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H&r Block Tax Cut

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H&r Block Tax Cut

H&r block tax cut 8. H&r block tax cut   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 tax cut Reporting tax withheld. H&r block tax cut Nominees. H&r block tax cut Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. H&r block tax cut Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. H&r block tax cut Alternative minimum tax treatment. H&r block tax cut How To Report Dividend IncomeInvestment interest deducted. H&r block tax cut Reminder Foreign-source income. H&r block tax cut  If you are a U. H&r block tax cut S. H&r block tax cut 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 tax cut S. H&r block tax cut law. H&r block tax cut 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 tax cut 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 tax cut This chapter also explains how to report dividend income on your tax return. H&r block tax cut Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. H&r block tax cut You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. H&r block tax cut However, some amounts you receive that are called dividends are actually interest income. H&r block tax cut (See Dividends that are actually interest under Taxable Interest in chapter 7. H&r block tax cut ) Most distributions are paid in cash (or check). H&r block tax cut However, distributions can consist of more stock, stock rights, other property, or services. H&r block tax cut 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 tax cut Tax on unearned income of certain children. H&r block tax cut   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. H&r block tax cut 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 tax cut If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. H&r block tax cut    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 tax cut Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. H&r block tax cut   For more information about the tax on unearned income of children and the parents' election, see chapter 31. H&r block tax cut Beneficiary of an estate or trust. H&r block tax cut    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. H&r block tax cut You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. H&r block tax cut , from the fiduciary. H&r block tax cut 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 tax cut Social security number (SSN) or individual taxpayer identification number (ITIN). H&r block tax cut    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 tax cut This includes payers of dividends. H&r block tax cut If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. H&r block tax cut For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. H&r block tax cut Backup withholding. H&r block tax cut   Your dividend income is generally not subject to regular withholding. H&r block tax cut However, it may be subject to backup withholding to ensure that income tax is collected on the income. H&r block tax cut 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 tax cut   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. H&r block tax cut For more information, see Backup Withholding in chapter 4. H&r block tax cut Stock certificate in two or more names. H&r block tax cut   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 tax cut Form 1099-DIV. H&r block tax cut   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 tax cut Keep this form with your records. H&r block tax cut You do not have to attach it to your tax return. H&r block tax cut Dividends not reported on Form 1099-DIV. H&r block tax cut   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. H&r block tax cut For example, you may receive distributive shares of dividends from partnerships or S corporations. H&r block tax cut These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. H&r block tax cut , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. H&r block tax cut Reporting tax withheld. H&r block tax cut   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 tax cut Nominees. H&r block tax cut   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 tax cut Form 1099-MISC. H&r block tax cut   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 tax cut See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. H&r block tax cut Incorrect amount shown on a Form 1099. H&r block tax cut   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 tax cut The new Form 1099 you receive will be marked “Corrected. H&r block tax cut ” Dividends on stock sold. H&r block tax cut   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 tax cut Dividends received in January. H&r block tax cut   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 tax cut You report the dividend in the year it was declared. H&r block tax cut Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. H&r block tax cut They are paid out of earnings and profits and are ordinary income to you. H&r block tax cut This means they are not capital gains. H&r block tax cut 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 tax cut Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. H&r block tax cut 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 tax cut They should be shown in box 1b of the Form 1099-DIV you receive. H&r block tax cut 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 tax cut 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. H&r block tax cut 6%. H&r block tax cut 20% on any amount that otherwise would be taxed at a 39. H&r block tax cut 6% rate. H&r block tax cut To qualify for the maximum rate, all of the following requirements must be met. H&r block tax cut The dividends must have been paid by a U. H&r block tax cut S. H&r block tax cut corporation or a qualified foreign corporation. H&r block tax cut (See Qualified foreign corporation , later. H&r block tax cut ) The dividends are not of the type listed later under Dividends that are not qualified dividends . H&r block tax cut You meet the holding period (discussed next). H&r block tax cut Holding period. H&r block tax cut   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 tax cut 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 tax cut Instead, the seller will get the dividend. H&r block tax cut   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 tax cut See the examples later. H&r block tax cut Exception for preferred stock. H&r block tax cut   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 tax cut If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. H&r block tax cut Example 1. H&r block tax cut You bought 5,000 shares of XYZ Corp. H&r block tax cut common stock on July 9, 2013. H&r block tax cut XYZ Corp. H&r block tax cut paid a cash dividend of 10 cents per share. H&r block tax cut The ex-dividend date was July 16, 2013. H&r block tax cut Your Form 1099-DIV from XYZ Corp. H&r block tax cut shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). H&r block tax cut However, you sold the 5,000 shares on August 12, 2013. H&r block tax cut You held your shares of XYZ Corp. H&r block tax cut for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). H&r block tax cut 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 tax cut You have no qualified dividends from XYZ Corp. H&r block tax cut because you held the XYZ stock for less than 61 days. H&r block tax cut Example 2. H&r block tax cut 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 tax cut You held the stock for 63 days (from July 16, 2013, through September 16, 2013). H&r block tax cut 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 