File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

H&r Free Federal

H&r Block Military TaxOnline 1040ez FormH&r Block Free FilingExtension FormEz1040Www Irs Gov Form1040xAmend 2012 TaxesState Tax Forms 2012Www.freestatetaxsites.com2011 1040a Tax FormH&r Block Free1040 Estimated Tax FormHow To Amend Your TaxesEz Tax FilingForm 1040x For 2012Amending Your TaxesFiling State ReturnsIrsForm 1040ezFree State Income Tax Forms OnlineFree Online Tax FilingHow To Fill Out A 1040xForm 1040 Federal Tax FormWww Taxcut ComFree Federal And State Tax Filing For StudentsWhere Can I File My State Taxes OnlineInstructions For 1040ezFree State TaxsFile Taxes Online FreeFederal Tax TableFile A 1040ez OnlineH&r Block Free Federal Tax ReturnOnline Tax Filing 1040nr1040ez Tax Table 2010Hr Block 2010H And R Block FreeState Tax ReturnsAmending A Tax ReturnFile Amended 2012 Tax ReturnHrblock Taxcut

H&r Free Federal

H&r free federal 1. H&r free federal   Investment Income Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: General InformationSSN for joint account. H&r free federal Custodian account for your child. H&r free federal Penalty for failure to supply SSN. H&r free federal Certification. H&r free federal Underreported interest and dividends. H&r free federal How to stop backup withholding due to underreporting. H&r free federal How to stop backup withholding due to an incorrect identification number. H&r free federal Reporting backup withholding. H&r free federal Nonresident aliens. H&r free federal Penalties. H&r free federal Savings account with parent as trustee. H&r free federal Interest IncomeInterest not reported on Form 1099-INT. H&r free federal Nominees. H&r free federal Incorrect amount. H&r free federal Information reporting requirement. H&r free federal Taxable Interest — General Below-Market Loans U. H&r free federal S. H&r free federal Savings Bonds U. H&r free federal S. H&r free federal Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Discount on Debt InstrumentsOriginal Issue Discount (OID) Market Discount Bonds Discount on Short-Term Obligations Election To Report All Interest as OID When To Report Interest IncomeConstructive receipt. H&r free federal How To Report Interest IncomeSchedule B (Form 1040A or 1040). H&r free federal Worksheet for savings bonds distributed from a retirement or profit-sharing plan. H&r free federal File Form 1099-INT with the IRS. H&r free federal Dividends and Other DistributionsDividends not reported on Form 1099-DIV. H&r free federal Nominees. H&r free federal Ordinary Dividends Capital Gain Distributions Nondividend Distributions Liquidating Distributions Distributions of Stock and Stock Rights Other Distributions How To Report Dividend IncomeElection. H&r free federal Independent contractor. H&r free federal Investment interest deducted. H&r free federal Exception 1. H&r free federal Exception 2. H&r free federal Undistributed capital gains. H&r free federal File Form 1099-DIV with the IRS. H&r free federal Stripped Preferred Stock REMICs, FASITs, and Other CDOsREMICs Collateralized Debt Obligations (CDOs) FASITs S CorporationsLimit on losses and deductions. H&r free federal Passive activity losses. H&r free federal Form 8582. H&r free federal Investment ClubsInvestments in name of member. H&r free federal Tax Treatment of the Club Topics - This chapter discusses: Interest Income , Discount on Debt Instruments , When To Report Interest Income , How To Report Interest Income , Dividends and Other Distributions , How To Report Dividend Income , Stripped Preferred Stock , Real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs) , S Corporations , and Investment Clubs . H&r free federal Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 537 Installment Sales 590 Individual Retirement Arrangements (IRAs) 925 Passive Activity and At-Risk Rules 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses 1040 U. H&r free federal S. H&r free federal Individual Income Tax Return 1040A U. H&r free federal S. H&r free federal Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1099 General Instructions for Certain Information Returns 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 3115 Application for Change in Accounting Method 6251 Alternative Minimum Tax — Individuals 8582 Passive Activity Loss Limitations 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends 8815 Exclusion of Interest From Series EE and I U. H&r free federal S. H&r free federal Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. H&r free federal S. H&r free federal Savings Bonds Issued After 1989 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets 8960 Net Investment Income Tax—Individuals, Estates, and Trusts See chapter 5, How To Get Tax Help , for information about getting these publications and forms. H&r free federal General Information A few items of general interest are covered here. H&r free federal Recordkeeping. H&r free federal You should keep a list showing sources and investment income amounts you receive during the year. H&r free federal Also keep the forms you receive showing your investment income (Forms 1099-INT, Interest Income, and 1099-DIV, Dividends and Distributions, for example) as an important part of your records. H&r free federal Net investment income tax (NIIT). H&r free federal   Beginning in 2013, you may be subject to the NIIT. H&r free federal The NIIT is a 3. H&r free federal 8% tax on the lesser of your net investment income or the amount of your modified adjusted gross income (MAGI) that is over a threshold amount based on your filing status. H&r free federal    Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household (with qualifying person) $200,000 Qualifying Widow(er) with dependent child $250,000    For more information, see Form 8960 and Instructions for Form 8960. H&r free federal Tax on unearned income of certain children. H&r free federal   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. H&r free federal This may happen if all of the following are true. H&r free federal The child had more than $2,000 of unearned income. H&r free federal The child is required to file a tax return. H&r free federal The child was: Under age 18 at the end of 2013, Age 18 at the end of 2013 and did not have earned income that was more than half of the child's support, or A full-time student over age 18 and under age 24 at the end of 2013 and did not have earned income that was more than half of the child's support. H&r free federal At least one of the child's parents was alive at the end of 2013. H&r free federal The child does not file a joint return for 2013. H&r free federal A child born on January 1, 1996, is considered to be age 18 at the end of 2013; a child born on January 1, 1995, is considered to be age 19 at the end of 2013; a child born on January 1, 1990, is considered to be age 24 at the end of 2013. H&r free federal   If all of these statements are true, Form 8615 must be completed and attached to the child's tax return. H&r free federal If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate. H&r free federal    However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. H&r free federal Use Form 8814 for this purpose. H&r free federal   For more information about the tax on unearned income of children and the parents' election, see Publication 929, Tax Rules for Children and Dependents. H&r free federal Beneficiary of an estate or trust. H&r free federal   Interest, dividends, and other investment income you receive as a beneficiary of an estate or trust is generally taxable income. H&r free federal You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. H&r free federal , from the fiduciary. H&r free federal 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 free federal