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H&r Block Free Tax File 2012

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H&r Block Free Tax File 2012

H&r block free tax file 2012 6. H&r block free tax file 2012   Tuition and Fees Deduction Table of Contents IntroductionWhat is the tax benefit of the tuition and fees deduction. H&r block free tax file 2012 Can You Claim the DeductionWho Can Claim the Deduction Who Cannot Claim the Deduction What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Claiming the Deduction Illustrated Example Introduction You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent(s). H&r block free tax file 2012 You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. H&r block free tax file 2012 The qualified expenses must be for higher education, as explained later under Qualified Education Expenses . H&r block free tax file 2012 What is the tax benefit of the tuition and fees deduction. H&r block free tax file 2012   The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. H&r block free tax file 2012   This deduction is taken as an adjustment to income. H&r block free tax file 2012 This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). H&r block free tax file 2012 This deduction may be beneficial to you if you do not qualify for the American opportunity or lifetime learning credits. H&r block free tax file 2012 You can choose the education benefit that will give you the lowest tax. H&r block free tax file 2012 You may want to compare the tuition and fees deduction to the education credits. H&r block free tax file 2012 See chapter 2, American Opportunity Credit and chapter 3, Lifetime Learning Credit for more information on the education credits. H&r block free tax file 2012 Table 6-1. H&r block free tax file 2012 Tuition and Fees Deduction at a Glance summarizes the features of the tuition and fees deduction. H&r block free tax file 2012 Can You Claim the Deduction The following rules will help you determine if you can claim the tuition and fees deduction. H&r block free tax file 2012 Who Can Claim the Deduction Generally, you can claim the tuition and fees deduction if all three of the following requirements are met. H&r block free tax file 2012 You pay qualified education expenses of higher education. H&r block free tax file 2012 You pay the education expenses for an eligible student. H&r block free tax file 2012 The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return. H&r block free tax file 2012 The term “qualified education expenses” is defined later under Qualified Education Expenses . H&r block free tax file 2012 “Eligible student” is defined later under Who Is an Eligible Student . H&r block free tax file 2012 For more information on claiming the deduction for a dependent, see Who Can Claim a Dependent's Expenses , later. H&r block free tax file 2012 Table 6-1. H&r block free tax file 2012 Tuition and Fees Deduction at a Glance Do not rely on this table alone. H&r block free tax file 2012 Refer to the text for complete details. H&r block free tax file 2012 Question Answer What is the maximum benefit? You can reduce your income subject to tax by up to $4,000. H&r block free tax file 2012 What is the limit on modified adjusted gross income (MAGI)? $160,000 if married filing a joint return; $80,000 if single, head of household, or qualifying widow(er). H&r block free tax file 2012 Where is the deduction taken? As an adjustment to income on  Form 1040 or Form 1040A. H&r block free tax file 2012 For whom must the expenses be paid? A student enrolled in an eligible educational institution who is either: •you,  •your spouse, or  •your dependent for whom you claim an exemption. H&r block free tax file 2012 What tuition and fees are deductible? Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board. H&r block free tax file 2012 Who Cannot Claim the Deduction You cannot claim the tuition and fees deduction if any of the following apply. H&r block free tax file 2012 Your filing status is married filing separately. H&r block free tax file 2012 Another person can claim an exemption for you as a dependent on his or her tax return. H&r block free tax file 2012 You cannot take the deduction even if the other person does not actually claim that exemption. H&r block free tax file 2012 Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return). H&r block free tax file 2012 You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. H&r block free tax file 2012 More information on nonresident aliens can be found in Publication 519. H&r block free tax file 2012 What Expenses Qualify The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. H&r block free tax file 2012 Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014. H&r block free tax file 2012 For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 deduction. H&r block free tax file 2012 Academic period. H&r block free tax file 2012   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. H&r block free tax file 2012 In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. H&r block free tax file 2012 Paid with borrowed funds. H&r block free tax file 2012   You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. H&r block free tax file 2012 Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. H&r block free tax file 2012 Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. H&r block free tax file 2012 Student withdraws from class(es). H&r block free tax file 2012   You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws. H&r block free tax file 2012 Qualified Education Expenses For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. H&r block free tax file 2012 Eligible educational institution. H&r block free tax file 2012   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. H&r block free tax file 2012 S. H&r block free tax file 2012 Department of Education. H&r block free tax file 2012 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r block free tax file 2012 The educational institution should be able to tell you if it is an eligible educational institution. H&r block free tax file 2012   Certain educational institutions located outside the United States also participate in the U. H&r block free tax file 2012 S. H&r block free tax file 2012 Department of Education's Federal Student Aid (FSA) programs. H&r block free tax file 2012 Related expenses. H&r block free tax file 2012   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. H&r block free tax file 2012 Prepaid expenses. H&r block free tax file 2012   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. H&r block free tax file 2012 See Academic period , earlier. H&r block free tax file 2012 For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). H&r block free tax file 2012 You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). H&r block free tax file 2012 In the following examples, assume that each student is an eligible student and each college or university an eligible educational institution. H&r block free tax file 2012 Example 1. H&r block free tax file 2012 Jackson is a sophomore in University V's degree program in dentistry. H&r block free tax file 2012 This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. H&r block free tax file 2012 Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified education expense. H&r block free tax file 2012 Example 2. H&r block free tax file 2012 Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. H&r block free tax file 2012 The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. H&r