 ez The “Retirement Plan” box should be checked if you were covered. Form 1040 ez Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered , later. Form 1040 ez If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Form 1040 ez Federal judges. Form 1040 ez   For purposes of the IRA deduction, federal judges are covered by an employer plan. Form 1040 ez For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. Form 1040 ez These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Form 1040 ez Tax year. Form 1040 ez   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Form 1040 ez For almost all people, the tax year is the calendar year. Form 1040 ez Defined contribution plan. Form 1040 ez   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Form 1040 ez However, also see Situations in Which You Are Not Covered , later. Form 1040 ez   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Form 1040 ez In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. Form 1040 ez The level of benefits actually provided to a participant depends on the total amount contributed to that participant's account and any earnings and losses on those contributions. Form 1040 ez Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Form 1040 ez Example. Form 1040 ez Company A has a money purchase pension plan. Form 1040 ez Its plan year is from July 1 to June 30. Form 1040 ez The plan provides that contributions must be allocated as of June 30. Form 1040 ez Bob, an employee, leaves Company A on December 31, 2012. Form 1040 ez The contribution for the plan year ending on June 30, 2013, is made February 15, 2014. Form 1040 ez Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2013 tax year. Form 1040 ez   A special rule applies to certain plans in which it is not possible to determine if an amount will be contributed to your account for a given plan year. Form 1040 ez If, for a plan year, no amounts have been allocated to your account that are attributable to employer contributions, employee contributions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you are not covered for the tax year in which the plan year ends. Form 1040 ez If, after the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. Form 1040 ez Example. Form 1040 ez Mickey was covered by a profit-sharing plan and left the company on December 31, 2012. Form 1040 ez The plan year runs from July 1 to June 30. Form 1040 ez Under the terms of the plan, employer contributions do not have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. Form 1040 ez Such contributions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. Form 1040 ez As of June 30, 2013, no contributions were made that were allocated to the June 30, 2013, plan year, and no forfeitures had been allocated within the plan year. Form 1040 ez In addition, as of that date, the company was not obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. Form 1040 ez On December 31, 2013, the company decided to contribute to the plan for the plan year ending June 30, 2013. Form 1040 ez That contribution was made on February 15, 2014. Form 1040 ez Mickey is an active participant in the plan for his 2014 tax year but not for his 2013 tax year. Form 1040 ez No vested interest. Form 1040 ez   If an amount is allocated to your account for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the account. Form 1040 ez Defined benefit plan. Form 1040 ez   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Form 1040 ez This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Form 1040 ez   A defined benefit plan is any plan that is not a defined contribution plan. Form 1040 ez In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. Form 1040 ez The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. Form 1040 ez Defined benefit plans include pension plans and annuity plans. Form 1040 ez Example. Form 1040 ez Nick, an employee of Company B, is eligible to participate in Company B's defined benefit plan, which has a July 1 to June 30 plan year. Form 1040 ez Nick leaves Company B on December 31, 2012. Form 1040 ez Because Nick is eligible to participate in the plan for its year ending June 30, 2013, he is covered by the plan for his 2013 tax year. Form 1040 ez No vested interest. Form 1040 ez   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Form 1040 ez Situations in Which You Are Not Covered Unless you are covered by another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Form 1040 ez Social security or railroad retirement. Form 1040 ez   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Form 1040 ez Benefits from previous employer's plan. Form 1040 ez   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Form 1040 ez Reservists. Form 1040 ez   If the only reason you participate in a plan is because you are a member of a reserve unit of the Armed Forces, you may not be covered by the plan. Form 1040 