Social security number (SSN). H&r free federal   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. H&r free federal This includes payers of interest and dividends. H&r free federal If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. H&r free federal SSN for joint account. H&r free federal   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. H&r free federal (For information on who owns the funds in a joint account, see Joint accounts , later. H&r free federal ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. H&r free federal This is because only one name and SSN can be shown on Form 1099. H&r free federal   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. H&r free federal For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. H&r free federal Custodian account for your child. H&r free federal   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. H&r free federal For example, you must give your child's SSN to the payer of dividends on stock owned by your child, even though the dividends are paid to you as custodian. H&r free federal Penalty for failure to supply SSN. H&r free federal   You will be subject to a penalty if, when required, you fail to: Include your SSN on any return, statement, or other document, Give your SSN to another person who must include it on any return, statement, or other document, or Include the SSN of another person on any return, statement, or other document. H&r free federal The penalty is $50 for each failure up to a maximum penalty of $100,000 for any calendar year. H&r free federal   You will not be subject to this penalty if you can show that your failure to provide the SSN was due to reasonable cause and not to willful neglect. H&r free federal   If you fail to supply an SSN, you may also be subject to backup withholding. H&r free federal Backup withholding. H&r free federal   Your investment income is generally not subject to regular withholding. H&r free federal However, it may be subject to backup withholding to ensure that income tax is collected on the income. H&r free federal Under backup withholding, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. H&r free federal   Backup withholding applies if: You do not give the payer your identification number (either a social security number or an employer identification number) in the required manner, The IRS notifies the payer that you gave an incorrect identification number, The IRS notifies the payer that you are subject to backup withholding on interest or dividends because you have underreported interest or dividends on your income tax return, or You are required, but fail, to certify that you are not subject to backup withholding for the reason described in (3). H&r free federal Certification. H&r free federal   For new accounts paying interest or dividends, you must certify under penalties of perjury that your SSN is correct and that you are not subject to backup withholding. H&r free federal Your payer will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or similar form, to make this certification. H&r free federal If you fail to make this certification, backup withholding may begin immediately on your new account or investment. H&r free federal Underreported interest and dividends. H&r free federal   You will be considered to have underreported your interest and dividends if the IRS has determined for a tax year that: You failed to include any part of a reportable interest or dividend payment required to be shown on your return, or You were required to file a return and to include a reportable interest or dividend payment on that return, but you failed to file the return. H&r free federal How to stop backup withholding due to underreporting. H&r free federal   If you have been notified that you underreported interest or dividends, you can request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. H&r free federal You must show that at least one of the following situations applies. H&r free federal No underreporting occurred. H&r free federal You have a bona fide dispute with the IRS about whether underreporting occurred. H&r free federal Backup withholding will cause or is causing an undue hardship, and it is unlikely that you will underreport interest and dividends in the future. H&r free federal You have corrected the underreporting by filing a return if you did not previously file one and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments. H&r free federal   If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sent notices earlier. H&r free federal How to stop backup withholding due to an incorrect identification number. H&r free federal   If you have been notified by a payer that you are subject to backup withholding because you have provided an incorrect SSN or employer identification number, you can stop it by following the instructions the payer gives you. H&r free federal Reporting backup withholding. H&r free federal   If backup withholding is deducted from your interest or dividend income or other reportable payment, the bank or other business must give you an information return for the year (for example, a Form 1099-INT) indicating the amount withheld. H&r free federal The information return will show any backup withholding as “Federal income tax withheld. H&r free federal ” Nonresident aliens. H&r free federal    Generally, payments made to nonresident aliens are not subject to backup withholding. H&r free federal You can use Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to certify exempt status. H&r free federal However, this does not exempt you from the 30% (or lower treaty) withholding rate that may apply to your investment income. H&r free federal For information on the 30% rate, see Publication 519, U. H&r free federal S. H&r free federal Tax Guide for Aliens. H&r free federal Penalties. H&r free federal   There are civil and criminal penalties for giving false information to avoid backup withholding. H&r free federal The civil penalty is $500. H&r free federal The criminal penalty, upon conviction, is a fine of up to $1,000, or imprisonment of up to 1 year, or both. H&r free federal Where to report investment income. H&r free federal   Table 1-1 gives an overview of the forms and schedules to use to report some common types of investment income. H&r free federal But see the rest of this publication for detailed information about reporting investment income. H&r free federal Joint accounts. H&r free federal   If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law. H&r free federal Community property states. H&r free federal   If you are married and receive a distribution that is community income, one-half of the distribution is generally considered to be received by each spouse. H&r free federal If you file separate returns, you must each report one-half of any taxable distribution. H&r free federal See Publication 555, Community Property, for more information on community income. H&r free federal   If the distribution is not considered community property and you and your spouse file separate returns, each of you must report your separate taxable distributions. H&r free federal Example. H&r free federal You and your spouse have a joint money market account. H&r free federal Under state law, half the income from the account belongs to you, and half belongs to your spouse. H&r free federal If you file separate returns, you each report half the income. H&r free federal Income from property given to a child. H&r free federal   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. H&r free federal   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. H&r free federal Savings account with parent as trustee. H&r free federal   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. H&r free federal The savings account legally belongs to the child. H&r free federal The parents are not legally permitted to use any of the funds to support the child. H&r free federal Table 1-1. H&r free federal Where To Report Common Types of Investment Income (For detailed information about reporting investment income, see the rest of this publication, especially How To Report Interest Income and How To Report Dividend Income in chapter 1. H&r free federal ) Type of Income If you file Form 1040, report on . H&r free federal . H&r free federal . H&r free federal If you can file Form 1040A, report on . H&r free federal . H&r free federal . H&r free federal If you can file Form 1040EZ, report on . H&r free federal . H&r free federal . H&r free federal Tax-exempt interest (Form 1099-INT, box 8) Line 8b Line 8b Space to the left of line 2 (enter “TEI” and the amount) Taxable interest that totals $1,500 or less Line 8a (You may need to file Schedule B as well. H&r free federal ) Line 8a (You may need to file Schedule B as well. H&r free federal ) Line 2 Taxable interest that totals more than $1,500 Line 8a; also use Schedule B, line 1 Line 8a; also use Schedule B, line 1   Savings bond interest you will exclude because of higher education expenses Schedule B; also use Form 8815 Schedule B; also use Form 8815   Ordinary dividends that total $1,500 or less Line 9a (You may need to file Schedule B as well. H&r free federal ) Line 9a (You may need to file Schedule B as well. H&r free federal )   Ordinary dividends that total more than $1,500 Line 9a; also use Schedule B, line 5 Line 9a; also use Schedule B, line 5   Qualified dividends (if you do not have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2 Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2   Qualified dividends (if you have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, line 2 You cannot use Form 1040A    You cannot use Form 1040EZ Capital gain distributions (if you do not have to file Schedule D) Line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3 Line 10; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3   Capital gain distributions (if you have to file Schedule D) Schedule D, line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     Section 1250, 1202, or collectibles gain (Form 1099-DIV, box 2b, 2c, or 2d) Form 8949 and Schedule D     Nondividend distributions (Form 1099-DIV, box 3) Generally not reported*     Undistributed capital gains (Form 2439, boxes 1a - 1d) Schedule D     Gain or loss from sales of stocks or bonds Line 13; also use Form 8949, Schedule D, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet You cannot use Form 1040A   Gain or loss from exchanges of like-kind investment property Line 13; also use Schedule D, Form 8824, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     *Report any amounts in excess of your basis in your mutual fund shares on Form 8949. H&r free federal Use Part II if you held the shares more than 1 year. H&r free federal Use Part I if you held your mutual fund shares 1 year or less. H&r free federal For details on Form 8949, see Reporting Capital Gains and Losses in chapter 4, and the Instructions for Form 8949. H&r free federal Accuracy-related penalty. H&r free federal   An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregard of rules or regulations or substantial understatement of tax. H&r free federal For information on the penalty and any interest that applies, see Penalties in chapter 2. H&r free federal Interest Income This section discusses the tax treatment of different types of interest income. H&r free federal In general, any interest that you receive or that is credited to your account and can be withdrawn is taxable income. H&r free federal (It does not have to be entered in your passbook. H&r free federal ) Exceptions to this rule are discussed later. H&r free federal Form 1099-INT. H&r free federal   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. H&r free federal This form shows you the interest you received during the year. H&r free federal Keep this form for your records. H&r free federal You do not have to attach it to your tax return. H&r free federal   Report on your tax return the total interest income you receive for the tax year. H&r free federal Interest not reported on Form 1099-INT. H&r free federal   Even if you do not receive Form 1099-INT, you must still report all of your interest income. H&r free federal For example, you may receive distributive shares of interest from partnerships or S corporations. H&r free federal This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. H&r free federal , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. H&r free federal Nominees. H&r free federal   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. H&r free federal   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on Nominee distributions , later, under How To Report Interest Income. H&r free federal Incorrect amount. H&r free federal   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. H&r free federal The new Form 1099-INT you receive will be marked “Corrected. H&r free federal ” Form 1099-OID. H&r free federal   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. H&r free federal For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. H&r free federal Exempt-interest dividends. H&r free federal   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 free federal (However, see Information reporting requirement , next. H&r free federal ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. H&r free federal You do not reduce your basis for distributions that are exempt-interest dividends. H&r free federal Information reporting requirement. H&r free federal   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. H&r free federal This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. H&r free federal See How To Report Interest Income , later. H&r free federal Note. H&r free federal Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. H&r free federal The exempt-interest dividends subject to the alternative minimum tax are shown in box 11 of Form 1099-DIV. H&r free federal See Form 6251 and its instructions for more information about this tax. H&r free federal Private activity bonds are discussed later under State or Local Government Obligations. H&r free federal Interest on VA dividends. H&r free federal   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. H&r free federal This includes interest paid on dividends on converted United States Government Life Insurance policies and on National Service Life Insurance policies. H&r free federal Individual retirement arrangements (IRAs). H&r free federal   Interest on a Roth IRA generally is not taxable. H&r free federal Interest on a traditional IRA is tax deferred. H&r free federal You generally do not include it in your income until you make withdrawals from the IRA. H&r free federal See Publication 590 for more information. H&r free federal Taxable Interest — General Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. H&r free federal The following are some sources of taxable interest. H&r free federal Dividends that are actually interest. H&r free federal   Certain distributions commonly called dividends are actually interest. H&r free federal You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. H&r free federal  The “dividends” will be shown as interest income on Form 1099-INT. H&r free federal Money market funds. H&r free federal   Money market funds are offered by nonbank financial institutions such as mutual funds and stock brokerage houses, and pay dividends. H&r free federal Generally, amounts you receive from money market funds should be reported as dividends, not as interest. H&r free federal Certificates of deposit and other deferred interest accounts. H&r free federal   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. H&r free federal You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. H&r free federal The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. H&r free federal If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. H&r free federal Interest subject to penalty for early withdrawal. H&r free federal   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. H&r free federal You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. H&r free federal See Penalty on early withdrawal of savings under How To Report Interest Income, later, for more information on how to report the interest and deduct the penalty. H&r free federal Money borrowed to invest in certificate of deposit. H&r free federal   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. H&r free federal You must report the total interest you earn on the certificate in your income. H&r free federal If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. H&r free federal See Interest Expenses in chapter 3. H&r free federal Example. H&r free federal You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. H&r free federal The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. H&r free federal The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. H&r free federal The bank also gives you a statement showing that you paid $310 interest for 2013. H&r free federal You must include the $575 in your income. H&r free federal If you itemize your deductions on Schedule A (Form 1040), Itemized Deductions, you can deduct $310, subject to the net investment income limit. H&r free federal Gift for opening account. H&r free federal   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. H&r free federal   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. H&r free federal For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. H&r free federal The value is determined by the cost to the financial institution. H&r free federal Example. H&r free federal You open a savings account at your local bank and deposit $800. H&r free federal The account earns $20 interest. H&r free federal You also receive a $15 calculator. H&r free federal If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. H&r free federal You must report $35 interest income on your tax return. H&r free federal Interest on insurance dividends. H&r free federal   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. H&r free federal However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. H&r free federal Prepaid insurance premiums. H&r free federal   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. H&r free federal U. H&r free federal S. H&r free federal obligations. H&r free federal   Interest on U. H&r free federal S. H&r free federal obligations, such as U. H&r free federal S. H&r free federal Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. H&r free federal Interest on tax refunds. H&r free federal   Interest you receive on tax refunds is taxable income. H&r free federal Interest on condemnation award. H&r free federal   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. H&r free federal Installment sale payments. H&r free federal   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. H&r free federal That interest is taxable when you receive it. H&r free federal If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. H&r free federal See Unstated Interest and Original Issue Discount (OID) in Publication 537. H&r free federal Interest on annuity contract. H&r free federal   Accumulated interest on an annuity contract you sell before its maturity date is taxable. H&r free federal Usurious interest. H&r free federal   Usurious interest is interest charged at an illegal rate. H&r free federal This is taxable as interest unless state law automatically changes it to a payment on the principal. H&r free federal Interest income on frozen deposits. H&r free federal   Exclude from your gross income interest on frozen deposits. H&r free federal A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state in which the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. H&r free federal   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). H&r free federal If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income for information about reporting this interest income exclusion on your tax return. H&r free federal   The interest you exclude is treated as credited to your account in the following year. H&r free federal You must include it in income in the year you can withdraw it. H&r free federal Example. H&r free federal $100 of interest was credited on your frozen deposit during the year. H&r free federal You withdrew $80 but could not withdraw any more as of the end of the year. H&r free federal You must include $80 in your income and exclude $20 from your income for the year. H&r free federal You must include the $20 in your income for the year you can withdraw it. H&r free federal Bonds traded flat. H&r free federal    If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. H&r free federal The defaulted or unpaid interest is not income and is not taxable as interest if paid later. H&r free federal When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. H&r free federal Interest that accrues after the date of purchase, however, is taxable interest income for the year received or accrued. H&r free federal See Bonds Sold Between Interest Dates , later in this chapter. H&r free federal Below-Market Loans If you make a below-market gift or demand loan, you must report as interest income any forgone interest (defined later) from that loan. H&r free federal The below-market loan rules and exceptions are described in this section. H&r free federal For more information, see section 7872 of the Internal Revenue Code and its regulations. H&r free federal If you receive a below-market loan, you may be able to deduct the forgone interest as well as any interest you actually paid, but not if it is personal interest. H&r free federal Loans subject to the rules. H&r free federal   The rules for below-market loans apply to: Gift loans, Pay-related loans, Corporation-shareholder loans, Tax avoidance loans, and Certain loans made to qualified continuing care facilities under a continuing care contract. H&r free federal A pay-related loan is any below-market loan between an employer and an employee or between an independent contractor and a person for whom the contractor provides services. H&r free federal A tax avoidance loan is any below-market loan where the avoidance of federal tax is one of the main purposes of the interest arrangement. H&r free federal Forgone interest. H&r free federal   For any period, forgone interest is: The amount of interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. H&r free federal Applicable federal rate. H&r free federal   Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. H&r free federal Some IRS offices have these bulletins available for research. H&r free federal See chapter 5, How To Get Tax Help , for other ways to get this information. H&r free federal Rules for below-market loans. H&r free federal   The rules that apply to a below-market loan depend on whether the loan is a gift loan, demand loan, or term loan. H&r free federal Gift and demand loans. H&r free federal   A gift loan is any below-market loan where the forgone interest is in the nature of a gift. H&r free federal   A demand loan is a loan payable in full at any time upon demand by the lender. H&r free federal A demand loan is a below-market loan if no interest is charged or if interest is charged at a rate below the applicable federal rate. H&r free federal   A demand loan or gift loan that is a below-market loan is generally treated as an arm's-length transaction in which the lender is treated as having made: A loan to the borrower in exchange for a note that requires the payment of interest at the applicable federal rate, and An additional payment to the borrower in an amount equal to the forgone interest. H&r free federal The borrower is generally treated as transferring the additional payment back to the lender as interest. H&r free federal The lender must report that amount as interest income. H&r free federal   The lender's additional payment to the borrower is treated as a gift, dividend, contribution to capital, pay for services, or other payment, depending on the substance of the transaction. H&r free federal The borrower may have to report this payment as taxable income, depending on its classification. H&r free federal These transfers are considered to occur annually, generally on December 31. H&r free federal Term loans. H&r free federal   A term loan is any loan that is not a demand loan. H&r free federal A term loan is a below-market loan if the amount of the loan is more than the present value of all payments due under the loan. H&r free federal   A lender who makes a below-market term loan other than a gift loan is treated as transferring an additional lump-sum cash payment to the borrower (as a dividend, contribution to capital, etc. H&r free federal ) on the date the loan is made. H&r free federal The amount of this payment is the amount of the loan minus the present value, at the applicable federal rate, of all payments due under the loan. H&r free federal An equal amount is treated as original issue discount (OID). H&r free federal The lender must report the annual part of the OID as interest income. H&r free federal The borrower may be able to deduct the OID as interest expense. H&r free federal See Original Issue Discount (OID) , later. H&r free federal Exceptions to the below-market loan rules. H&r free federal   Exceptions to the below-market loan rules are discussed here. H&r free federal Exception for loans of $10,000 or less. H&r free federal   The rules for below-market loans do not apply to any day on which the total outstanding amount of loans between the borrower and lender is $10,000 or less. H&r free federal This exception applies only to: Gift loans between individuals if the gift loan is not directly used to buy or carry income-producing assets, and Pay-related loans or corporation-shareholder loans if the avoidance of federal tax is not a principal purpose of the interest arrangement. H&r free federal This exception does not apply to a term loan described in (2) earlier that previously has been subject to the below-market loan rules. H&r free federal Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. H&r free federal Exception for loans to continuing care facilities. H&r free federal   Loans to qualified continuing care facilities under continuing care contracts are not subject to the rules for below-market loans for the calendar year if the lender or the lender's spouse is age 62 or older at the end of the year. H&r free federal For the definitions of qualified continuing care facility and continuing care contract, see Internal Revenue Code section 7872(h). H&r free federal Exception for loans without significant tax effect. H&r free federal   Loans are excluded from the below-market loan rules if their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. H&r free federal These loans include: Loans made available by the lender to the general public on the same terms and conditions that are consistent with the lender's customary business practice; Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public; Certain employee-relocation loans; Certain loans from a foreign person, unless the interest income would be effectively connected with the conduct of a U. H&r free federal S. H&r free federal trade or business and would not be exempt from U. H&r free federal S. H&r free federal tax under an income tax treaty; Gift loans to a charitable organization, contributions to which are deductible, if the total outstanding amount of loans between the organization and lender is $250,000 or less at all times during the tax year; and Other loans on which the interest arrangement can be shown to have no significant effect on the federal tax liability of the lender or the borrower. H&r free federal For a loan described in (6) above, all the facts and circumstances are used to determine if the interest arrangement has a significant effect on the federal tax liability of the lender or borrower. H&r free federal Some factors to be considered are: Whether items of income and deduction generated by the loan offset each other; The amount of these items; The cost to you of complying with the below-market loan rules, if they were to apply; and Any reasons other than taxes for structuring the transaction as a below-market loan. H&r free federal If you structure a transaction to meet this exception and one of the principal purposes of that structure is the avoidance of federal tax, the loan will be considered a tax-avoidance loan, and this exception will not apply. H&r free federal Limit on forgone interest for gift loans of $100,000 or less. H&r free federal   For gift loans between individuals, if the outstanding loans between the lender and borrower total $100,000 or less, the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. H&r free federal If the borrower's net investment income is $1,000 or less, it is treated as zero. H&r free federal This limit does not apply to a loan if the avoidance of federal tax is one of the main purposes of the interest arrangement. H&r free federal Effective dates. H&r free federal    These rules apply to term loans made after June 6, 1984, and to demand loans outstanding after that date. H&r free federal U. H&r free federal S. H&r free federal Savings Bonds This section provides tax information on U. H&r free federal S. H&r free federal savings bonds. H&r free federal It explains how to report the interest income on these bonds and how to treat transfers of these bonds. H&r free federal U. H&r free federal S. H&r free federal savings bonds currently offered to individuals include Series EE bonds and Series I bonds. H&r free federal For other information on U. H&r free federal S. H&r free federal savings bonds, write to:  For Series HH/H: Bureau of the Fiscal Service Division of Customer Assistance P. H&r free federal O. H&r free federal Box 2186 Parkersburg, WV 26106-2186  For Series EE and I paper savings bonds: Bureau of the Fiscal Service Division of Customer Assistance P. H&r free federal O. H&r free federal Box 7012 Parkersburg, WV 26106-7012  For Series EE and I electronic bonds: Bureau of the Fiscal Service  Division of Customer Assistance P. H&r free federal O. H&r free federal Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. H&r free federal treasurydirect. H&r free federal gov/indiv/indiv. H&r free federal htm. H&r free federal Accrual method taxpayers. H&r free federal   If you use an accrual method of accounting, you must report interest on U. H&r free federal S. H&r free federal savings bonds each year as it accrues. H&r free federal You cannot postpone reporting interest until you receive it or until the bonds mature. H&r free federal Cash method taxpayers. H&r free federal   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. H&r free federal S. H&r free federal savings bonds when you receive it. H&r free federal But see Reporting options for cash method taxpayers , later. H&r free federal Series HH bonds. H&r free federal   These bonds were issued at face value. H&r free federal Interest is paid twice a year by direct deposit to your bank account. H&r free federal If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. H&r free federal   Series HH bonds were first offered in 1980 and last offered in August 2004. H&r free federal Before 1980, series H bonds were issued. H&r free federal Series H bonds are treated the same as series HH bonds. H&r free federal If you are a cash method taxpayer, you must report the interest when you receive it. H&r free federal   Series H bonds have a maturity period of 30 years. H&r free federal Series HH bonds mature in 20 years. H&r free federal The last series H bonds matured in 2009. H&r free federal The last series HH bonds will mature in 2024. H&r free federal Series EE and series I bonds. H&r free federal   Interest on these bonds is payable when you redeem the bonds. H&r free federal The difference between the purchase price and the redemption value is taxable interest. H&r free federal Series EE bonds. H&r free federal   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. H&r free federal Before July 1980, series E bonds were issued. H&r free federal The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. H&r free federal Paper series EE and series E bonds are issued at a discount. H&r free federal The face value is payable to you at maturity. H&r free federal Electronic series EE bonds are issued at their face value. H&r free federal The face value plus accrued interest is payable to you at maturity. H&r free federal As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. H&r free federal    Owners of paper series EE bonds can convert them to electronic bonds. H&r free federal These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). H&r free federal Series I bonds. H&r free federal   Series I bonds were first offered in 1998. H&r free federal These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. H&r free federal The face value plus all accrued interest is payable to you at maturity. H&r free federal Reporting options for cash method taxpayers. H&r free federal   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. H&r free federal Method 1. H&r free federal Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. H&r free federal (However, see Savings bonds traded , later. H&r free federal )  Note. H&r free federal Series EE bonds issued in 1983 matured in 2013. H&r free federal If you have used method 1, you generally must report the interest on these bonds on your 2013 return. H&r free federal The last series E bonds were issued in 1980 and matured in 2010. H&r free federal If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. H&r free federal Method 2. H&r free federal Choose to report the increase in redemption value as interest each year. H&r free federal  You must use the same method for all series EE, series E, and series I bonds you own. H&r free federal If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. H&r free federal If you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use method 1 because you may be able to exclude the interest from your income. H&r free federal To learn how, see Education Savings Bond Program, later. H&r free federal Change from method 1. H&r free federal   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. H&r free federal In the year of change, you must report all interest accrued to date and not previously reported for all your bonds. H&r free federal   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. H&r free federal Change from method 2. H&r free federal   To change from method 2 to method 1, you must request permission from the IRS. H&r free federal Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. H&r free federal You have typed or printed the following number at the top: “131. H&r free federal ” It includes your name and social security number under “131. H&r free federal ” It includes the year of change (both the beginning and ending dates). H&r free federal It identifies the savings bonds for which you are requesting this change. H&r free federal It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest; and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. H&r free federal   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). H&r free federal   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. H&r free federal On the statement, type or print “Filed pursuant to section 301. H&r free federal 9100-2. H&r free federal ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). H&r free federal    By the date you file the original statement with your return, you must also send a signed copy to the address below. H&r free federal    Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. H&r free federal O. H&r free federal Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. H&r free federal Internal Revenue Service Attention: CC:IT&A  (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW Washington, DC 20224    Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115. H&r free federal In that case, follow the form instructions for an automatic change. H&r free federal No user fee is required. H&r free federal Co-owners. H&r free federal   If a U. H&r free federal S. H&r free federal savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. H&r free federal One co-owner's funds used. H&r free federal   If you used your funds to buy the bond, you must pay the tax on the interest. H&r free federal This is true even if you let the other co-owner redeem the bond and keep all the proceeds. H&r free federal Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. H&r free federal The co-owner who redeemed the bond is a “nominee. H&r free federal ” See Nominee distributions under How To Report Interest Income, later, for more information about how a person who is a nominee reports interest income belonging to another person. H&r free federal Both co-owners' funds used. H&r free federal   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. H&r free federal Community property. H&r free federal   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. H&r free federal If you file separate returns, each of you generally must report one-half of the bond interest. H&r free federal For more information about community property, see Publication 555. H&r free federal Table 1-2. H&r free federal   These rules are also shown in Table 1-2. H&r free federal Child as only owner. H&r free federal   Interest on U. H&r free federal S. H&r free federal savings bonds bought for and registered only in the name of your child is income to your child, even if you paid for the bonds and are named as beneficiary. H&r free federal If the bonds are series EE, series E, or series I bonds, the interest on the bonds is income to your child in the earlier of the year the bonds are cashed or disposed of or the year the bonds mature, unless your child chooses to report the interest income each year. H&r free federal Choice to report interest each year. H&r free federal   The choice to report the accrued interest each year can be made either by your child or by you for your child. H&r free federal This choice is made by filing an income tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. H&r free federal Either you or your child should keep a copy of this return. H&r free federal   Unless your child is otherwise required to file a tax return for any year after making this choice, your child does not have to file a return only to report the annual accrual of U. H&r free federal S. H&r free federal savings bond interest under this choice. H&r free federal However, see Tax on unearned income of certain children , earlier, under General Information. H&r free federal Neither you nor your child can change the way you report the interest unless you request permission from the IRS, as discussed earlier under Change from method 2 . H&r free federal Ownership transferred. H&r free federal   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. H&r free federal But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. H&r free federal   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. H&r free federal Example. H&r free federal You bought series EE bonds entirely with your own funds. H&r free federal You did not choose to report the accrued interest each year. H&r free federal Later, you transfer the bonds to your former spouse under a divorce agreement. H&r free federal You must include the deferred accrued interest, from the date of the original issue of the bonds to the date of transfer, in your income in the year of transfer. H&r free federal Your former spouse includes in income the interest on the bonds from the date of transfer to the date of redemption. H&r free federal Table 1-2. H&r free federal Who Pays the Tax on U. H&r free federal S. H&r free federal Savings Bond Interest IF . H&r free federal . H&r free federal . H&r free federal THEN the interest must be reported by . H&r free federal . H&r free federal . H&r free federal you buy a bond in your name and the name of another person as co-owners, using only your own funds you. H&r free federal you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. H&r free federal you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. H&r free federal you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. H&r free federal If you file separate returns, both you and your spouse generally report one-half of the interest. H&r free federal Purchased jointly. H&r free federal   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. H&r free federal The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. H&r free federal This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. H&r free federal   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. H&r free federal But the new co-owner will report only his or her share of the interest earned after the transfer. H&r free federal   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. H&r free federal Example 1. H&r free federal You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. H&r free federal The bond was issued to you and your spouse as co-owners. H&r free federal You both postpone reporting interest on the bond. H&r free federal You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. H&r free federal At that time neither you nor your spouse has to report the interest earned to the date of reissue. H&r free federal Example 2. H&r free federal You bought a $1,000 series EE savings bond entirely with your own funds. H&r free federal The bond was issued to you and your spouse as co-owners. H&r free federal You both postponed reporting interest on the bond. H&r free federal You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. H&r free federal You must report half the interest earned to the date of reissue. H&r free federal Transfer to a trust. H&r free federal   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. H&r free federal However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. H&r free federal You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. H&r free federal   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. H&r free federal See Savings bonds traded , later. H&r free federal Decedents. H&r free federal   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. H&r free federal Decedent who reported interest each year. H&r free federal   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. H&r free federal The person who acquires the bonds includes in income only interest earned after the date of death. H&r free federal Decedent who postponed reporting interest. H&r free federal   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways. H&r free federal The surviving spouse or personal representative (executor, administrator, etc. H&r free federal ) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. H&r free federal The person who acquires the bonds then includes in income only interest earned after the date of death. H&r free federal If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. H&r free federal All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. H&r free federal If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. H&r free federal In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate. H&r free federal For more information on income in respect of a decedent, see Publication 559, Survivors, Executors, and Administrators. H&r free federal Example 1. H&r free federal Your uncle, a cash method taxpayer, died and left you a $1,000 series EE bond. H&r free federal He had bought the bond for $500 and had not chosen to report the interest each year. H&r free federal At the date of death, interest of $200 had accrued on the bond, and its value of $700 was included in your uncle's estate. H&r free federal Your uncle's executor chose not to include the $200 accrued interest in your uncle's final income tax return. H&r free federal The $200 is income in respect of the decedent. H&r free federal You are a cash method taxpayer and do not choose to report the interest each year as it is earned. H&r free federal If you cash the bond when it reaches maturity value of $1,000, you report $500 interest income—the difference between maturity value of $1,000 and the original cost of $500. H&r free federal For that year, you can deduct (as a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit) any federal estate tax paid because the $200 interest was included in your uncle's estate. H&r free federal Example 2. H&r free federal If, in Example 1 , the executor had chosen to include the $200 accrued interest in your uncle's final return, you would report only $300 as interest when you cashed the bond at maturity. H&r free federal $300 is the interest earned after your uncle's death. H&r free federal Example 3. H&r free federal If, in Example 1 , you make or have made the choice to report the increase in redemption value as interest each year, you include in gross income for the year you acquire the bond all of the unreported increase in value of all series E, series EE, and series I bonds you hold, including the $200 on the bond you inherited from your uncle. H&r free federal Example 4. H&r free federal When your aunt died, she owned series HH bonds that she had acquired in a trade for series EE bonds. H&r free federal You were the beneficiary of these bonds. H&r free federal Your aunt used the cash method and did not choose to report the interest on the series EE bonds each year as it accrued. H&r free federal Your aunt's executor chose not to include any interest earned before your aunt's death on her final return. H&r free federal The income in respect of the decedent is the sum of the unreported interest on the series EE bonds and the interest, if any, payable on the series HH bonds but not received as of the date of your aunt's death. H&r free federal You must report any interest received during the year as income on your return. H&r free federal The part of the interest payable but not received before your aunt's death is income in respect of the decedent and may qualify for the estate tax deduction. H&r free federal For information on when to report the interest on the series EE bonds traded, see Savings bonds traded , later. H&r free federal Savings bonds distributed from a retirement or profit-sharing plan. H&r free federal   If you acquire a U. H&r free federal S. H&r free federal savings bond in a taxable distribution from a retirement or profit-sharing plan, your income for the year of distribution includes the bond's redemption value (its cost plus the interest accrued before the distribution). H&r free federal When you redeem the bond (whether in the year of distribution or later), your interest income includes only the interest accrued after the bond was distributed. H&r free federal To figure the interest reported as a taxable distribution and your interest income when you redeem the bond, see Worksheet for savings bonds distributed from a retirement or profit-sharing plan under How To Report Interest Income, later. H&r free federal Savings bonds traded. H&r free federal   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. H&r free federal (You cannot trade series I bonds for series HH bonds. H&r free federal After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. H&r free federal ) Any cash you received is income up to the amount of the interest earned on the bonds traded. H&r free federal When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. H&r free federal Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. H&r free federal Example. H&r free federal You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. H&r free federal You reported the $223 as taxable income on your tax return. H&r free federal At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. H&r free federal You hold the series HH bonds until maturity, when you receive $2,500. H&r free federal You must report $300 as interest income in the year of maturity. H&r free federal This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). H&r free federal (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. H&r free federal ) Choice to report interest in year of trade. H&r free federal   You could have chosen to treat all of the previously unreported accrued interest on series EE or series E bonds traded for series HH bonds as income in the year of the trade. H&r free federal If you made this choice, it is treated as a change from method 1. H&r free federal See Change from method 1 under Series EE and series I bonds, earlier. H&r free federal Form 1099-INT for U. H&r free federal S. H&r free federal savings bond interest. H&r free federal   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. H&r free federal Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. H&r free federal However, your Form 1099-INT may show more interest than you have to include on your income tax return. H&r free federal For example, this may happen if any of the following are true. H&r free federal You chose to report the increase in the redemption value of the bond each year. H&r free federal The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. H&r free federal You received the bond from a decedent. H&r free federal The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. H&r free federal Ownership of the bond was transferred. H&r free federal The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. H&r free federal You were named as a co-owner, and the other co-owner contributed funds to buy the bond. H&r free federal The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. H&r free federal (See Co-owners , earlier in this section, for more information about the reporting requirements. H&r free federal ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. H&r free federal The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. H&r free federal (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. H&r free federal , for the year of distribution. H&r free federal )   For more information on including the correct amount of interest on your return, see U. H&r free federal S. H&r free federal savings bond interest previously reported or Nominee distributions under How To Report Interest Income, later. H&r free federal    Interest on U. H&r free federal S. H&r free federal savings bonds is exempt from state and local taxes. H&r free federal The Form 1099-INT you receive will indicate the amount that is for U. H&r free federal S. H&r free federal savings bonds interest in box 3. H&r free federal Do not include this income on your state or local income tax return. H&r free federal Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. H&r free federal S. H&r free federal savings bonds during the year if you pay qualified higher educational expenses during the same year. H&r free federal This exclusion is known as the Education Savings Bond Program. H&r free federal You do not qualify for this exclusion if your filing status is married filing separately. H&r free federal Form 8815. H&r free federal   Use Form 8815 to figure your exclusion. H&r free federal Attach the form to your Form 1040 or Form 1040A. H&r free federal Qualified U. H&r free federal S. H&r free federal savings bonds. H&r free federal   A qualified U. H&r free federal S. H&r free federal savings bond is a series EE bond issued after 1989 or a series I bond. H&r free federal The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). H&r free federal You must be at least 24 years old before the bond's issue date. H&r free federal For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. H&r free federal    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. H&r free federal Beneficiary. H&r free federal   You can designate any individual (including a child) as a beneficiary of the bond. H&r free federal Verification by IRS. H&r free federal   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of Treasury. H&r free federal Qualified expenses. H&r free federal   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. H&r free federal   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. H&r free federal For information about these programs, see Publication 970, Tax Benefits for Education. H&r free federal   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. H&r free federal Eligible educational institutions. H&r free federal   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the Department of Education. H&r free federal Reduction for certain benefits. H&r free federal   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. H&r free federal Tax-free part of scholarships and fellowships. H&r free federal Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. H&r free federal Expenses used to figure the tax-free portion of distributions from a qualified tuition program. H&r free federal Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. H&r free federal Any expense used in figuring the American Opportunity and lifetime learning credits. H&r free federal For information about these benefits, see Publication 970. H&r free federal Amount excludable. H&r free federal   If the total proceeds (interest and principal) from the qualified U. H&r free federal S. H&r free federal savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. H&r free federal If the proceeds are more than the expenses, you may be able to exclude only part of the interest. H&r free federal   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. H&r free federal The numer
Print - Click this link to Print this page

Post Filing Issues

Appeals... Resolving Tax Disputes
If you disagree with the results of an audit or IRS Collection actions, you may have the right to an appeal.

Taxpayer Advocate Service 
As an independent organization within the IRS, the Taxpayer Advocate Service helps taxpayers resolve problems with the IRS and recommend changes to prevent the problems.

Federal Tax Liens
Liens give us a legal claim to your property as security or payment for your tax debt.

Levy 
A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

Taxpayer Rights
Whether you file a Form 1040EZ or a complicated corporate return, you will benefit from knowing your rights as a taxpayer and being familiar with the IRS' obligations to protect them.
 

Page Last Reviewed or Updated: 27-Feb-2014

The H&r Free Federal

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