block free tax file 2012 Charles bought his books from a friend, so what he paid for them is not a qualified education expense. H&r block free tax file 2012 Donna bought hers at College W's bookstore. H&r block free tax file 2012 Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. H&r block free tax file 2012 Example 3. H&r block free tax file 2012 When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. H&r block free tax file 2012 This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. H&r block free tax file 2012 No portion of the fee covers personal expenses. H&r block free tax file 2012 Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. H&r block free tax file 2012 Therefore, it is a qualified expense. H&r block free tax file 2012 No Double Benefit Allowed You cannot do any of the following. H&r block free tax file 2012 Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense. H&r block free tax file 2012 Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student in the same year. H&r block free tax file 2012 Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). H&r block free tax file 2012 For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. H&r block free tax file 2012 See Coordination With Tuition and Fees Deduction in chapter 8, Qualified Tuition Program, later. H&r block free tax file 2012 Deduct qualified education expenses that have been paid with tax-free interest on U. H&r block free tax file 2012 S. H&r block free tax file 2012 savings bonds (Form 8815). H&r block free tax file 2012 See Figuring the Tax-Free Amount in chapter 10, Education Savings Bond Program, later. H&r block free tax file 2012 Deduct qualified education expenses that have been paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. H&r block free tax file 2012 See the following section on Adjustments to Qualified Education Expenses. H&r block free tax file 2012 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. H&r block free tax file 2012 The result is the amount of adjusted qualified education expenses for each student. H&r block free tax file 2012 You must also reduce qualified education expenses by the other amounts referred to in No Double Benefit Allowed , earlier. H&r block free tax file 2012 Tax-free educational assistance. H&r block free tax file 2012   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. H&r block free tax file 2012 See Academic period , earlier. H&r block free tax file 2012   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. H&r block free tax file 2012 This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). H&r block free tax file 2012   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. H&r block free tax file 2012 If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. H&r block free tax file 2012   This tax-free education assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. H&r block free tax file 2012 Generally, any scholarship or fellowship is treated as tax free. H&r block free tax file 2012 However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. H&r block free tax file 2012 The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. H&r block free tax file 2012 The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. H&r block free tax file 2012 You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. H&r block free tax file 2012 For details, see Adjustments to Qualified Education Expenses in chapters 2 and 3. H&r block free tax file 2012 Refunds. H&r block free tax file 2012   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. H&r block free tax file 2012 Some tax-free educational assistance received after 2013 may be treated as a refund. H&r block free tax file 2012 See Tax-free educational assistance , earlier. H&r block free tax file 2012 Refunds received in 2013. H&r block free tax file 2012   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. H&r block free tax file 2012 Refunds received after 2013 but before your income tax return is filed. H&r block free tax file 2012   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. H&r block free tax file 2012 Refunds received after 2013 and after your income tax return is filed. H&r block free tax file 2012   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. H&r block free tax file 2012 See Credit recapture , later. H&r block free tax file 2012 Coordination with Coverdell education savings accounts and qualified tuition programs. H&r block free tax file 2012   Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or qualified tuition program (QTP). H&r block free tax file 2012 For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. H&r block free tax file 2012 Credit recapture. H&r block free tax file 2012    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. H&r block free tax file 2012 You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing that amount by the amount of the refund or tax-free educational assistance. H&r block free tax file 2012 You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). H&r block free tax file 2012 Include that amount as an additional tax for the year the refund or tax-free assistance was received. H&r block free tax file 2012 Example. H&r block free tax file 2012   You paid $3,500 of qualified education expenses in December 2013, and your child began college in January 2014. H&r block free tax file 2012 You claimed $3,500 as the tuition and fees deduction on your 2013 income tax return. H&r block free tax file 2012 The reduction reduced your taxable income by $3,500. H&r block free tax file 2012 Also, you claimed no tax credits in 2013. H&r block free tax file 2012 Your child withdrew from two classes and you received a refund of $2,000 in 2014 after you filed your 2013 tax return. H&r block free tax file 2012 Refigure your 2013 tuition and fees deduction using $1,500 of qualified education expense instead of the $3,500. H&r block free tax file 2012 The refigured tuition and fees deduction is $1,500. H&r block free tax file 2012 Do not file an amended 2013 tax return to account for this adjustment. H&r block free tax file 2012 Instead, include the difference of $2,000 (but only to the extent this difference would have increased your 2013 tax) on the “Other income” line of your 2014 Form 1040. H&r block free tax file 2012 You cannot file Form 1040A for 2014. H&r block free tax file 2012 Amounts that do not reduce qualified education expenses. H&r block free tax file 2012   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. H&r block free tax file 2012   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. H&r block free tax file 2012 The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Restrictions. H&r block free tax file 2012 The use of the money is not restricted. H&r block free tax file 2012 Example 1. H&r block free tax file 2012 In 2013, Jackie paid $3,000 for tuition and $5,000 for room and board at University X. H&r block free tax file 2012 The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. H&r block free tax file 2012 To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. H&r block free tax file 2012 The terms of the scholarship state that it can be used to pay any of Jackie's college expenses. H&r block free tax file 2012 University X applies the $2,000 scholarship against Jackie's $8,000 total bill, and Jackie pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. H&r block free tax file 2012 Jackie does not report any portion of the scholarship as income on her tax return. H&r block free tax file 2012 In figuring the