ez You are not covered by the plan if both of the following conditions are met. Form 1040 ez The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Form 1040 ez You did not serve more than 90 days on active duty during the year (not counting duty for training). Form 1040 ez Volunteer firefighters. Form 1040 ez   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Form 1040 ez You are not covered by the plan if both of the following conditions are met. Form 1040 ez The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Form 1040 ez Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Form 1040 ez Limit if Covered by Employer Plan As discussed earlier, the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year by an employer retirement plan. Form 1040 ez Your deduction is also affected by how much income you had and by your filing status. Form 1040 ez Your deduction may also be affected by social security benefits you received. Form 1040 ez Reduced or no deduction. Form 1040 ez   If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Form 1040 ez   Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Form 1040 ez These amounts vary depending on your filing status. Form 1040 ez   To determine if your deduction is subject to the phaseout, you must determine your modified adjusted gross income (AGI) and your filing status, as explained later under Deduction Phaseout . Form 1040 ez Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies. Form 1040 ez Social Security Recipients Instead of using Table 1-2 or Table 1-3 and Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, later, complete the worksheets in Appendix B of this publication if, for the year, all of the following apply. Form 1040 ez You received social security benefits. Form 1040 ez You received taxable compensation. Form 1040 ez Contributions were made to your traditional IRA. Form 1040 ez You or your spouse was covered by an employer retirement plan. Form 1040 ez Use the worksheets in Appendix B to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Form 1040 ez Appendix B includes an example with filled-in worksheets to assist you. Form 1040 ez Table 1-2. Form 1040 ez Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Form 1040 ez IF your filing status is . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your modified adjusted gross income (modified AGI) is . Form 1040 ez . Form 1040 ez . Form 1040 ez THEN you can take . Form 1040 ez . Form 1040 ez . Form 1040 ez single or head of household $59,000 or less a full deduction. Form 1040 ez more than $59,000 but less than $69,000 a partial deduction. Form 1040 ez $69,000 or more no deduction. Form 1040 ez married filing jointly or  qualifying widow(er) $95,000 or less a full deduction. Form 1040 ez more than $95,000 but less than $115,000 a partial deduction. Form 1040 ez $115,000 or more no deduction. Form 1040 ez married filing separately2 less than $10,000 a partial deduction. Form 1040 ez $10,000 or more no deduction. Form 1040 ez 1 Modified AGI (adjusted gross income). Form 1040 ez See Modified adjusted gross income (AGI) , later. Form 1040 ez  2 If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status). Form 1040 ez Table 1-3. Form 1040 ez Effect of Modified AGI1 on Deduction if You Are NOT Covered by a Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Form 1040 ez IF your filing status is . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your modified adjusted gross income (modified AGI) is . Form 1040 ez . Form 1040 ez . Form 1040 ez THEN you can take . Form 1040 ez . Form 1040 ez . Form 1040 ez single, head of household, or qualifying widow(er) any amount a full deduction. Form 1040 ez married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction. Form 1040 ez married filing jointly with a spouse who is covered by a plan at work $178,000 or less a full deduction. Form 1040 ez more than $178,000 but less than $188,000 a partial deduction. Form 1040 ez $188,000 or more no deduction. Form 1040 ez married filing separately with a spouse who is covered by a plan at work2 less than $10,000 a partial deduction. Form 1040 ez $10,000 or more no deduction. Form 1040 ez 1 Modified AGI (adjusted gross income). Form 1040 ez See Modified adjusted gross income (AGI) , later. Form 1040 ez  2 You are entitled to the full deduction if you did not live with your spouse at any time during the year. Form 1040 ez For 2014, if you are not covered by a retirement plan at work and you are married filing jointly with a spouse who is covered by a plan at work, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. Form 1040 ez If your AGI is $191,000 or more, you cannot take a deduction for a contribution to a traditional IRA. Form 1040 ez Deduction Phaseout The amount of any reduction in the limit on your IRA deduction (phaseout) depends on whether you or your spouse was covered by an employer