tax cut Example 3. H&r block tax cut You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. H&r block tax cut ABC Mutual Fund paid a cash dividend of 10 cents a share. H&r block tax cut The ex-dividend date was July 16, 2013. H&r block tax cut 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 tax cut Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. H&r block tax cut However, you sold the 10,000 shares on August 12, 2013. H&r block tax cut 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 tax cut Holding period reduced where risk of loss is diminished. H&r block tax cut   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 tax cut 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 tax cut You were grantor (writer) of an option to buy substantially identical stock or securities. H&r block tax cut Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. H&r block tax cut   For information about how to apply condition (3), see Regulations section 1. H&r block tax cut 246-5. H&r block tax cut Qualified foreign corporation. H&r block tax cut   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. H&r block tax cut The corporation is incorporated in a U. H&r block tax cut S. H&r block tax cut possession. H&r block tax cut 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 tax cut For a list of those treaties, see Table 8-1. H&r block tax cut 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 tax cut See Readily tradable stock , later. H&r block tax cut Exception. H&r block tax cut   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 tax cut Readily tradable stock. H&r block tax cut   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 tax cut For a list of the exchanges that meet these requirements, see www. H&r block tax cut sec. H&r block tax cut gov/divisions/marketreg/mrexchanges. H&r block tax cut shtml. H&r block tax cut Dividends that are not qualified dividends. H&r block tax cut   The following dividends are not qualified dividends. H&r block tax cut They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. H&r block tax cut Capital gain distributions. H&r block tax cut Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. H&r block tax cut S. H&r block tax cut building and loan associations, U. H&r block tax cut S. H&r block tax cut savings and loan associations, federal savings and loan associations, and similar financial institutions. H&r block tax cut (Report these amounts as interest income. H&r block tax cut ) 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 tax cut 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 tax cut 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 tax cut Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. H&r block tax cut 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 tax cut Table 8-1. H&r block tax cut Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. H&r block tax cut 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 tax cut 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 tax cut Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. H&r block tax cut 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 tax cut 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 tax cut 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 tax cut But you may be able to deduct the service charge. H&r block tax cut See chapter 28 for more information about deducting expenses of producing income. H&r block tax cut 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 tax cut 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 tax cut When figuring this amount, use the fair market value of the stock on the dividend payment date. H&r block tax cut Money Market Funds Report amounts you receive from money market funds as dividend income. H&r block tax cut 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 tax cut 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 tax cut They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. H&r block tax cut 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 tax cut Undistributed capital gains of mutual funds and REITs. H&r block tax cut    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. H&r block tax cut You must treat your share of these gains as distributions, even though you did not actually receive them. H&r block tax cut However, they are not included on Form 1099-DIV. H&r block tax cut Instead, they are reported to you in box 1a of Form 2439. H&r block tax cut   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 tax cut   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. H&r block tax cut You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. H&r block tax cut Attach Copy B of Form 2439 to your return, and keep Copy C for your records. H&r block tax cut Basis adjustment. H&r block tax cut   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 tax cut Additional information. H&r block tax cut   For more information on the treatment of distributions from mutual funds, see Publication 550. H&r block tax cut 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 tax cut You should receive a Form 1099-DIV or other statement showing the nondividend distribution. H&r block tax cut On Form 1099-DIV, a nondividend distribution will be shown in box 3. H&r block tax cut If you do not receive such a statement, you report the distribution as an ordinary dividend. H&r block tax cut Basis adjustment. H&r block tax cut   A nondividend distribution reduces the basis of your stock. H&r block tax cut It is not taxed until your basis in the stock is fully recovered. H&r block tax cut 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 tax cut 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 tax cut   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 tax cut 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 tax cut See Holding Period in chapter 14. H&r block tax cut Example. H&r block tax cut You bought stock in 2000 for $100. H&r block tax cut In 2003, you received a nondividend distribution of $80. H&r block tax cut You did not include this amount in your income, but you reduced the basis of your stock to $20. H&r block tax cut You received a nondividend distribution of $30 in 2013. H&r block tax cut The first $20 of this amount reduced your basis to zero. H&r block tax cut You report the other $10 as a long-term capital gain for 2013. H&r block tax cut You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. H&r block tax cut Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. H&r block tax cut These distributions are, at least in part, one form of a return of capital. H&r block tax cut They may be paid in one or more installments. H&r block tax cut 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 tax cut For more information on liquidating distributions, see chapter 1 of Publication 550. H&r block tax cut Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. H&r block tax cut Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. H&r block tax cut Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. H&r block tax cut Taxable stock dividends and stock rights. H&r block tax cut   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. H&r block tax cut You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. H&r block tax cut 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 tax cut The distribution is in convertible preferred stock and has the same result as in (2). H&r block tax cut The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. H&r block tax cut The distribution is on preferred stock. H&r block tax cut (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 tax cut )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. H&r block tax cut 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 tax cut Preferred stock redeemable at a premium. H&r block tax cut   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 tax cut For more information, see chapter 1 of Publication 550. H&r block tax cut Basis. H&r block tax cut   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. H&r block tax cut 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 tax cut Fractional shares. H&r block tax cut    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 tax cut 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 tax cut 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 tax cut Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. H&r block tax cut 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 tax cut    Report these transactions on Form 8949 with the correct box checked. H&r block tax cut   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. H&r block tax cut Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). H&r block tax cut Example. H&r block tax cut You own one share of common stock that you bought on January 3, 2004, for $100. H&r block tax cut The corporation declared a common stock dividend of 5% on June 29, 2013. H&r block tax cut The fair market value of the stock at the time the stock dividend was declared was $200. H&r block tax cut You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. H&r block tax cut You figure your gain or loss as follows: Fair market value of old stock $200. H&r block tax cut 00 Fair market value of stock dividend (cash received) +10. H&r block tax cut 00 Fair market value of old stock and stock dividend $210. H&r block tax cut 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. H&r block tax cut 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. H&r block tax cut 76 Total $100. H&r block tax cut 00 Cash received $10. H&r block tax cut 00 Basis (cost) of stock dividend − 4. H&r block tax cut 76 Gain $5. H&r block tax cut 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 tax cut Scrip dividends. H&r block tax cut   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. H&r block tax cut The certificate is generally nontaxable when you receive it. H&r block tax cut 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 tax cut   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 tax cut You must include its fair market value in income on the date you receive it. H&r block tax cut Other Distributions You may receive any of the following distributions during the year. H&r block tax cut Exempt-interest dividends. H&r block tax cut   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 tax cut Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. H&r block tax cut Information reporting requirement. H&r block tax cut   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 tax cut This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. H&r block tax cut Alternative minimum tax treatment. H&r block tax cut   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. H&r block tax cut See Alternative Minimum Tax (AMT) in chapter 30 for more information. H&r block tax cut Dividends on insurance policies. H&r block tax cut    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. H&r block tax cut 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 tax cut    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 tax cut 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 tax cut Report any taxable distributions on insurance policies on Form 1040, line 21. H&r block tax cut Dividends on veterans' insurance. H&r block tax cut   Dividends you receive on veterans' insurance policies are not taxable. H&r block tax cut In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. H&r block tax cut Patronage dividends. H&r block tax cut   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. H&r block tax cut   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 tax cut But you must reduce the basis (cost) of the items bought. H&r block tax cut If the dividend is more than the adjusted basis of the assets, you must report the excess as income. H&r block tax cut   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. H&r block tax cut Alaska Permanent Fund dividends. H&r block tax cut    Do not report these amounts as dividends. H&r block tax cut Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. H&r block tax cut How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. H&r block tax cut Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. H&r block tax cut Report qualified dividends on line 9b of Form 1040 or Form 1040A. H&r block tax cut 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 tax cut See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. H&r block tax cut If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. H&r block tax cut You cannot use Form 1040EZ if you receive any dividend income. H&r block tax cut Form 1099-DIV. H&r block tax cut   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 tax cut Even if you do not receive Form 1099-DIV, you must report all your dividend income. H&r block tax cut   See Form 1099-DIV for more information on how to report dividend income. H&r block tax cut Form 1040A or 1040. H&r block tax cut    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 tax cut If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. H&r block tax cut   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 tax cut 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 tax cut 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 tax cut   Enter on line 6 the total of the amounts listed on line 5. H&r block tax cut Also enter this total on line 9a of Form 1040A or 1040. H&r block tax cut Qualified dividends. H&r block tax cut   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. H&r block tax cut The amount in box 1b is already included in box 1a. H&r block tax cut Do not add the amount in box 1b to, or substract it from, the amount in box 1a. H&r block tax cut   Do not include any of the following on line 9b. H&r block tax cut Qualified dividends you received as a nominee. H&r block tax cut See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. H&r block tax cut Dividends on stock for which you did not meet the holding period. H&r block tax cut See Holding period , earlier under Qualified Dividends. H&r block tax cut 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 tax cut Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. H&r block tax cut 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 tax cut   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 tax cut Enter qualified dividends on line 2 of the worksheet. H&r block tax cut Investment interest deducted. H&r block tax cut   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 tax cut 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 tax cut This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. H&r block tax cut For more information about the limit on investment interest, see Investment expenses in chapter 23. H&r block tax cut Expenses related to dividend income. H&r block tax cut   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). H&r block tax cut See chapter 28 for general information about deducting expenses of producing income. H&r block tax cut More information. H&r block tax cut    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 tax cut Prev  Up  Next   Home   More Online Publications
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The H&r Block Tax Cut

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