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Instructions For Filing 1040x

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Instructions For Filing 1040x

Instructions for filing 1040x 37. Instructions for filing 1040x   Other Credits Table of Contents What's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld What's New Adoption credit. Instructions for filing 1040x  The maximum adoption credit is $12,970 for 2013. Instructions for filing 1040x See Adoption Credit . Instructions for filing 1040x Plug-in electric vehicle credit. Instructions for filing 1040x  This credit has expired. Instructions for filing 1040x Credit for prior year minimum tax. Instructions for filing 1040x  The refundable portion of the credit for prior year minimum tax has expired. Instructions for filing 1040x Excess withholding of social security and railroad retirement tax. Instructions for filing 1040x  Social security tax and tier 1 railroad retirement (RRTA) tax were both withheld during 2013 at a rate of 6. Instructions for filing 1040x 2% of wages up to $113,700. Instructions for filing 1040x If you worked for more than one employer and had too much social security or RRTA tax withheld during 2013, you may be entitled to a credit for the excess withholding. Instructions for filing 1040x See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld . Instructions for filing 1040x Introduction This chapter discusses the following nonrefundable credits. Instructions for filing 1040x Adoption credit. Instructions for filing 1040x Alternative motor vehicle credit. Instructions for filing 1040x Alternative fuel vehicle refueling property credit. Instructions for filing 1040x Credit to holders of tax credit bonds. Instructions for filing 1040x Foreign tax credit. Instructions for filing 1040x Mortgage interest credit. Instructions for filing 1040x Nonrefundable credit for prior year minimum tax. Instructions for filing 1040x Plug-in electric drive motor vehicle credit. Instructions for filing 1040x Residential energy credits. Instructions for filing 1040x Retirement savings contributions credit. Instructions for filing 1040x This chapter also discusses the following refundable credits. Instructions for filing 1040x Credit for tax on undistributed capital gain. Instructions for filing 1040x Health coverage tax credit. Instructions for filing 1040x Credit for excess social security tax or railroad retirement tax withheld. Instructions for filing 1040x Several other credits are discussed in other chapters in this publication. Instructions for filing 1040x Child and dependent care credit (chapter 32). Instructions for filing 1040x Credit for the elderly or the disabled (chapter 33). Instructions for filing 1040x Child tax credit (chapter 34). Instructions for filing 1040x Education credits (chapter 35). Instructions for filing 1040x Earned income credit (chapter 36). Instructions for filing 1040x Nonrefundable credits. Instructions for filing 1040x   The first part of this chapter, Nonrefundable Credits , covers ten credits that you subtract from your tax. Instructions for filing 1040x These credits may reduce your tax to zero. Instructions for filing 1040x If these credits are more than your tax, the excess is not refunded to you. Instructions for filing 1040x Refundable credits. Instructions for filing 1040x   The second part of this chapter, Refundable Credits , covers three credits that are treated as payments and are refundable to you. Instructions for filing 1040x These credits are added to the federal income tax withheld and any estimated tax payments you made. Instructions for filing 1040x If this total is more than your total tax, the excess will be refunded to you. Instructions for filing 1040x Useful Items - You may want to see: Publication 502 Medical and Dental Expenses 514 Foreign Tax Credit for  Individuals 530 Tax Information for Homeowners 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 1116 Foreign Tax Credit 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 5695 Residential Energy Credits 8396 Mortgage Interest Credit 8801 Credit For Prior Year Minimum Tax — Individuals, Estates, and Trusts 8828 Recapture of Federal Mortgage Subsidy 8839 Qualified Adoption Expenses 8880 Credit for Qualified Retirement Savings Contributions 8885 Health Coverage Tax Credit 8910 Alternative Motor Vehicle Credit 8911 Alternative Fuel Vehicle Refueling Property Credit 8912 Credit to Holders of Tax Credit Bonds 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit Nonrefundable Credits The credits discussed in this part of the chapter can reduce your tax. Instructions for filing 1040x However, if the total of these credits is more than your tax, the excess is not refunded to you. Instructions for filing 1040x Adoption Credit You may be able to take a tax credit of up to $12,970 for qualified expenses paid to adopt an eligible child. Instructions for filing 1040x The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses. Instructions for filing 1040x If your modified adjusted gross income (AGI) is more than $194,580, your credit is reduced. Instructions for filing 1040x If your modified AGI is $234,580 or more, you cannot take the credit. Instructions for filing 1040x Qualified adoption expenses. Instructions for filing 1040x   Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. Instructions for filing 1040x These expenses include: Adoption fees, Court costs, Attorney fees, Travel expenses (including amounts spent for meals and lodging) while away from home, and Re-adoption expenses to adopt a foreign child. Instructions for filing 1040x Nonqualified expenses. Instructions for filing 1040x   Qualified adoption expenses do not include expenses: That violate state or federal law, For carrying out any surrogate parenting arrangement, For the adoption of your spouse's child, For which you received funds under any federal, state, or local program, Allowed as a credit or deduction under any other federal income tax rule, or Paid or reimbursed by your employer or any other person or organization. Instructions for filing 1040x Eligible child. Instructions for filing 1040x   The term “eligible child” means any individual: Under 18 years old, or Physically or mentally incapable of caring for himself or herself. Instructions for filing 1040x Child with special needs. Instructions for filing 1040x   An eligible child is a child with special needs if all three of the following apply. Instructions for filing 1040x The child was a citizen or resident of the United States (including U. Instructions for filing 1040x S. Instructions for filing 1040x possessions) at the time the adoption process began. Instructions for filing 1040x A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home. Instructions for filing 1040x The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Instructions for filing 1040x Factors used by states to make this determination include: The child's ethnic background, The child's age, Whether the child is a member of a minority or sibling group, and Whether the child has a medical condition or a physical, mental, or emotional handicap. Instructions for filing 1040x When to take the credit. Instructions for filing 1040x   Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. Instructions for filing 1040x If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. Instructions for filing 1040x See the Instructions for Form 8839 for more specific information on when to take the credit. Instructions for filing 1040x Foreign child. Instructions for filing 1040x   If the child is not a U. Instructions for filing 1040x S. Instructions for filing 1040x citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. Instructions for filing 1040x You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   Figure your 2013 nonrefundable credit and any carryforward to 2014 on Form 8839 and attach it to your Form 1040. Instructions for filing 1040x Include the credit in your total for Form 1040, line 53. Instructions for filing 1040x Check box c and enter “8839” on the line next to that box. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information, see the Instructions for Form 8839. Instructions for filing 1040x Alternative Motor Vehicle Credit You may be able to take this credit if you place a qualified fuel cell vehicle in service in 2013. Instructions for filing 1040x Amount of credit. Instructions for filing 1040x   Generally, you can rely on the manufacturer's certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies. Instructions for filing 1040x In the case of a foreign manufacturer, you generally can rely on its domestic distributor's certification to the IRS. Instructions for filing 1040x   Ordinarily the amount of the credit is 100% of the manufacturer's (or domestic distributor's) certification to the IRS of the maximum credit allowable. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   To take the credit, you must complete Form 8910 and attach it to your Form 1040. Instructions for filing 1040x Include the credit in your total for Form 1040, line 53. Instructions for filing 1040x Check box c and enter “8910” on the line next to that box. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit, see the Instructions for Form 8910. Instructions for filing 1040x Alternative Fuel Vehicle Refueling Property Credit You may be able to take a credit if you place qualified alternative fuel vehicle refueling property in service in 2013. Instructions for filing 1040x Qualified alternative fuel vehicle refueling property. Instructions for filing 1040x   Qualified alternative fuel vehicle refueling property is any property (other than a building or its structural components) used for either of the following. Instructions for filing 1040x To store or dispense alternative fuel into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into that tank. Instructions for filing 1040x To recharge an electric vehicle, but only if the recharging property is located at the point where the vehicle is recharged. Instructions for filing 1040x   The following are alternative fuels. Instructions for filing 1040x Any fuel at least 85% of the volume of which consists of one or more of the following: ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen. Instructions for filing 1040x Any mixture which consists of two or more of the following: biodiesel, diesel fuel, or kerosene, and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene. Instructions for filing 1040x Electricity. Instructions for filing 1040x Amount of the credit. Instructions for filing 1040x   For personal use property, the credit is generally the smaller of 30% of the property's cost or $1,000. Instructions for filing 1040x For business use property, the credit is generally the smaller of 30% of the property's cost or $30,000. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   To take the credit, you must complete Form 8911 and attach it to your Form 1040. Instructions for filing 1040x Include the credit in your total for Form 1040, line 53. Instructions for filing 1040x Check box c and enter “8911” on the line next to that box. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit, see the Form 8911 instructions. Instructions for filing 1040x Credit to Holders of Tax Credit Bonds Tax credit bonds are bonds in which the holder receives a tax credit in lieu of some or all of the interest on the bond. Instructions for filing 1040x You may be able to take a credit if you are a holder of one of the following bonds. Instructions for filing 1040x Clean renewable energy bonds (issued before 2010). Instructions for filing 1040x New clean renewable energy bonds. Instructions for filing 1040x Qualified energy conservation bonds. Instructions for filing 1040x Qualified school construction bonds. Instructions for filing 1040x Qualified zone academy bonds. Instructions for filing 1040x Build America bonds. Instructions for filing 1040x In some instances, an issuer may elect to receive a credit for interest paid on the bond. Instructions for filing 1040x If the issuer makes this election, you cannot also claim a credit. Instructions for filing 1040x Interest income. Instructions for filing 1040x   The amount of any tax credit allowed (figured before applying tax liability limits) must be included as interest income on your tax return. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   Complete Form 8912 and attach it to your Form 1040. Instructions for filing 1040x Include the credit in your total for Form 1040, line 53. Instructions for filing 1040x Check box c and enter “8912” on the line next to that box. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information, see the Instructions for Form 8912. Instructions for filing 1040x Foreign Tax Credit You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U. Instructions for filing 1040x S. Instructions for filing 1040x possession as a credit against your U. Instructions for filing 1040x S. Instructions for filing 1040x income tax. Instructions for filing 1040x Or, you can deduct them as an itemized deduction (see chapter 22). Instructions for filing 1040x You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U. Instructions for filing 1040x S. Instructions for filing 1040x tax under any of the following. Instructions for filing 1040x Foreign earned income exclusion. Instructions for filing 1040x Foreign housing exclusion. Instructions for filing 1040x Income from Puerto Rico exempt from U. Instructions for filing 1040x S. Instructions for filing 1040x tax. Instructions for filing 1040x Possession exclusion. Instructions for filing 1040x Limit on the credit. Instructions for filing 1040x   Unless you can elect not to file Form 1116 (see Exception , later), your foreign tax credit cannot be more than your U. Instructions for filing 1040x S. Instructions for filing 1040x tax liability (Form 1040, line 44), multiplied by a fraction. Instructions for filing 1040x The numerator of the fraction is your taxable income from sources outside the United States. Instructions for filing 1040x The denominator is your total taxable income from U. Instructions for filing 1040x S. Instructions for filing 1040x and foreign sources. Instructions for filing 1040x See Publication 514 for more information. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   Complete Form 1116 and attach it to your Form 1040. Instructions for filing 1040x Enter the credit on Form 1040, line 47. Instructions for filing 1040x Exception. Instructions for filing 1040x   You do not have to complete Form 1116 to take the credit if all of the following apply. Instructions for filing 1040x All of your gross foreign source income was from interest and dividends and all of that income and the foreign tax paid on it were reported to you on Form 1099-INT, Form 1099-DIV, or Schedule K-1 (or substitute statement). Instructions for filing 1040x If you had dividend income from shares of stock, you held those shares for at least 16 days. Instructions for filing 1040x You are not filing Form 4563 or excluding income from sources within Puerto Rico. Instructions for filing 1040x The total of your foreign taxes was not more than $300 (not more than $600 if married filing jointly). Instructions for filing 1040x All of your foreign taxes were: Legally owed and not eligible for a refund, and Paid to countries that are recognized by the United States and do not support terrorism. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit and these requirements, see the Instructions for Form 1116. Instructions for filing 1040x Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals own a home. Instructions for filing 1040x If you qualify, you can take the credit each year for part of the home mortgage interest you pay. Instructions for filing 1040x Who qualifies. Instructions for filing 1040x   You may be eligible for the credit if you were issued a qualified mortgage credit certificate (MCC) from your state or local government. Instructions for filing 1040x Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Instructions for filing 1040x Amount of credit. Instructions for filing 1040x   Figure your credit on Form 8396. Instructions for filing 1040x If your mortgage loan amount is equal to (or smaller than) the certified indebtedness (loan) amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Instructions for filing 1040x   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Instructions for filing 1040x To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Instructions for filing 1040x      Certified indebtedness amount on your MCC     Original amount of your mortgage   Limit based on credit rate. Instructions for filing 1040x   If the certificate credit rate is more than 20%, the credit you are allowed cannot be more than $2,000. Instructions for filing 1040x If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, this $2,000 limit must be divided based on the interest held by each person. Instructions for filing 1040x See Publication 530 for more information. Instructions for filing 1040x Carryforward. Instructions for filing 1040x   Your credit (after applying the limit based on the credit rate) is also subject to a limit based on your tax that is figured using Form 8396. Instructions for filing 1040x If your allowable credit is reduced because of this tax liability limit, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Instructions for filing 1040x   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Instructions for filing 1040x How to take the credit. Instructions for filing 1040x    Figure your 2013 credit and any carryforward to 2014 on Form 8396, and attach it to your Form 1040. Instructions for filing 1040x Be sure to include any credit carryforward from 2010, 2011, and 2012. Instructions for filing 1040x   Include the credit in your total for Form 1040, line 53. Instructions for filing 1040x Check box c and enter “8396” on the line next to that box. Instructions for filing 1040x Reduced home mortgage interest deduction. Instructions for filing 1040x   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Instructions for filing 1040x You must do this even if part of that amount is to be carried forward to 2014. Instructions for filing 1040x For more information about the home mortgage interest deduction, see chapter 23. Instructions for filing 1040x Recapture of federal mortgage subsidy. Instructions for filing 1040x   If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. Instructions for filing 1040x The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. Instructions for filing 1040x See the Instructions for Form 8828 and chapter 15 for more information. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit, see the Form 8396 instructions. Instructions for filing 1040x Nonrefundable Credit for Prior Year Minimum Tax The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. Instructions for filing 1040x If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. Instructions for filing 1040x This is called the alternative minimum tax. Instructions for filing 1040x The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. Instructions for filing 1040x If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year's regular tax. Instructions for filing 1040x You may be able to take a credit against your regular tax if for 2012 you had: An alternative minimum tax liability and adjustments or preferences other than exclusion items, A minimum tax credit that you are carrying forward to 2013, or An unallowed qualified electric vehicle credit. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x    Figure your 2013 nonrefundable credit (if any), and any carryforward to 2014 on Form 8801, and attach it to your Form 1040. Instructions for filing 1040x Include the credit in your total for Form 1040, line 53, and check box b. Instructions for filing 1040x You can carry forward any unused credit for prior year minimum tax to later years until it is completely used. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit, see the Instructions for Form 8801. Instructions for filing 1040x Plug-in Electric Drive Motor Vehicle Credit You may be able to take this credit if you placed in service for business or personal use a qualified plug-in electric drive motor vehicle or a qualified two- or three-wheeled plug-in electric vehicle in 2013 and you meet some other requirements. Instructions for filing 1040x Qualified plug-in electric drive motor vehicle. Instructions for filing 1040x   This is a new vehicle with at least four wheels that: Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Instructions for filing 1040x Qualified two- or three-wheeled plug-in electric vehicle. Instructions for filing 1040x   This is a new vehicle with two or three wheels that: Is capable of achieving a speed of 45 miles per hour or greater, Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 2. Instructions for filing 1040x 5 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Instructions for filing 1040x Certification and other requirements. Instructions for filing 1040x   Generally, you can rely on the manufacturer's (or, in the case of a foreign manufacturer, its domestic distributor's) certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and, if applicable, the amount of the credit for which it qualifies. Instructions for filing 1040x However, if the IRS publishes an announcement that the certification for any specific make, model, and model year vehicle has been withdrawn, you cannot rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement. Instructions for filing 1040x   The following requirements must also be met to qualify for the credit. Instructions for filing 1040x You are the owner of the vehicle. Instructions for filing 1040x If the vehicle is leased, only the lessor, and not the lessee, is entitled to the credit. Instructions for filing 1040x You placed the vehicle in service during 2013. Instructions for filing 1040x The vehicle is manufactured primarily for use on public streets, roads, and highways. Instructions for filing 1040x The original use of the vehicle began with you. Instructions for filing 1040x You acquired the vehicle for your use or to lease to others, and not for resale. Instructions for filing 1040x In the case of the qualified two- or three-wheeled plug-in electric vehicle, the vehicle is acquired after 2011 and before 2014. Instructions for filing 1040x You use the vehicle primarily in the United States. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   To take the credit, you must complete Form 8936 and attach it to your Form 1040. Instructions for filing 1040x Include the credit in your total for Form 1040, line 53. Instructions for filing 1040x Check box c and enter “8936” on the line next to that box. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit, see the Form 8936 instructions. Instructions for filing 1040x Residential Energy Credits You may be able to take one or both of the following credits if you made energy saving improvements to your home located in the United States in 2013. Instructions for filing 1040x Nonbusiness energy property credit. Instructions for filing 1040x Residential energy efficient property credit. Instructions for filing 1040x If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of the association or corporation for purposes of these credits. Instructions for filing 1040x Nonbusiness energy property credit. Instructions for filing 1040x   You may be able to take a credit equal to the sum of: 10% of the amount paid or incurred for qualified energy efficiency improvements installed during 2013, and Any residential energy property costs paid or incurred in 2013. Instructions for filing 1040x   There is a lifetime limit of $500 for all years after 2005, of which only $200 can be for windows; $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property. Instructions for filing 1040x    If the total of nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you cannot take this credit in 2013. Instructions for filing 1040x   Qualified energy efficiency improvements are the following improvements that are new, can be expected to remain in use at least 5 years, and meet certain requirements for energy efficiency. Instructions for filing 1040x Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home. Instructions for filing 1040x Exterior window (including skylights). Instructions for filing 1040x Exterior doors. Instructions for filing 1040x Any metal or asphalt roof that has appropriate pigmented coatings or cooling granules specifically and primarily designed to reduce heat gain of the home. Instructions for filing 1040x   Residential energy property is any of the following. Instructions for filing 1040x Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heater; and stoves that use biomass fuel. Instructions for filing 1040x Qualified natural gas, propane, or oil furnaces; and qualified natural gas, propane, or oil hot water boilers. Instructions for filing 1040x Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces. Instructions for filing 1040x Residential energy efficient property credit. Instructions for filing 1040x   You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, fuel cell property, small wind energy property, and geothermal heat pump property. Instructions for filing 1040x The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property. Instructions for filing 1040x Basis reduction. Instructions for filing 1040x   You must reduce the basis of your home by the amount of any credit allowed. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   Complete Form 5695 and attach it to your Form 1040. Instructions for filing 1040x Enter the credit on Form 1040, line 52. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on these credits, see the Form 5695 instructions. Instructions for filing 1040x Retirement Savings Contributions Credit (Saver's Credit) You may be able to take this credit if you, or your spouse if filing jointly, made: Contributions (other than rollover contributions) to a traditional or Roth IRA, Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan, Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan), or Contributions to a 501(c)(18)(D) plan. Instructions for filing 1040x However, you cannot take the credit if either of the following applies. Instructions for filing 1040x The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $29,500 ($44,250 if head of household; $59,000 if married filing jointly). Instructions for filing 1040x The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1996, (b) is claimed as a dependent on someone else's 2013 tax return, or (c) was a student (defined next). Instructions for filing 1040x Student. Instructions for filing 1040x   You were a student if during any part of 5 calendar months of 2013 you: Were enrolled as a full-time student at a school, or Took a full-time, on-farm training course given by a school or a state, county, or local government agency. Instructions for filing 1040x School. Instructions for filing 1040x   A school includes a technical, trade, or mechanical school. Instructions for filing 1040x It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   Figure the credit on Form 8880. Instructions for filing 1040x Enter the credit on your Form 1040, line 50, or your Form 1040A, line 32, and attach Form 8880 to your return. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit, see the Form 8880 instructions. Instructions for filing 1040x Refundable Credits The credits discussed in this part of the chapter are treated as payments of tax. Instructions for filing 1040x If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you. Instructions for filing 1040x Credit for Tax on Undistributed Capital Gain You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. Instructions for filing 1040x If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. Instructions for filing 1040x The mutual fund or REIT will send you Form 2439 showing your share of the undistributed capital gains and the tax paid, if any. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   To take the credit, attach Copy B of Form 2439 to your Form 1040. Instructions for filing 1040x Include the amount from box 2 of your Form 2439 in the total for Form 1040, line 71, and check box a. Instructions for filing 1040x More information. Instructions for filing 1040x   See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains. Instructions for filing 1040x Health Coverage Tax Credit You may be able to take this credit for any month in which all the following statements were true on the first day of the month. Instructions for filing 1040x You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later); or you were a qualified family member of one of these individuals when the individual died or you finalized a divorce with one of these individuals. Instructions for filing 1040x You and/or your family members were covered by a qualified health insurance plan for which you paid the entire premiums, or your portion of the premiums, directly to your health plan or to “U. Instructions for filing 1040x S. Instructions for filing 1040x Treasury–HCTC. Instructions for filing 1040x ” You were not enrolled in Medicare Part A, B, or C, or you were enrolled in Medicare but your family member(s) qualified for the HCTC. Instructions for filing 1040x You were not enrolled in Medicaid or the Children's Health Insurance Program (CHIP). Instructions for filing 1040x You were not enrolled in the Federal Employees Health Benefits program (FEHBP) or eligible to receive benefits under the U. Instructions for filing 1040x S. Instructions for filing 1040x military health system (TRICARE). Instructions for filing 1040x You were not imprisoned under federal, state, or local authority. Instructions for filing 1040x Your employer did not pay 50% or more of the cost of coverage. Instructions for filing 1040x You did not receive a 65% COBRA premium reduction from your former employer or COBRA administrator. Instructions for filing 1040x But, you cannot take the credit if you can be claimed as a dependent on someone else's 2013 tax return. Instructions for filing 1040x If you meet all of these conditions, you may be able to take a credit of up to 72. Instructions for filing 1040x 5% of the amount you paid directly to a qualified health plan for you and any qualifying family members. Instructions for filing 1040x You cannot take the credit for insurance premiums on coverage that was actually paid for with a National Emergency Grant. Instructions for filing 1040x The amount you paid for qualified health insurance coverage must be reduced by any Archer MSA and health savings account distributions used to pay for the coverage. Instructions for filing 1040x You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. Instructions for filing 1040x If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return. Instructions for filing 1040x TAA recipient. Instructions for filing 1040x   You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you: Received a trade readjustment allowance, or Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied). Instructions for filing 1040x Example. Instructions for filing 1040x You received a trade adjustment allowance for January 2013. Instructions for filing 1040x You were an eligible TAA recipient on the first day of January and February. Instructions for filing 1040x Alternative TAA recipient. Instructions for filing 1040x   You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor. Instructions for filing 1040x Example. Instructions for filing 1040x You received benefits under an alternative trade adjustment assistance program for older workers for October 2013. Instructions for filing 1040x The program was established by the Department of Labor. Instructions for filing 1040x You were an eligible alternative TAA recipient on the first day of October and November. Instructions for filing 1040x RTAA recipient. Instructions for filing 1040x   You were an eligible RTAA recipient on the first day of the month if, for that month or the prior month, you received benefits under a reemployment trade adjustment assistance program for older workers established by the Department of Labor. Instructions for filing 1040x PBGC pension recipient. Instructions for filing 1040x   You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply. Instructions for filing 1040x You were age 55 or older on the first day of the month. Instructions for filing 1040x You received a benefit for that month paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Instructions for filing 1040x If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment. Instructions for filing 1040x How to take the credit. Instructions for filing 1040x   To take the credit, complete Form 8885 and attach it to your Form 1040. Instructions for filing 1040x Include your credit in the total for Form 1040, line 71, and check box c. Instructions for filing 1040x   You must attach health insurance bills (or COBRA payment coupons) and proof of payment for any amounts you include on Form 8885, line 2. Instructions for filing 1040x For details, see Publication 502 or Form 8885. Instructions for filing 1040x More information. Instructions for filing 1040x   For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, the effect of certain life events, and employer-sponsored health insurance plans, see Publication 502 and the Form 8885 instructions. Instructions for filing 1040x Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Most employers must withhold social security tax from your wages. Instructions for filing 1040x If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. Instructions for filing 1040x If you worked for two or more employers in 2013, you may have had too much social security tax withheld from your pay. Instructions for filing 1040x If one or more of those employers was a railroad employer, too much tier 1 RRTA tax may also have been withheld at the 6. Instructions for filing 1040x 2% rate. Instructions for filing 1040x You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax when you file your return. Instructions for filing 1040x For the tier 1 RRTA tax, only use the portion of the tier 1 RRTA tax that was taxed at the 6. Instructions for filing 1040x 2% rate when figuring if excess tier 1 RRTA tax was withheld; do not include any portion of the tier 1 RRTA tax that was withheld at the Medicare tax rate (1. Instructions for filing 1040x 45%) or the Additional Medicare Tax rate (. Instructions for filing 1040x 9%). Instructions for filing 1040x The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2013. Instructions for filing 1040x Type of tax Maximum  wages subject to tax Maximum tax that should have been withheld Social security or RRTA tier 1 $113,700 $7,049. Instructions for filing 1040x 40 RRTA tier 2 $84,300 $3,709. Instructions for filing 1040x 20 All wages are subject to Medicare tax withholding. Instructions for filing 1040x   Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. Instructions for filing 1040x Be sure to attach a copy of all of your W-2 forms. Instructions for filing 1040x Use Worksheet 3-3 in Publication 505, Tax Withholding and Estimated Tax, to help you figure the excess amount. Instructions for filing 1040x Employer's error. Instructions for filing 1040x   If any one employer withheld too much social security or tier 1 RRTA tax, you cannot take the excess as a credit against your income tax. Instructions for filing 1040x The employer should adjust the tax for you. Instructions for filing 1040x If the employer does not adjust the overcollection, you can file a claim for refund using Form 843. Instructions for filing 1040x Joint return. Instructions for filing 1040x   If you are filing a joint return, you cannot add the social security or tier 1 RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Instructions for filing 1040x Figure the withholding separately for you and your spouse to determine if either of you has excess withholding. Instructions for filing 1040x How to figure the credit if you did not work for a railroad. Instructions for filing 1040x   If you did not work for a railroad during 2013, figure the credit as follows: 1. Instructions for filing 1040x Add all social security tax withheld (but not more than $7,049. Instructions for filing 1040x 40 for each employer). Instructions for filing 1040x Enter the total here   2. Instructions for filing 1040x Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Instructions for filing 1040x Add lines 1 and 2. Instructions for filing 1040x If $7,049. Instructions for filing 1040x 40 or less, stop here. Instructions for filing 1040x You cannot take  the credit   4. Instructions for filing 1040x Social security tax limit 7,049. Instructions for filing 1040x 40 5. Instructions for filing 1040x Credit. Instructions for filing 1040x Subtract line 4 from line 3. Instructions for filing 1040x Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ Example. Instructions for filing 1040x You are married and file a joint return with your spouse who had no gross income in 2013. Instructions for filing 1040x During 2013, you worked for the Brown Technology Company and earned $60,000 in wages. Instructions for filing 1040x Social security tax of $3,720 was withheld. Instructions for filing 1040x You also worked for another employer in 2013 and earned $55,000 in wages. Instructions for filing 1040x $3,410 of social security tax was withheld from these wages. Instructions for filing 1040x Because you worked for more than one employer and your total wages were more than $113,700, you can take a credit of $80. Instructions for filing 1040x 60 for the excess social security tax withheld. Instructions for filing 1040x 1. Instructions for filing 1040x Add all social security tax withheld (but not more than $7,049. Instructions for filing 1040x 40 for each employer). Instructions for filing 1040x Enter the total here $7,130. Instructions for filing 1040x 00 2. Instructions for filing 1040x Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT” -0- 3. Instructions for filing 1040x Add lines 1 and 2. Instructions for filing 1040x If $7,049. Instructions for filing 1040x 40 or less, stop here. Instructions for filing 1040x You cannot take the credit 7,130. Instructions for filing 1040x 00 4. Instructions for filing 1040x Social security tax limit 7,049. Instructions for filing 1040x 40 5. Instructions for filing 1040x Credit. Instructions for filing 1040x Subtract line 4 from line 3. Instructions for filing 1040x Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $80. Instructions for filing 1040x 60 How to figure the credit if you worked for a railroad. Instructions for filing 1040x   If you were a railroad employee at any time during 2013, figure the credit as follows: 1. Instructions for filing 1040x Add all social security and tier 1 RRTA tax withheld at the 6. Instructions for filing 1040x 2% rate (but not more than $7,049. Instructions for filing 1040x 40 for each employer). Instructions for filing 1040x Enter the total here   2. Instructions for filing 1040x Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Instructions for filing 1040x Add lines 1 and 2. Instructions for filing 1040x If $7,049. Instructions for filing 1040x 40 or less, stop here. Instructions for filing 1040x You cannot take  the credit   4. Instructions for filing 1040x Social security and tier 1 RRTA  tax limit 7,049. Instructions for filing 1040x 40 5. Instructions for filing 1040x Credit. Instructions for filing 1040x Subtract line 4 from line 3. Instructions for filing 1040x Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ How to take the credit. Instructions for filing 1040x   Enter the credit on Form 1040, line 69, or include it in the total for Form 1040A, line 41. Instructions for filing 1040x More information. Instructions for filing 1040x   For more information on the credit, see Publication 505. Instructions for filing 1040x Prev  Up  Next   Home   More Online Publications
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The Premium Tax Credit