retirement plan. Form 1040 ez Covered by a retirement plan. Form 1040 ez   If you are covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI, as shown in Table 1-2. Form 1040 ez For 2014, if you are covered by a retirement plan at work, your IRA deduction will not be reduced (phased out) unless your modified AGI is: More than $60,000 but less than $70,000 for a single individual (or head of household), More than $96,000 but less than $116,000 for a married couple filing a joint return (or a qualifying widow(er)), or Less than $10,000 for a married individual filing a separate return. Form 1040 ez If your spouse is covered. Form 1040 ez   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 1-3. Form 1040 ez Filing status. Form 1040 ez   Your filing status depends primarily on your marital status. Form 1040 ez For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Form 1040 ez If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Form 1040 ez Lived apart from spouse. Form 1040 ez   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Form 1040 ez Modified adjusted gross income (AGI). Form 1040 ez   You can use Worksheet 1-1 to figure your modified AGI. Form 1040 ez If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Both contributions for 2013 and distributions in 2013 , later. Form 1040 ez    Do not assume that your modified AGI is the same as your compensation. Form 1040 ez Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. Form 1040 ez Form 1040. Form 1040 ez   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Form 1040 ez IRA deduction. Form 1040 ez Student loan interest deduction. Form 1040 ez Tuition and fees deduction. Form 1040 ez Domestic production activities deduction. Form 1040 ez Foreign earned income exclusion. Form 1040 ez Foreign housing exclusion or deduction. Form 1040 ez Exclusion of qualified savings bond interest shown on Form 8815. Form 1040 ez Exclusion of employer-provided adoption benefits shown on Form 8839. Form 1040 ez This is your modified AGI. Form 1040 ez Form 1040A. Form 1040 ez   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Form 1040 ez IRA deduction. Form 1040 ez Student loan interest deduction. Form 1040 ez Tuition and fees deduction. Form 1040 ez Exclusion of qualified savings bond interest shown on Form 8815. Form 1040 ez This is your modified AGI. Form 1040 ez Form 1040NR. Form 1040 ez   If you file Form 1040NR, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Form 1040 ez IRA deduction. Form 1040 ez Student loan interest deduction. Form 1040 ez Domestic production activities deduction. Form 1040 ez Exclusion of qualified savings bond interest shown on Form 8815. Form 1040 ez Exclusion of employer-provided adoption benefits shown on Form 8839. Form 1040 ez This is your modified AGI. Form 1040 ez Income from IRA distributions. Form 1040 ez   If you received distributions in 2013 from one or more traditional IRAs and your traditional IRAs include only deductible contributions, the distributions are fully taxable and are included in your modified AGI. Form 1040 ez Both contributions for 2013 and distributions in 2013. Form 1040 ez   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Form 1040 ez You received distributions in 2013 from one or more traditional IRAs, You made contributions to a traditional IRA for 2013, and Some of those contributions may be nondeductible contributions. Form 1040 ez (See Nondeductible Contributions and Worksheet 1-2, later. Form 1040 ez ) If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Form 1040 ez To do this, you can use Worksheet 1-5, later. Form 1040 ez   If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later. Form 1040 ez How To Figure Your Reduced IRA Deduction If you or your spouse is covered by an employer retirement plan and you did not receive any social security benefits, you can figure your reduced IRA deduction by using Worksheet 1-2. Form 1040 ez Figuring Your Reduced IRA Deduction for 2013. Form 1040 ez The Instructions for Form 1040, Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication. Form 1040 ez If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients , earlier. Form 1040 ez Note. Form 1040 ez If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Form 1040 ez Worksheet 1-1. Form 1040 ez Figuring Your Modified AGI Use this worksheet to figure your modified AGI for traditional IRA purposes. Form 1040 ez 1. Form 1040 ez Enter your adjusted gross income (AGI) from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37, figured without taking into account the amount from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 1. Form 1040 ez   2. Form 1040 ez Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 2. Form 1040 ez   3. Form 1040 ez Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Form 1040 ez   4. Form 1040 ez Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 