tuition and fees deduction, Jackie must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. H&r block free tax file 2012 The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. H&r block free tax file 2012 Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship) in 2013. H&r block free tax file 2012 Example 2. H&r block free tax file 2012 The facts are the same as in Example 1, except that Jackie reports her entire scholarship as income on her tax return. H&r block free tax file 2012 Because Jackie reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. H&r block free tax file 2012 Jackie is treated as having paid $3,000 in qualified education expenses. H&r block free tax file 2012 Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. H&r block free tax file 2012 This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. H&r block free tax file 2012 Sports, games, hobbies, and noncredit courses. H&r block free tax file 2012   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. H&r block free tax file 2012 However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. H&r block free tax file 2012 Comprehensive or bundled fees. H&r block free tax file 2012   Some eligible educational institutions combine all of their fees for an academic period into one amount. H&r block free tax file 2012 If you do not receive, or do not have access to, an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. H&r block free tax file 2012 The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. H&r block free tax file 2012 See Figuring the Deduction , later, for more information about Form 1098-T. H&r block free tax file 2012 Who Is an Eligible Student For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). H&r block free tax file 2012 Who Can Claim a Dependent's Expenses Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must: Have paid the expenses, and Claim an exemption for the student as a dependent. H&r block free tax file 2012 For you to be able to deduct qualified education expenses for your dependent, you must claim an exemption for that individual. H&r block free tax file 2012 You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. H&r block free tax file 2012 IF your dependent is an eligible student and you. H&r block free tax file 2012 . H&r block free tax file 2012 . H&r block free tax file 2012 AND. H&r block free tax file 2012 . H&r block free tax file 2012 . H&r block free tax file 2012 THEN. H&r block free tax file 2012 . H&r block free tax file 2012 . H&r block free tax file 2012 claim an exemption for your dependent you paid all qualified education expenses for your dependent only you can deduct the qualified education expenses that you paid. H&r block free tax file 2012 Your dependent cannot take a deduction. H&r block free tax file 2012 claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. H&r block free tax file 2012 do not claim an exemption for your dependent you paid all qualified education expenses no one is allowed to take a deduction. H&r block free tax file 2012 do not claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. H&r block free tax file 2012 Expenses paid by dependent. H&r block free tax file 2012   If your dependent pays qualified education expenses, no one can take a tuition and fees deduction for those expenses. H&r block free tax file 2012 Neither you nor your dependent can deduct the expenses. H&r block free tax file 2012 For purposes of the tuition and fees deduction, you are not treated as paying any expenses actually paid by a dependent for whom you or anyone other than the dependent can claim an exemption. H&r block free tax file 2012 This rule applies even if you do not claim an exemption for your dependent on your tax return. H&r block free tax file 2012 Expenses paid by you. H&r block free tax file 2012   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring your tuition and fees deduction. H&r block free tax file 2012 Expenses paid under divorce decree. H&r block free tax file 2012   Qualified education expenses paid directly to an eligible educational institution for a student under a court-approved divorce decree are treated as paid by the student. H&r block free tax file 2012 Only the student would be eligible to take a tuition and fees deduction for that payment, and then only if no one else could claim an exemption for the student. H&r block free tax file 2012 Expenses paid by others. H&r block free tax file 2012   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. H&r block free tax file 2012 In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. H&r block free tax file 2012 If you claim, or can claim, an exemption on your tax return for the student, you are not considered to have paid the expenses and you cannot deduct them. H&r block free tax file 2012 If the student is not a dependent, only the student can deduct payments made directly to the institution for his or her expenses. H&r block free tax file 2012 If the student is your dependent, no one can deduct the payments. H&r block free tax file 2012 Example. H&r block free tax file 2012 In 2013, Ms. H&r block free tax file 2012 Baker makes a payment directly to an eligible educational institution for her grandson Dan's qualified education expenses. H&r block free tax file 2012 For purposes of deducting tuition and fees, Dan is treated as receiving the money from his grandmother and, in turn, paying his own qualified education expenses. H&r block free tax file 2012 If an exemption cannot be claimed for Dan on anyone else's tax return, only Dan can claim a tuition and fees deduction for his grandmother's payment. H&r block free tax file 2012 If someone else can claim an exemption for Dan, no one will be allowed a deduction for Ms. H&r block free tax file 2012 Baker's payment. H&r block free tax file 2012 Tuition reduction. H&r block free tax file 2012   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. H&r block free tax file 2012 If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. H&r block free tax file 2012 For more information on tuition reductions, see Qualified Tuition Reduction , in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. H&r block free tax file 2012 Figuring the Deduction The maximum tuition and fees deduction in 2013 is $4,000, $2,000, or $0, depending on the amount of your MAGI. H&r block free tax file 2012 See Effect of the Amount of Your Income on the Amount of Your Deduction , later. H&r block free tax file 2012 Form 1098-T. H&r block free tax file 2012   To help you figure your tuition and fees deduction, the student should receive Form 1098-T (see Appendix A for a completed example of Form 1098-T). H&r block free tax file 2012 Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. H&r block free tax file 2012 An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. H&r block free tax file 2012 However, the amount in boxes 1 and 2 of Form 1098-T might be different than what you paid. H&r block free tax file 2012 When figuring the deduction, use only the amounts you paid in 2013 for qualified education expenses. H&r block free tax file 2012   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. H&r block free tax file 2012    The eligible educational institution may ask for a completed Form W-9S or similar statement to obtain the student's name, address, and taxpayer identification number. H&r block free tax file 2012 Effect of the Amount of Your Income on the Amount of Your Deduction If your MAGI is not more than $65,000 ($130,000 if you are married filing jointly), your maximum tuition and fees deduction is $4,000. H&r block free tax file 2012 If your MAGI is larger than $65,000 ($130,000 if you are married filing jointly), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum deduction is $2,000. H&r block free tax file 2012 No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000 if you are married filing jointly). H&r block free tax file 2012 Modified adjusted gross income (MAGI). H&r block free tax file 2012   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for tuition and fees. H&r block free tax file 2012 However, as discussed below, there may be other modifications. H&r block free tax file 2012 MAGI when using Form 1040A. H&r block free tax file 2012   If you file Form 1040A, your MAGI is the AGI on line 22 of that form, figured without taking into account any amount on line 19 (tuition and fees deduction). H&r block free tax file 2012 MAGI when using Form 1040. H&r block free tax file 2012   If you file Form 1040, your MAGI is the AGI on line 38 of that form, figured without taking into account any amount on line 34 (tuition and fees deduction) or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. H&r block free tax file 2012   Table 6-2 shows how the amount of your MAGI can affect your tuition and fees deduction. H&r block free tax file 2012   You can use Worksheet 6-1. H&r block free tax file 2012 MAGI for the Tuition and Fees Deduction , later, to figure your MAGI. H&r block free tax file 2012 Table 6-2. H&r block free tax file 2012 Effect of MAGI on Maximum Tuition and Fees Deduction IF your filing status is. H&r block free tax file 2012 . H&r block free tax file 2012 . H&r block free tax file 2012 AND your MAGI is. H&r block free tax file 2012 . H&r block free tax file 2012 . H&r block free tax file 2012 THEN your maximum tuition and fees deduction is. H&r block free tax file 2012 . H&r block free tax file 2012 . H&r block free tax file 2012 single,  head of household, or qualifying widow(er) not more than $65,000 $4,000. H&r block free tax file 2012 more than $65,000  but not more than $80,000 $2,000. H&r block free tax file 2012 more than $80,000 $0. H&r block free tax file 2012 married filing joint return not more than $130,000 $4,000. H&r block free tax file 2012 more than $130,000 but not more than $160,000 $2,000. H&r block free tax file 2012 more than $160,000 $0. H&r block free tax file 2012 Claiming the Deduction You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A. H&r block free tax file 2012 Enter the deduction on Form 1040, line 34, or Form 1040A, line 19. H&r block free tax file 2012 A filled-in Form 8917 is shown at the end of this chapter. H&r block free tax file 2012 Illustrated Example Tim Pfister, a single taxpayer, enrolled full-time at a local college to earn a degree in engineering. H&r block free tax file 2012 This is the first year of his postsecondary education. H&r block free tax file 2012 During 2013, he paid $3,600 for his qualified 2013 tuition expense. H&r block free tax file 2012 Both he and the college meet all of the requirements for the tuition and fees deduction. H&r block free tax file 2012 Tim's total income (Form 1040, line 22) and MAGI are $26,000. H&r block free tax file 2012 He figures his deduction of $3,600 as shown on Form 8917, later. H&r block free tax file 2012 Worksheet 6-1. H&r block free tax file 2012 MAGI for the Tuition and Fees Deduction Use this worksheet if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. H&r block free tax file 2012 Before using this worksheet, you must complete Form 1040, lines 7 through 33, and figure any amount to be entered on the dotted line next to line 36. H&r block free tax file 2012 1. H&r block free tax file 2012 Enter the amount from Form 1040, line 22   1. H&r block free tax file 2012         2. H&r block free tax file 2012 Enter the total from Form 1040, lines 23 through 33   2. H&r block free tax file 2012               3. H&r block free tax file 2012 Enter the total of any amounts entered on the dotted line next to Form 1040, line 36   3. H&r block free tax file 2012               4. H&r block free tax file 2012 Add lines 2 and 3   4. H&r block free tax file 2012         5. H&r block free tax file 2012 Subtract line 4 from line 1   5. H&r block free tax file 2012         6. H&r block free tax file 2012 Enter your foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   6. H&r block free tax file 2012         7. H&r block free tax file 2012 Enter your foreign housing deduction (Form 2555, line 50)   7. H&r block free tax file 2012         8. H&r block free tax file 2012 Enter the amount of income from Puerto Rico you are excluding   8. H&r block free tax file 2012         9. H&r block free tax file 2012 Enter the amount of income from American Samoa you are  excluding (Form 4563, line 15)   9. H&r block free tax file 2012         10. H&r block free tax file 2012 Add lines 5 through 9. H&r block free tax file 2012 This is your modified adjusted gross income   10. H&r block free tax file 2012     Note. H&r block free tax file 2012 If the amount on line 10 is more than $80,000 ($160,000 if married filing jointly),  you cannot take the deduction for tuition and fees. H&r block free tax file 2012       This image is too large to be displayed in the current screen. H&r block free tax file 2012 Please click the link to view the image. 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    The H&r Block Free Tax File 2012

    H&r block free tax file 2012 8. H&r block free tax file 2012   Dividends and Other Distributions Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. H&r block free tax file 2012 Reporting tax withheld. H&r block free tax file 2012 Nominees. H&r block free tax file 2012 Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. H&r block free tax file 2012 Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. H&r block free tax file 2012 Alternative minimum tax treatment. H&r block free tax file 2012 How To Report Dividend IncomeInvestment interest deducted. H&r block free tax file 2012 Reminder Foreign-source income. H&r block free tax file 2012  If you are a U. H&r block free tax file 2012 S. H&r block free tax file 2012 citizen with dividend income from sources outside the United States (foreign-source income), you must report that income on your tax return unless it is exempt by U. H&r block free tax file 2012 S. H&r block free tax file 2012 law. H&r block free tax file 2012 This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. H&r block free tax file 2012 Introduction This chapter discusses the tax treatment of: Ordinary dividends, Capital gain distributions, Nondividend distributions, and Other distributions you may receive from a corporation or a mutual fund. H&r block free tax file 2012 This chapter also explains how to report dividend income on your tax return. H&r block free tax file 2012 Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. H&r block free tax file 2012 You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. H&r block free tax file 2012 However, some amounts you receive that are called dividends are actually interest income. H&r block free tax file 2012 (See Dividends that are actually interest under Taxable Interest in chapter 7. H&r block free tax file 2012 ) Most distributions are paid in cash (or check). H&r block free tax file 2012 However, distributions can consist of more stock, stock rights, other property, or services. H&r block free tax file 2012 Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 550 Investment Income and Expenses Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends General Information This section discusses general rules for dividend income. H&r block free tax file 2012 Tax on unearned income of certain children. H&r block free tax file 2012   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. H&r block free tax file 2012 If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. H&r block free tax file 2012 If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. H&r block free tax file 2012    Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. H&r block free tax file 2012 Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. H&r block free tax file 2012   For more information about the tax on unearned income of children and the parents' election, see chapter 31. H&r block free tax file 2012 Beneficiary of an estate or trust. H&r block free tax file 2012    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. H&r block free tax file 2012 You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. H&r block free tax file 2012 , from the fiduciary. H&r block free tax file 2012 Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. H&r block free tax file 2012 Social security number (SSN) or individual taxpayer identification number (ITIN). H&r block free tax file 2012    You must give your SSN or ITIN to any person required by federal tax law to make a return, statement, or other document that relates to you. H&r block free tax file 2012 This includes payers of dividends. H&r block free tax file 2012 If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. H&r block free tax file 2012 For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. H&r block free tax file 2012 Backup withholding. H&r block free tax file 2012   Your dividend income is generally not subject to regular withholding. H&r block free tax file 2012 However, it may be subject to backup withholding to ensure that income tax is collected on the income. H&r block free tax file 2012 Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. H&r block free tax file 2012   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. H&r block free tax file 2012 For more information, see Backup Withholding in chapter 4. H&r block free tax file 2012 Stock certificate in two or more names. H&r block free tax file 2012   If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person's share of any dividends from the stock is determined by local law. H&r block free tax file 2012 Form 1099-DIV. H&r block free tax file 2012   Most corporations and mutual funds use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. H&r block free tax file 2012 Keep this form with your records. H&r block free tax file 2012 You do not have to attach it to your tax return. H&r block free tax file 2012 Dividends not reported on Form 1099-DIV. H&r block free tax file 2012   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. H&r block free tax file 2012 For example, you may receive distributive shares of dividends from partnerships or S corporations. H&r block free tax file 2012 These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. H&r block free tax file 2012 , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. H&r block free tax file 2012 Reporting tax withheld. H&r block free tax file 2012   If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. H&r block free tax file 2012 Nominees. H&r block free tax file 2012   If someone receives distributions as a nominee for you, that person should give you a Form 1099-DIV, which will show distributions received on your behalf. H&r block free tax file 2012 Form 1099-MISC. H&r block free tax file 2012   Certain substitute payments in lieu of dividends or tax-exempt interest received by a broker on your behalf must be reported to you on Form 1099-MISC, Miscellaneous Income, or a similar statement. H&r block free tax file 2012 See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. H&r block free tax file 2012 Incorrect amount shown on a Form 1099. H&r block free tax file 2012   If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. H&r block free tax file 2012 The new Form 1099 you receive will be marked “Corrected. H&r block free tax file 2012 ” Dividends on stock sold. H&r block free tax file 2012   If stock is sold, exchanged, or otherwise disposed of after a dividend is declared but before it is paid, the owner of record (usually the payee shown on the dividend check) must include the dividend in income. H&r block free tax file 2012 Dividends received in January. H&r block free tax file 2012   If a mutual fund (or other regulated investment company) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December, payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. H&r block free tax file 2012 You report the dividend in the year it was declared. H&r block free tax file 2012 Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. H&r block free tax file 2012 They are paid out of earnings and profits and are ordinary income to you. H&r block free tax file 2012 This means they are not capital gains. H&r block free tax file 2012 You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. H&r block free tax file 2012 Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. H&r block free tax file 2012 Qualified Dividends Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. H&r block free tax file 2012 They should be shown in box 1b of the Form 1099-DIV you receive. H&r block free tax file 2012 The maximum rate of tax on qualified dividends is: 0% on any amount that otherwise would be taxed at a 10% or 15% rate. H&r block free tax file 2012 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. H&r block free tax file 2012 6%. H&r block free tax file 2012 20% on any amount that otherwise would be taxed at a 39. H&r block free tax file 2012 6% rate. H&r block free tax file 2012 To qualify for the maximum rate, all of the following requirements must be met. H&r block free tax file 2012 The dividends must have been paid by a U. H&r block free tax file 2012 S. H&r block free tax file 2012 corporation or a qualified foreign corporation. H&r block free tax file 2012 (See Qualified foreign corporation , later. H&r block free tax file 2012 ) The dividends are not of the type listed later under Dividends that are not qualified dividends . H&r block free tax file 2012 You meet the holding period (discussed next). H&r block free tax file 2012 Holding period. H&r block free tax file 2012   You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. H&r block free tax file 2012 The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. H&r block free tax file 2012 Instead, the seller will get the dividend. H&r block free tax file 2012   When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. H&r block free tax file 2012 See the examples later. H&r block free tax file 2012 Exception for preferred stock. H&r block free tax file 2012   In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. H&r block free tax file 2012 If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. H&r block free tax file 2012 Example 1. H&r block free tax file 2012 You bought 5,000 shares of XYZ Corp. H&r block free tax file 2012 common stock on July 9, 2013. H&r block free tax file 2012 XYZ Corp. H&r block free tax file 2012 paid a cash dividend of 10 cents per share. H&r block free tax file 2012 The ex-dividend date was July 16, 2013. H&r block free tax file 2012 Your Form 1099-DIV from XYZ Corp. H&r block free tax file 2012 shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). H&r block free tax file 2012 However, you sold the 5,000 shares on August 12, 2013. H&r block free tax file 2012 You held your shares of XYZ Corp. H&r block free tax file 2012 for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). H&r block free tax file 2012 The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. H&r block free tax file 2012 You have no qualified dividends from XYZ Corp. H&r block free tax file 2012 because you held the XYZ stock for less than 61 days. H&r block free tax file 2012 Example 2. H&r block free tax file 2012 Assume the same facts as in Example 1 except that you bought the stock on July 15, 2013 (the day before the ex-dividend date), and you sold the stock on September 16, 2013. H&r block free tax file 2012 You held the stock for 63 days (from July 16, 2013, through September 16, 2013). H&r block free tax file 2012 The $500 of qualified dividends shown in box 1b of your Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from July 16, 2013, through September 14, 2013). H&r block free tax file 2012 Example 3. H&r block free tax file 2012 You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. H&r block free tax file 2012 ABC Mutual Fund paid a cash dividend of 10 cents a share. H&r block free tax file 2012 The ex-dividend date was July 16, 2013. H&r block free tax file 2012 The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. H&r block free tax file 2012 Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. H&r block free tax file 2012 However, you sold the 10,000 shares on August 12, 2013. H&r block free tax file 2012 You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. H&r block free tax file 2012 Holding period reduced where risk of loss is diminished. H&r block free tax file 2012   When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which you meet any of the following conditions. H&r block free tax file 2012 You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially identical stock or securities. H&r block free tax file 2012 You were grantor (writer) of an option to buy substantially identical stock or securities. H&r block free tax file 2012 Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. H&r block free tax file 2012   For information about how to apply condition (3), see Regulations section 1. H&r block free tax file 2012 246-5. H&r block free tax file 2012 Qualified foreign corporation. H&r block free tax file 2012   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. H&r block free tax file 2012 The corporation is incorporated in a U. H&r block free tax file 2012 S. H&r block free tax file 2012 possession. H&r block free tax file 2012 The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. H&r block free tax file 2012 For a list of those treaties, see Table 8-1. H&r block free tax file 2012 The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. H&r block free tax file 2012 See Readily tradable stock , later. H&r block free tax file 2012 Exception. H&r block free tax file 2012   A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year. H&r block free tax file 2012 Readily tradable stock. H&r block free tax file 2012   Any stock (such as common, ordinary, or preferred) or an American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation , if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. H&r block free tax file 2012 For a list of the exchanges that meet these requirements, see www. H&r block free tax file 2012 sec. H&r block free tax file 2012 gov/divisions/marketreg/mrexchanges. H&r block free tax file 2012 shtml. H&r block free tax file 2012 Dividends that are not qualified dividends. H&r block free tax file 2012   The following dividends are not qualified dividends. H&r block free tax file 2012 They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. H&r block free tax file 2012 Capital gain distributions. H&r block free tax file 2012 Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. H&r block free tax file 2012 S. H&r block free tax file 2012 building and loan associations, U. H&r block free tax file 2012 S. H&r block free tax file 2012 savings and loan associations, federal savings and loan associations, and similar financial institutions. H&r block free tax file 2012 (Report these amounts as interest income. H&r block free tax file 2012 ) Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year. H&r block free tax file 2012 Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation. H&r block free tax file 2012 Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. H&r block free tax file 2012 Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. H&r block free tax file 2012 Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. H&r block free tax file 2012 Table 8-1. H&r block free tax file 2012 Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. H&r block free tax file 2012 Australia Indonesia Romania Austria Ireland Russian Bangladesh Israel Federation Barbados Italy Slovak Belgium Jamaica Republic Bulgaria Japan Slovenia Canada Kazakhstan South Africa China Korea Spain Cyprus Latvia Sri Lanka Czech Lithuania Sweden Republic Luxembourg Switzerland Denmark Malta Thailand Egypt Mexico Trinidad and Estonia Morocco Tobago Finland Netherlands Tunisia France New Zealand Turkey Germany Norway Ukraine Greece Pakistan United Hungary Philippines Kingdom Iceland Poland Venezuela India Portugal     Dividends Used to Buy More Stock The corporation in which you own stock may have a dividend reinvestment plan. H&r block free tax file 2012 This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. H&r block free tax file 2012 Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. H&r block free tax file 2012 If you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as income. H&r block free tax file 2012 If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date. H&r block free tax file 2012 You also must report as dividend income any service charge subtracted from your cash dividends before the dividends are used to buy the additional stock. H&r block free tax file 2012 But you may be able to deduct the service charge. H&r block free tax file 2012 See chapter 28 for more information about deducting expenses of producing income. H&r block free tax file 2012 In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. H&r block free tax file 2012 If you choose to do this, you must report as dividend income the difference between the cash you invest and the fair market value of the stock you buy. H&r block free tax file 2012 When figuring this amount, use the fair market value of the stock on the dividend payment date. H&r block free tax file 2012 Money Market Funds Report amounts you receive from money market funds as dividend income. H&r block free tax file 2012 Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. H&r block free tax file 2012 Capital Gain Distributions Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds (or other regulated investment companies) and real estate investment trusts (REITs). H&r block free tax file 2012 They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. H&r block free tax file 2012 Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. H&r block free tax file 2012 Undistributed capital gains of mutual funds and REITs. H&r block free tax file 2012    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. H&r block free tax file 2012 You must treat your share of these gains as distributions, even though you did not actually receive them. H&r block free tax file 2012 However, they are not included on Form 1099-DIV. H&r block free tax file 2012 Instead, they are reported to you in box 1a of Form 2439. H&r block free tax file 2012   Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. H&r block free tax file 2012   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. H&r block free tax file 2012 You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. H&r block free tax file 2012 Attach Copy B of Form 2439 to your return, and keep Copy C for your records. H&r block free tax file 2012 Basis adjustment. H&r block free tax file 2012   Increase your basis in your mutual fund, or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid. H&r block free tax file 2012 Additional information. H&r block free tax file 2012   For more information on the treatment of distributions from mutual funds, see Publication 550. H&r block free tax file 2012 Nondividend Distributions A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. H&r block free tax file 2012 You should receive a Form 1099-DIV or other statement showing the nondividend distribution. H&r block free tax file 2012 On Form 1099-DIV, a nondividend distribution will be shown in box 3. H&r block free tax file 2012 If you do not receive such a statement, you report the distribution as an ordinary dividend. H&r block free tax file 2012 Basis adjustment. H&r block free tax file 2012   A nondividend distribution reduces the basis of your stock. H&r block free tax file 2012 It is not taxed until your basis in the stock is fully recovered. H&r block free tax file 2012 This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. H&r block free tax file 2012 If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. H&r block free tax file 2012   When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. H&r block free tax file 2012 Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. H&r block free tax file 2012 See Holding Period in chapter 14. H&r block free tax file 2012 Example. H&r block free tax file 2012 You bought stock in 2000 for $100. H&r block free tax file 2012 In 2003, you received a nondividend distribution of $80. H&r block free tax file 2012 You did not include this amount in your income, but you reduced the basis of your stock to $20. H&r block free tax file 2012 You received a nondividend distribution of $30 in 2013. H&r block free tax file 2012 The first $20 of this amount reduced your basis to zero. H&r block free tax file 2012 You report the other $10 as a long-term capital gain for 2013. H&r block free tax file 2012 You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. H&r block free tax file 2012 Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. H&r block free tax file 2012 These distributions are, at least in part, one form of a return of capital. H&r block free tax file 2012 They may be paid in one or more installments. H&r block free tax file 2012 You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. H&r block free tax file 2012 For more information on liquidating distributions, see chapter 1 of Publication 550. H&r block free tax file 2012 Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. H&r block free tax file 2012 Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. H&r block free tax file 2012 Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. H&r block free tax file 2012 Taxable stock dividends and stock rights. H&r block free tax file 2012   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. H&r block free tax file 2012 You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. H&r block free tax file 2012 The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders. H&r block free tax file 2012 The distribution is in convertible preferred stock and has the same result as in (2). H&r block free tax file 2012 The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. H&r block free tax file 2012 The distribution is on preferred stock. H&r block free tax file 2012 (The distribution, however, is not taxable if it is an increase in the conversion ratio of convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise result in reducing the conversion right. H&r block free tax file 2012 )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. H&r block free tax file 2012 If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. H&r block free tax file 2012 Preferred stock redeemable at a premium. H&r block free tax file 2012   If you hold preferred stock having a redemption price higher than its issue price, the difference (the redemption premium) generally is taxable as a constructive distribution of additional stock on the preferred stock. H&r block free tax file 2012 For more information, see chapter 1 of Publication 550. H&r block free tax file 2012 Basis. H&r block free tax file 2012   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. H&r block free tax file 2012 If you receive stock or stock rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550 for information on how to figure their basis. H&r block free tax file 2012 Fractional shares. H&r block free tax file 2012    You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. H&r block free tax file 2012 However, with the approval of the shareholders, the corporation may set up a plan in which fractional shares are not issued but instead are sold, and the cash proceeds are given to the shareholders. H&r block free tax file 2012 Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. H&r block free tax file 2012 Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. H&r block free tax file 2012 Enter your gain or loss, the difference between the cash you receive and the basis of the fractional shares sold, in column (h) of Schedule D (Form 1040) in Part I or Part II, whichever is appropriate. H&r block free tax file 2012    Report these transactions on Form 8949 with the correct box checked. H&r block free tax file 2012   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. H&r block free tax file 2012 Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). H&r block free tax file 2012 Example. H&r block free tax file 2012 You own one share of common stock that you bought on January 3, 2004, for $100. H&r block free tax file 2012 The corporation declared a common stock dividend of 5% on June 29, 2013. H&r block free tax file 2012 The fair market value of the stock at the time the stock dividend was declared was $200. H&r block free tax file 2012 You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. H&r block free tax file 2012 You figure your gain or loss as follows: Fair market value of old stock $200. H&r block free tax file 2012 00 Fair market value of stock dividend (cash received) +10. H&r block free tax file 2012 00 Fair market value of old stock and stock dividend $210. H&r block free tax file 2012 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. H&r block free tax file 2012 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. H&r block free tax file 2012 76 Total $100. H&r block free tax file 2012 00 Cash received $10. H&r block free tax file 2012 00 Basis (cost) of stock dividend − 4. H&r block free tax file 2012 76 Gain $5. H&r block free tax file 2012 24 Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the stock dividend is a long-term capital gain. H&r block free tax file 2012 Scrip dividends. H&r block free tax file 2012   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. H&r block free tax file 2012 The certificate is generally nontaxable when you receive it. H&r block free tax file 2012 If you choose to have the corporation sell the certificate for you and give you the proceeds, your gain or loss is the difference between the proceeds and the portion of your basis in the corporation's stock allocated to the certificate. H&r block free tax file 2012   However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate is taxable when you receive it. H&r block free tax file 2012 You must include its fair market value in income on the date you receive it. H&r block free tax file 2012 Other Distributions You may receive any of the following distributions during the year. H&r block free tax file 2012 Exempt-interest dividends. H&r block free tax file 2012   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. H&r block free tax file 2012 Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. H&r block free tax file 2012 Information reporting requirement. H&r block free tax file 2012   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. H&r block free tax file 2012 This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. H&r block free tax file 2012 Alternative minimum tax treatment. H&r block free tax file 2012   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. H&r block free tax file 2012 See Alternative Minimum Tax (AMT) in chapter 30 for more information. H&r block free tax file 2012 Dividends on insurance policies. H&r block free tax file 2012    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. H&r block free tax file 2012 However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. H&r block free tax file 2012    If dividends on an insurance contract (other than a modified endowment contract) are distributed to you, they are a partial return of the premiums you paid. H&r block free tax file 2012 Do not include them in your gross income until they are more than the total of all net premiums you paid for the contract. H&r block free tax file 2012 Report any taxable distributions on insurance policies on Form 1040, line 21. H&r block free tax file 2012 Dividends on veterans' insurance. H&r block free tax file 2012   Dividends you receive on veterans' insurance policies are not taxable. H&r block free tax file 2012 In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. H&r block free tax file 2012 Patronage dividends. H&r block free tax file 2012   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. H&r block free tax file 2012   Do not include in your income patronage dividends you receive on: Property bought for your personal use, or Capital assets or depreciable property bought for use in your business. H&r block free tax file 2012 But you must reduce the basis (cost) of the items bought. H&r block free tax file 2012 If the dividend is more than the adjusted basis of the assets, you must report the excess as income. H&r block free tax file 2012   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. H&r block free tax file 2012 Alaska Permanent Fund dividends. H&r block free tax file 2012    Do not report these amounts as dividends. H&r block free tax file 2012 Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. H&r block free tax file 2012 How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. H&r block free tax file 2012 Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. H&r block free tax file 2012 Report qualified dividends on line 9b of Form 1040 or Form 1040A. H&r block free tax file 2012 If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. H&r block free tax file 2012 See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. H&r block free tax file 2012 If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. H&r block free tax file 2012 You cannot use Form 1040EZ if you receive any dividend income. H&r block free tax file 2012 Form 1099-DIV. H&r block free tax file 2012   If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. H&r block free tax file 2012 Even if you do not receive Form 1099-DIV, you must report all your dividend income. H&r block free tax file 2012   See Form 1099-DIV for more information on how to report dividend income. H&r block free tax file 2012 Form 1040A or 1040. H&r block free tax file 2012    You must complete Schedule B (Form 1040A or 1040), Part II, and attach it to your Form 1040A or 1040, if: Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or You received, as a nominee, dividends that actually belong to someone else. H&r block free tax file 2012 If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. H&r block free tax file 2012   List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. H&r block free tax file 2012 If your securities are held by a brokerage firm (in “street name”), list the name of the brokerage firm shown on Form 1099-DIV as the payer. H&r block free tax file 2012 If your stock is held by a nominee who is the owner of record, and the nominee credited or paid you dividends on the stock, show the name of the nominee and the dividends you received or for which you were credited. H&r block free tax file 2012   Enter on line 6 the total of the amounts listed on line 5. H&r block free tax file 2012 Also enter this total on line 9a of Form 1040A or 1040. H&r block free tax file 2012 Qualified dividends. H&r block free tax file 2012   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. H&r block free tax file 2012 The amount in box 1b is already included in box 1a. H&r block free tax file 2012 Do not add the amount in box 1b to, or substract it from, the amount in box 1a. H&r block free tax file 2012   Do not include any of the following on line 9b. H&r block free tax file 2012 Qualified dividends you received as a nominee. H&r block free tax file 2012 See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. H&r block free tax file 2012 Dividends on stock for which you did not meet the holding period. H&r block free tax file 2012 See Holding period , earlier under Qualified Dividends. H&r block free tax file 2012 Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. H&r block free tax file 2012 Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. H&r block free tax file 2012 Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. H&r block free tax file 2012   If you have qualified dividends, you must figure your tax by completing the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or 1040A instructions or the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions, whichever applies. H&r block free tax file 2012 Enter qualified dividends on line 2 of the worksheet. H&r block free tax file 2012 Investment interest deducted. H&r block free tax file 2012   If you claim a deduction for investment interest, you may have to reduce the amount of your qualified dividends that are eligible for the 0%, 15%, or 20% tax rate. H&r block free tax file 2012 Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. H&r block free tax file 2012 This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. H&r block free tax file 2012 For more information about the limit on investment interest, see Investment expenses in chapter 23. H&r block free tax file 2012 Expenses related to dividend income. H&r block free tax file 2012   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). H&r block free tax file 2012 See chapter 28 for general information about deducting expenses of producing income. H&r block free tax file 2012 More information. H&r block free tax file 2012    For more information about how to report dividend income, see chapter 1 of Publication 550 or the instructions for the form you must file. H&r block free tax file 2012 Prev  Up  Next   Home   More Online Publications