 

Facts about the Premium Tax Credit

 

Publication 5120 –Your Credit, Your Choice – Get it Now or Get it Later   English | Spanish

 

Publication 5121 –Need help paying for health insurance premiums?   English | Spanish

 

NOTE - The following information does not affect your 2013 tax return that you are filing in 2014. You do not need to file a 2013 federal tax return solely to establish eligibility or qualify for advance payment of the premium tax credit.
 

Basic Information

Starting in 2014, if you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit. This tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. The open enrollment period to purchase health insurance coverage for 2014 through the Marketplace runs from Oct. 1, 2013, through March 31, 2014.

The Department of Health and Human Services administers the requirements for the Marketplace and the health plans they offer. For more information about your coverage options, financial assistance and the Marketplace, visit HealthCare.gov.

Eligibility

In general, you may be eligible for the credit if you meet all of the following:

  • buy health insurance through the Marketplace;
  • are ineligible for coverage through an employer or government plan;
  • are within certain income limits;
  • do not file a Married Filing Separately tax return (unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year); and
  • cannot be claimed as a dependent by another person.

Filing Status

If you file your tax return using the filing status Single, Married Filing Jointly, Head of Household (including married individuals who qualify to use the Head of Household status) or Qualifying Widow/Widower, you may be eligible for the premium tax credit if you meet the other criteria. If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year.

Getting the Credit

To qualify for the credit, you must get insurance through the Marketplace.

If you are eligible for the credit, you can choose to:

  • Get It Now: have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014; or
  • Get It Later: wait to get all of the credit when you file your 2014 tax return in 2015.

During enrollment through the Marketplace, using information you provide about your projected income and family composition for 2014, the Marketplace will estimate the amount of the premium tax credit you will be able to claim for the 2014 tax year that you will file in 2015.

You will then decide whether you want to have all, some or none of your estimated credit paid in advance directly to your insurance company.

Change in Circumstances

Report income and family size changes to the Marketplace throughout the year. Reporting changes will help make sure you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance. Receiving too much or too little in advance can affect your refund or balance due when you file your 2014 tax return in 2015.

For example, if you do not report income or family size changes to the Marketplace when they happen in 2014, the advance payments may not match your actual qualified credit amount on your federal tax return that you will file in 2015. This might result in a smaller refund or a balance due.

Claiming the Credit on Your Federal Tax Return

For any tax year, if you receive advance credit payments in any amount or if you plan to claim the premium tax credit, you must file a federal income tax return for that year. 

If you choose to get it now: When you file your 2014 tax return in 2015, you will subtract the total advance payments you received during the year from the amount of the premium tax credit calculated on your tax return. If the premium tax credit computed on the return is more than the advance payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. If the advance credit payments are more than the premium tax credit, the difference will increase the amount you owe and result in either a smaller refund or a balance due.

If you choose to get it later: You will claim the full amount of the premium tax credit when you file your 2014 tax return in 2015. This will either increase your refund or lower your balance due.

More Information

More detailed information about the credit is available in our Questions and Answers.
The Department of the Treasury and the IRS issued the following legal guidance related to the premium tax credit:

  • Final regulations on the rules for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit.
  • Final regulations on the premium tax credit affordability test for related individuals.
  • Proposed regulations on determining minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit.
  • Notice 2013-41 on determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high risk pool programs.

An electronic flyer (Publication 5120 English | Spanish ) and trifold (Publication 5121 English | Spanish ) entitled Facts about the Premium Tax Credit are available for public use and distribution.

 

Page Last Reviewed or Updated: 26-Mar-2014

The Instructions For Filing 1040x

Instructions for filing 1040x 5. Instructions for filing 1040x   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Instructions for filing 1040x Short-term lease. Instructions for filing 1040x Retail space. Instructions for filing 1040x Qualified long-term real property. Instructions for filing 1040x Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Instructions for filing 1040x If there is a connection between any income you receive and your business, the income is business income. Instructions for filing 1040x A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Instructions for filing 1040x You can have business income even if you are not involved in the activity on a regular full-time basis. Instructions for filing 1040x Income from work you do on the side in addition to your regular job can be business income. Instructions for filing 1040x You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Instructions for filing 1040x But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Instructions for filing 1040x For information on selling business assets, see chapter 3. Instructions for filing 1040x Nonemployee compensation. Instructions for filing 1040x Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Instructions for filing 1040x This includes amounts reported as nonemployee compensation in box 7 of the form. Instructions for filing 1040x You can find more information in the instructions on the back of the Form 1099-MISC you received. Instructions for filing 1040x Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Instructions for filing 1040x In most cases, your business income will be in the form of cash, checks, and credit card charges. Instructions for filing 1040x But business income can be in other forms, such as property or services. Instructions for filing 1040x These and other types of income are explained next. Instructions for filing 1040x If you are a U. Instructions for filing 1040x S. Instructions for filing 1040x citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Instructions for filing 1040x S. Instructions for filing 1040x law. Instructions for filing 1040x If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Instructions for filing 1040x For details, see Publication 54, Tax Guide for U. Instructions for filing 1040x S. Instructions for filing 1040x Citizens and Resident Aliens Abroad. Instructions for filing 1040x Bartering for Property or Services Bartering is an exchange of property or services. Instructions for filing 1040x You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Instructions for filing 1040x If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Instructions for filing 1040x Example 1. Instructions for filing 1040x You are a self-employed lawyer. Instructions for filing 1040x You perform legal services for a client, a small corporation. Instructions for filing 1040x In payment for your services, you receive shares of stock in the corporation. Instructions for filing 1040x You must include the fair market value of the shares in income. Instructions for filing 1040x Example 2. Instructions for filing 1040x You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Instructions for filing 1040x You must include the fair rental value of the apartment in your gross receipts. Instructions for filing 1040x Your landlord must include the fair market value of the work of art in his or her rental income. Instructions for filing 1040x Example 3. Instructions for filing 1040x You are a self-employed accountant. Instructions for filing 1040x Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Instructions for filing 1040x Members get in touch with other members directly and bargain for the value of the services to be performed. Instructions for filing 1040x In return for accounting services you provided for the house painter's business, the house painter painted your home. Instructions for filing 1040x You must include in gross receipts the fair market value of the services you received from the house painter. Instructions for filing 1040x The house painter must include the fair market value of your accounting services in his or her gross receipts. Instructions for filing 1040x Example 4. Instructions for filing 1040x You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Instructions for filing 1040x As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Instructions for filing 1040x You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Instructions for filing 1040x The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Instructions for filing 1040x It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Instructions for filing 1040x See Publication 15 (Circular E), Employer's Tax Guide. Instructions for filing 1040x Example 5. Instructions for filing 1040x You operate a plumbing business and use the cash method of accounting. Instructions for filing 1040x You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Instructions for filing 1040x Each member has access to a directory that lists the members of the club and the services available. Instructions for filing 1040x Members contact each other directly and request services to be performed. Instructions for filing 1040x You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Instructions for filing 1040x You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Instructions for filing 1040x Information returns. Instructions for filing 1040x   If you are involved in a bartering transaction, you may have to file either of the following forms. Instructions for filing 1040x Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Instructions for filing 1040x Form 1099-MISC, Miscellaneous Income. Instructions for filing 1040x For information about these forms, see the General Instructions for Certain Information Returns. Instructions for filing 1040x Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Instructions for filing 1040x , who provides services (maid services, etc. Instructions for filing 1040x ) for guests, report the rental income and expenses on Schedule C or C-EZ. Instructions for filing 1040x If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Instructions for filing 1040x For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Instructions for filing 1040x Real estate dealer. Instructions for filing 1040x   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Instructions for filing 1040x Rent you receive from real estate held for sale to customers is subject to SE tax. Instructions for filing 1040x However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Instructions for filing 1040x Trailer park owner. Instructions for filing 1040x   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Instructions for filing 1040x    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Instructions for filing 1040x Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Instructions for filing 1040x   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Instructions for filing 1040x   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Instructions for filing 1040x Hotels, boarding houses, and apartments. Instructions for filing 1040x   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Instructions for filing 1040x   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Instructions for filing 1040x An example of a service that is not normally provided for the convenience of the occupants is maid service. Instructions for filing 1040x However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Instructions for filing 1040x Prepaid rent. Instructions for filing 1040x   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Instructions for filing 1040x This is true no matter what accounting method or period you use. Instructions for filing 1040x Lease bonus. Instructions for filing 1040x   A bonus you receive from a lessee for granting a lease is an addition to the rent. Instructions for filing 1040x Include it in your gross receipts in the year received. Instructions for filing 1040x Lease cancellation payments. Instructions for filing 1040x   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Instructions for filing 1040x Payments to third parties. Instructions for filing 1040x   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Instructions for filing 1040x A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Instructions for filing 1040x Settlement payments. Instructions for filing 1040x   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Instructions for filing 1040x Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Instructions for filing 1040x ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Instructions for filing 1040x Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Instructions for filing 1040x If you receive any of those payments, include them in your gross receipts as explained in that discussion. Instructions for filing 1040x Interest and Dividend Income Interest and dividends may be considered business income. Instructions for filing 1040x Interest. Instructions for filing 1040x   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Instructions for filing 1040x Interest received on loans is business income if you are in the business of lending money. Instructions for filing 1040x Uncollectible loans. Instructions for filing 1040x   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Instructions for filing 1040x If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Instructions for filing 1040x See Bad Debts in chapter 8. Instructions for filing 1040x Unstated interest. Instructions for filing 1040x   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Instructions for filing 1040x See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Instructions for filing 1040x Dividends. Instructions for filing 1040x   Generally, dividends are business income to dealers in securities. Instructions for filing 1040x For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Instructions for filing 1040x If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Instructions for filing 1040x   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Instructions for filing 1040x To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Instructions for filing 1040x Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Instructions for filing 1040x General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Instructions for filing 1040x Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Instructions for filing 1040x If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Instructions for filing 1040x Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Instructions for filing 1040x Price reduced after purchase. Instructions for filing 1040x   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Instructions for filing 1040x Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Instructions for filing 1040x Deductible debt. Instructions for filing 1040x   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Instructions for filing 1040x Example. Instructions for filing 1040x You get accounting services for your business on credit. Instructions for filing 1040x Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Instructions for filing 1040x Your accountant forgives part of the amount you owe for the accounting services. Instructions for filing 1040x How you treat the canceled debt depends on your method of accounting. Instructions for filing 1040x Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Instructions for filing 1040x Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Instructions for filing 1040x   For information on the cash and accrual methods of accounting, see chapter 2. Instructions for filing 1040x Exclusions Do not include canceled debt in income in the following situations. Instructions for filing 1040x However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Instructions for filing 1040x For more information, see Form 982. Instructions for filing 1040x The cancellation takes place in a bankruptcy case under title 11 of the U. Instructions for filing 1040x S. Instructions for filing 1040x Code (relating to bankruptcy). Instructions for filing 1040x See Publication 908, Bankruptcy Tax Guide. Instructions for filing 1040x The cancellation takes place when you are insolvent. Instructions for filing 1040x You can exclude the canceled debt to the extent you are insolvent. Instructions for filing 1040x See Publication 908. Instructions for filing 1040x The canceled debt is a qualified farm debt owed to a qualified person. Instructions for filing 1040x See chapter 3 in Publication 225, Farmer's Tax Guide. Instructions for filing 1040x The canceled debt is a qualified real property business debt. Instructions for filing 1040x This situation is explained later. Instructions for filing 1040x The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Instructions for filing 1040x See Form 982. Instructions for filing 1040x If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Instructions for filing 1040x If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Instructions for filing 1040x Debt. Instructions for filing 1040x   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Instructions for filing 1040x Qualified real property business debt. Instructions for filing 1040x   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Instructions for filing 1040x If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Instructions for filing 1040x Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Instructions for filing 1040x However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Instructions for filing 1040x Cancellation of qualified real property business debt. Instructions for filing 1040x   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Instructions for filing 1040x It was incurred or assumed in connection with real property used in a trade or business. Instructions for filing 1040x It was secured by such real property. Instructions for filing 1040x It was incurred or assumed at either of the following times. Instructions for filing 1040x Before January 1, 1993. Instructions for filing 1040x After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Instructions for filing 1040x It is debt to which you choose to apply these rules. Instructions for filing 1040x   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Instructions for filing 1040x   You cannot exclude more than either of the following amounts. Instructions for filing 1040x The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Instructions for filing 1040x The total adjusted bases of depreciable real property held by you immediately before the cancellation. Instructions for filing 1040x These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Instructions for filing 1040x Do not take into account depreciable real property acquired in contemplation of the cancellation. Instructions for filing 1040x Election. Instructions for filing 1040x   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Instructions for filing 1040x You must file your return by the due date (including extensions). Instructions for filing 1040x If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Instructions for filing 1040x For more information, see When To File in the form instructions. Instructions for filing 1040x Other Income The following discussion explains how to treat other types of business income you may receive. Instructions for filing 1040x Restricted property. Instructions for filing 1040x   Restricted property is property that has certain restrictions that affect its value. Instructions for filing 1040x If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Instructions for filing 1040x However, you can choose to be taxed in the year you receive the property. Instructions for filing 1040x For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Instructions for filing 1040x Gains and losses. Instructions for filing 1040x   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Instructions for filing 1040x Instead, you must report these gains and losses on other forms. Instructions for filing 1040x For more information, see chapter 3. Instructions for filing 1040x Promissory notes. Instructions for filing 1040x   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Instructions for filing 1040x In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Instructions for filing 1040x Lost income payments. Instructions for filing 1040x   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Instructions for filing 1040x Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Instructions for filing 1040x Damages. Instructions for filing 1040x   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Instructions for filing 1040x Patent infringement. Instructions for filing 1040x Breach of contract or fiduciary duty. Instructions for filing 1040x Antitrust injury. Instructions for filing 1040x Economic injury. Instructions for filing 1040x   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Instructions for filing 1040x Your deduction is the smaller of the following amounts. Instructions for filing 1040x The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Instructions for filing 1040x Your loss from the injury that you have not yet deducted. Instructions for filing 1040x Punitive damages. Instructions for filing 1040x   You must also include punitive damages in income. Instructions for filing 1040x Kickbacks. Instructions for filing 1040x   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Instructions for filing 1040x However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Instructions for filing 1040x Recovery of items previously deducted. Instructions for filing 1040x   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Instructions for filing 1040x However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Instructions for filing 1040x If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Instructions for filing 1040x Example. Instructions for filing 1040x Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Instructions for filing 1040x He also had 2 personal exemptions for a total of $7,800. Instructions for filing 1040x He would not pay income tax even if he did not deduct the bad debt. Instructions for filing 1040x Therefore, he will not report as income any part of the $300 he may recover in any future year. Instructions for filing 1040x Exception for depreciation. Instructions for filing 1040x   This rule does not apply to depreciation. Instructions for filing 1040x You recover depreciation using the rules explained next. Instructions for filing 1040x Recapture of depreciation. Instructions for filing 1040x   In the following situations, you have to recapture the depreciation deduction. Instructions for filing 1040x This means you include in income part or all of the depreciation you deducted in previous years. Instructions for filing 1040x Listed property. Instructions for filing 1040x   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Instructions for filing 1040x You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Instructions for filing 1040x Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Instructions for filing 1040x For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Instructions for filing 1040x That chapter explains how to determine whether property is used more than 50% in your business. Instructions for filing 1040x Section 179 property. Instructions for filing 1040x   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Instructions for filing 1040x You do this by including in income on Schedule C part of the deduction you took. Instructions for filing 1040x Use Part IV of Form 4797 to figure the amount to include on Schedule C. Instructions for filing 1040x See chapter 2 in Publication 946 to find out when you recapture the deduction. Instructions for filing 1040x Sale or exchange of depreciable property. Instructions for filing 1040x   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Instructions for filing 1040x You figure the income due to depreciation recapture in Part III of Form 4797. Instructions for filing 1040x For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Instructions for filing 1040x Items That Are Not Income In some cases the property or money you receive is not income. Instructions for filing 1040x Appreciation. Instructions for filing 1040x   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Instructions for filing 1040x Consignments. Instructions for filing 1040x   Consignments of merchandise to others to sell for you are not sales. Instructions for filing 1040x The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Instructions for filing 1040x Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Instructions for filing 1040x Merchandise you have shipped out on consignment is included in your inventory until it is sold. Instructions for filing 1040x   Do not include merchandise you receive on consignment in your inventory. Instructions for filing 1040x Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Instructions for filing 1040x Construction allowances. Instructions for filing 1040x   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Instructions for filing 1040x Under a short-term lease of retail space. Instructions for filing 1040x For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Instructions for filing 1040x Amount you can exclude. Instructions for filing 1040x   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Instructions for filing 1040x Short-term lease. Instructions for filing 1040x   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Instructions for filing 1040x The following rules apply in determining whether the lease is for 15 years or less. Instructions for filing 1040x Take into account options to renew when figuring whether the lease is for 15 years or less. Instructions for filing 1040x But do not take into account any option to renew at fair market value determined at the time of renewal. Instructions for filing 1040x Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Instructions for filing 1040x Retail space. Instructions for filing 1040x   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Instructions for filing 1040x Qualified long-term real property. Instructions for filing 1040x   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Instructions for filing 1040x Exchange of like-kind property. Instructions for filing 1040x   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Instructions for filing 1040x This means that the gain is not taxable and the loss is not deductible. Instructions for filing 1040x A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Instructions for filing 1040x For more information, see Form 8824. Instructions for filing 1040x Leasehold improvements. Instructions for filing 1040x   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Instructions for filing 1040x However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Instructions for filing 1040x Loans. Instructions for filing 1040x   Money borrowed through a bona fide loan is not income. Instructions for filing 1040x Sales tax. Instructions for filing 1040x   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Instructions for filing 1040x Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Instructions for filing 1040x Direct seller. Instructions for filing 1040x   You must report all income you receive as a direct seller on Schedule C or C-EZ. Instructions for filing 1040x This includes any of the following. Instructions for filing 1040x Income from sales—payments you receive from customers for products they buy from you. Instructions for filing 1040x Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Instructions for filing 1040x Prizes, awards, and gifts you receive from your selling business. Instructions for filing 1040x You must report this income regardless of whether it is reported to you on an information return. Instructions for filing 1040x   You are a direct seller if you meet all the following conditions. Instructions for filing 1040x You are engaged in one of the following trades or businesses. Instructions for filing 1040x Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Instructions for filing 1040x Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Instructions for filing 1040x Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Instructions for filing 1040x Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Instructions for filing 1040x Executor or administrator. Instructions for filing 1040x   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Instructions for filing 1040x A nonprofessional fiduciary (personal representative) and both of the following apply. Instructions for filing 1040x The estate includes an active trade or business in which you actively participate. Instructions for filing 1040x Your fees are related to the operation of that trade or business. Instructions for filing 1040x A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Instructions for filing 1040x    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Instructions for filing 1040x Fishing crew member. Instructions for filing 1040x    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Instructions for filing 1040x Insurance agent, former. Instructions for filing 1040x   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Instructions for filing 1040x You received payments after your agreement to perform services for the company ended. Instructions for filing 1040x You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Instructions for filing 1040x You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Instructions for filing 1040x The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Instructions for filing 1040x The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Instructions for filing 1040x Insurance agent, retired. Instructions for filing 1040x   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Instructions for filing 1040x Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Instructions for filing 1040x   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Instructions for filing 1040x Newspaper carrier or distributor. Instructions for filing 1040x   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Instructions for filing 1040x You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Instructions for filing 1040x Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Instructions for filing 1040x You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Instructions for filing 1040x   This rule applies whether or not you hire others to help you make deliveries. Instructions for filing 1040x It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Instructions for filing 1040x Newspaper or magazine vendor. Instructions for filing 1040x   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Instructions for filing 1040x You sell newspapers or magazines to ultimate consumers. Instructions for filing 1040x You sell them at a fixed price. Instructions for filing 1040x Your earnings are based on the difference between the sales price and your cost of goods sold. Instructions for filing 1040x   This rule applies whether or not you are guaranteed a minimum amount of earnings. Instructions for filing 1040x It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Instructions for filing 1040x Notary public. Instructions for filing 1040x   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Instructions for filing 1040x These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Instructions for filing 1040x Public official. Instructions for filing 1040x   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Instructions for filing 1040x This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Instructions for filing 1040x Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Instructions for filing 1040x   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Instructions for filing 1040x Real estate agent or direct seller. Instructions for filing 1040x   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Instructions for filing 1040x Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Instructions for filing 1040x You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Instructions for filing 1040x Securities dealer. Instructions for filing 1040x   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Instructions for filing 1040x For more information, see sections 1256 and 1402(i). Instructions for filing 1040x Securities trader. Instructions for filing 1040x   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Instructions for filing 1040x As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Instructions for filing 1040x However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Instructions for filing 1040x For more information about securities traders, see Publication 550, Investment Income and Expenses. Instructions for filing 1040x Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Instructions for filing 1040x This section discusses some of the more common differences that may affect business transactions. Instructions for filing 1040x Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Instructions for filing 1040x If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Instructions for filing 1040x Dealers in real estate are not allowed to use inventories. Instructions for filing 1040x For more information on inventories, see chapter 2. Instructions for filing 1040x Income paid to a third party. Instructions for filing 1040x   All income you earn is taxable to you. Instructions for filing 1040x You cannot avoid tax by having the income paid to a third party. Instructions for filing 1040x Example. Instructions for filing 1040x You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Instructions for filing 1040x The amount paid to your son is gross income to you. Instructions for filing 1040x Cash discounts. Instructions for filing 1040x   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Instructions for filing 1040x For income tax purposes, you can use either of the following two methods to account for cash discounts. Instructions for filing 1040x Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Instructions for filing 1040x Credit the cash discount to a discount income account. Instructions for filing 1040x You must use the chosen method every year for all your purchase discounts. Instructions for filing 1040x   If you use the second method, the credit balance in the account at the end of your tax year is business income. Instructions for filing 1040x Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Instructions for filing 1040x When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Instructions for filing 1040x Trade discounts. Instructions for filing 1040x   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Instructions for filing 1040x Do not enter these discounts on your books of account. Instructions for filing 1040x Instead, use only the net amount as the cost of the merchandise purchased. Instructions for filing 1040x For more information, see Trade discounts in chapter 6. Instructions for filing 1040x Payment placed in escrow. Instructions for filing 1040x   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Instructions for filing 1040x However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Instructions for filing 1040x Sales returns and allowances. Instructions for filing 1040x   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Instructions for filing 1040x Advance payments. Instructions for filing 1040x   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Instructions for filing 1040x Insurance proceeds. Instructions for filing 1040x   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Instructions for filing 1040x You cannot deduct the reimbursed part of a casualty or theft loss. Instructions for filing 1040x   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Instructions for filing 1040x Prev  Up  Next   Home   More Online Publications