4. Form 1040 ez   5. Form 1040 ez Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Form 1040 ez   6. Form 1040 ez Enter any foreign housing deduction from Form 2555, line 50 6. Form 1040 ez   7. Form 1040 ez Enter any excludable savings bond interest from Form 8815, line 14 7. Form 1040 ez   8. Form 1040 ez Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Form 1040 ez   9. Form 1040 ez Add lines 1 through 8. Form 1040 ez This is your Modified AGI for traditional IRA purposes 9. Form 1040 ez   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Form 1040 ez If you file Form 1040A, enter your IRA deduction on line 17 of that form. Form 1040 ez If you file Form 1040NR, enter your IRA deduction on line 32 of that form. Form 1040 ez You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ. Form 1040 ez Self-employed. Form 1040 ez   If you are self-employed (a sole proprietor or partner) and have a SIMPLE IRA, enter your deduction for allowable plan contributions on Form 1040, line 28. Form 1040 ez If you file Form 1040NR, enter your deduction on line 28 of that form. Form 1040 ez Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Form 1040 ez The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Form 1040 ez Example. Form 1040 ez Tony is 29 years old and single. Form 1040 ez In 2013, he was covered by a retirement plan at work. Form 1040 ez His salary is $62,000. Form 1040 ez His modified AGI is $70,000. Form 1040 ez Tony makes a $5,500 IRA contribution for 2013. Form 1040 ez Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. Form 1040 ez He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. Form 1040 ez Repayment of reservist distributions. Form 1040 ez   Nondeductible contributions may include repayments of qualified reservist distributions. Form 1040 ez For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier. Form 1040 ez Form 8606. Form 1040 ez   To designate contributions as nondeductible, you must file Form 8606. Form 1040 ez (See the filled-in Forms 8606 in this chapter. Form 1040 ez )   You do not have to designate a contribution as nondeductible until you file your tax return. Form 1040 ez When you file, you can even designate otherwise deductible contributions as nondeductible contributions. Form 1040 ez   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Form 1040 ez    A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Form 1040 ez In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Form 1040 ez See Form 8606 under Distributions Fully or Partly Taxable, later. Form 1040 ez Failure to report nondeductible contributions. Form 1040 ez   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. Form 1040 ez All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Form 1040 ez Penalty for overstatement. Form 1040 ez   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Form 1040 ez Penalty for failure to file Form 8606. Form 1040 ez   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Form 1040 ez Tax on earnings on nondeductible contributions. Form 1040 ez   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Form 1040 ez Cost basis. Form 1040 ez   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Form 1040 ez Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Form 1040 ez    Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. Form 1040 ez See Are Distributions Taxable, later, for more information. Form 1040 ez Recordkeeping. Form 1040 ez There is a recordkeeping worksheet, Appendix A. Form 1040 ez Summary Record of Traditional IRA(s) for 2013 , that you can use to keep a record of deductible and nondeductible IRA contributions. Form 1040 ez Examples — Worksheet for Reduced IRA Deduction for 2013 The following examples illustrate the use of Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013. Form 1040 ez Example 1. Form 1040 ez For 2013, Tom and Betty file a joint return on Form 1040. Form 1040 ez They are both 39 years old. Form 1040 ez They are both employed and Tom is covered by his employer's retirement plan. Form 1040 ez Tom's salary is $59,000 and Betty's is $32,555. Form 1040 ez They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. Form 1040 ez Because their modified AGI is between $95,000 and $115,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . Form 1040 ez For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. Form 1040 ez Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them. Form 1040 ez Tom can take a deduction of only $5,080. Form 1040 ez He can choose to treat the $5,080 as either deductible or nondeductible contributions. Form 1040 ez He can either leave the $420 ($5,500 − $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Form 1040 ez He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA. Form 1040 ez Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. Form 1040 ez Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated. Form 1040 ez Betty figures her IRA deduction as follows. Form 1040 ez Betty can treat all or part of her contributions as either deductible or nondeductible. Form 1040 ez This is because her $5,500 contribution for 2013 is not subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . Form 1040 ez She does not need to use Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, because their modified AGI is not within the phaseout range that applies. Form 1040 ez Betty decides to treat her $5,500 IRA contributions as deductible. Form 1040 ez The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580. Form 1040 ez Example 2. Form 1040 ez For 2013, Ed and Sue file a joint return on Form 1040. Form 1040 ez They are both 39 years old. Form 1040 ez Ed is covered by his employer's retirement plan. Form 1040 ez Ed's salary is $45,000. Form 1040 ez Sue had no compensation for the year and did not contribute to an IRA. Form 1040 ez Sue is not covered by an employer plan. Form 1040 ez Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Form 1040 ez Their combined modified AGI, which includes $2,000 interest and dividend income and a large capital gain from the sale of stock, is $180,555. Form 1040 ez Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. Form 1040 ez He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Form 1040 ez Sue figures her IRA deduction as shown on Worksheet 1-2. Form 1040 ez Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated. Form 1040 ez Worksheet 1-2. Form 1040 ez Figuring Your Reduced IRA Deduction for 2013 (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Form 1040 ez ) Note. Form 1040 ez If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Form 1040 ez IF you . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your  filing status is . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your modified AGI is over . Form 1040 ez . Form 1040 ez . Form 1040 ez THEN enter on  line 1 below . Form 1040 ez . Form 1040 ez . Form 1040 ez       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Form 1040 ez Enter applicable amount from table above 1. Form 1040 ez   2. Form 1040 ez Enter your modified AGI (that of both spouses, if married filing jointly) 2. Form 1040 ez     Note. Form 1040 ez If line 2 is equal to or more than the amount on line 1, stop here. Form 1040 ez  Your IRA contributions are not deductible. Form 1040 ez See Nondeductible Contributions , earlier. Form 1040 ez     3. Form 1040 ez Subtract line 2 from line 1. Form 1040 ez If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Form 1040 ez You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Form 1040 ez   4. Form 1040 ez Multiply line 3 by the percentage below that applies to you. Form 1040 ez If the result is not a multiple of $10, round it to the next highest multiple of $10. Form 1040 ez (For example, $611. Form 1040 ez 40 is rounded to $620. Form 1040 ez ) However, if the result is less than $200, enter $200. Form 1040 ez         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Form 1040 ez 5% (. Form 1040 ez 275) (by 32. Form 1040 ez 5% (. Form 1040 ez 325) if you are age 50 or older). Form 1040 ez All others, multiply line 3 by 55% (. Form 1040 ez 55) (by 65% (. Form 1040 ez 65) if you are age 50 or older). Form 1040 ez 4. Form 1040 ez   5. Form 1040 ez Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Form 1040 ez If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Form 1040 ez If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Form 1040 ez   6. Form 1040 ez Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Form 1040 ez If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Form 1040 ez 6. Form 1040 ez   7. Form 1040 ez IRA deduction. Form 1040 ez Compare lines 4, 5, and 6. Form 1040 ez Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Form 1040 ez If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Form 1040 ez   8. Form 1040 ez Nondeductible contribution. Form 1040 ez Subtract line 7 from line 5 or 6, whichever is smaller. Form 1040 ez  Enter the result here and on line 1 of your Form 8606 8. Form 1040 ez   Worksheet 1-2. Form 1040 ez Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Form 1040 ez ) Note. Form 1040 ez If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Form 1040 ez IF you . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your  filing status is . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your modified AGI is over . Form 1040 ez . Form 1040 ez . Form 1040 ez THEN enter on  line 1 below . Form 1040 ez . Form 1040 ez . Form 1040 ez       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Form 1040 ez Enter applicable amount from table above 1. Form 1040 ez 115,000 2. Form 1040 ez Enter your modified AGI (that of both spouses, if married filing jointly) 2. Form 1040 ez 96,555   Note. Form 1040 ez If line 2 is equal to or more than the amount on line 1, stop here. Form 1040 ez  Your IRA contributions are not deductible. Form 1040 ez See Nondeductible Contributions , earlier. Form 1040 ez     3. Form 1040 ez Subtract line 2 from line 1. Form 1040 ez If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Form 1040 ez You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Form 1040 ez 18,445 4. Form 1040 ez Multiply line 3 by the percentage below that applies to you. Form 1040 ez If the result is not a multiple of $10, round it to the next highest multiple of $10. Form 1040 ez (For example, $611. Form 1040 ez 40 is rounded to $620. Form 1040 ez ) However, if the result is less than $200, enter $200. Form 1040 ez         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Form 1040 ez 5% (. Form 1040 ez 275) (by 32. Form 1040 ez 5% (. Form 1040 ez 325) if you are age 50 or older). Form 1040 ez All others, multiply line 3 by 55% (. Form 1040 ez 55) (by 65% (. Form 1040 ez 65) if you are age 50 or older). Form 1040 ez 4. Form 1040 ez 5,080 5. Form 1040 ez Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Form 1040 ez If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Form 1040 ez If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Form 1040 ez 59,000 6. Form 1040 ez Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Form 1040 ez If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Form 1040 ez 6. Form 1040 ez 5,500 7. Form 1040 ez IRA deduction. Form 1040 ez Compare lines 4, 5, and 6. Form 1040 ez Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Form 1040 ez If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Form 1040 ez 5,080 8. Form 1040 ez Nondeductible contribution. Form 1040 ez Subtract line 7 from line 5 or 6, whichever is smaller. Form 1040 ez  Enter the result here and on line 1 of your Form 8606 8. Form 1040 ez 420 Worksheet 1-2. Form 1040 ez Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Form 1040 ez ) Note. Form 1040 ez If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Form 1040 ez IF you . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your  filing status is . Form 1040 ez . Form 1040 ez . Form 1040 ez AND your modified AGI is over . Form 1040 ez . Form 1040 ez . Form 1040 ez THEN enter on  line 1 below . Form 1040 ez . Form 1040 ez . Form 1040 ez       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Form 1040 ez Enter applicable amount from table above 1. Form 1040 ez 188,000 2. Form 1040 ez Enter your modified AGI (that of both spouses, if married filing jointly) 2. Form 1040 ez 180,555   Note. Form 1040 ez If line 2 is equal to or more than the amount on line 1, stop here. Form 1040 ez  Your IRA contributions are not deductible. Form 1040 ez See Nondeductible Contributions , earlier. Form 1040 ez     3. Form 1040 ez Subtract line 2 from line 1. Form 1040 ez If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Form 1040 ez You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Form 1040 ez 7,445 4. Form 1040 ez Multiply line 3 by the percentage below that applies to you. Form 1040 ez If the result is not a multiple of $10, round it to the next highest multiple of $10. Form 1040 ez (For example, $611. Form 1040 ez 40 is rounded to $620. Form 1040 ez ) However, if the result is less than $200, enter $200. Form 1040 ez         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Form 1040 ez 5% (. Form 1040 ez 275) (by 32. Form 1040 ez 5% (. Form 1040 ez 325) if you are age 50 or older). Form 1040 ez All others, multiply line 3 by 55% (. Form 1040 ez 55) (by 65% (. Form 1040 ez 65) if you are age 50 or older). Form 1040 ez 4. Form 1040 ez 4,100 5. Form 1040 ez Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Form 1040 ez If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Form 1040 ez If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Form 1040 ez 39,500 6. Form 1040 ez Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Form 1040 ez If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Form 1040 ez 6. Form 1040 ez 5,500 7. Form 1040 ez IRA deduction. Form 1040 ez Compare lines 4, 5, and 6. Form 1040 ez Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Form 1040 ez If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Form 1040 ez 4,100 8. Form 1040 ez Nondeductible contribution. Form 1040 ez Subtract line 7 from line 5 or 6, whichever is smaller. Form 1040 ez  Enter the result here and on line 1 of your Form 8606 8. Form 1040 ez 1,400 What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. Form 1040 ez A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Form 1040 ez Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Form 1040 ez Inherited from spouse. Form 1040 ez   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Form 1040 ez You can: Treat it as your own IRA by designating yourself as the account owner. Form 1040 ez Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (s