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Tax preparation software 5. Tax preparation software   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. Tax preparation software S. Tax preparation software PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. Tax preparation software S. Tax preparation software possessions, and How to report deductions. Tax preparation software Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. Tax preparation software Items Related to Excluded Income U. Tax preparation software S. Tax preparation software citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. Tax preparation software If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Tax preparation software This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. Tax preparation software You can deduct only those expenses connected with earning includible income. Tax preparation software These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. Tax preparation software These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. Tax preparation software For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. Tax preparation software If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. Tax preparation software Example. Tax preparation software In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. Tax preparation software You did not have a housing exclusion. Tax preparation software Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. Tax preparation software In 2013, you received a $12,000 bonus for work you did abroad in 2012. Tax preparation software You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. Tax preparation software Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. Tax preparation software This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). Tax preparation software Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. Tax preparation software S. Tax preparation software tax purposes and is not the dependent of another U. Tax preparation software S. Tax preparation software taxpayer. Tax preparation software You also can claim exemptions for individuals who qualify as your dependents. Tax preparation software To be your dependent, the individual must be a U. Tax preparation software S. Tax preparation software citizen, U. Tax preparation software S. Tax preparation software national, U. Tax preparation software S. Tax preparation software resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. Tax preparation software Children. Tax preparation software   Children usually are citizens or residents of the same country as their parents. Tax preparation software If you were a U. Tax preparation software S. Tax preparation software citizen when your child was born, your child generally is a U. Tax preparation software S. Tax preparation software citizen. Tax preparation software This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. Tax preparation software   If you have a legally adopted child who is not a U. Tax preparation software S. Tax preparation software citizen, U. Tax preparation software S. Tax preparation software resident, or U. Tax preparation software S. Tax preparation software national, the child meets the citizen requirement if you are a U. Tax preparation software S. Tax preparation software citizen or U. Tax preparation software S. Tax preparation software national and the child lived with you as a member of your household all year. Tax preparation software Social security number. Tax preparation software   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. Tax preparation software To get a social security number for a dependent, apply at a Social Security office or U. Tax preparation software S. Tax preparation software consulate. Tax preparation software You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. Tax preparation software   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. Tax preparation software Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. Tax preparation software   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. Tax preparation software To apply for an ITIN, file Form W-7 with the IRS. Tax preparation software It usually takes 6 to 10 weeks to get an ITIN. Tax preparation software Enter your dependent's ITIN wherever an SSN is requested on your tax return. Tax preparation software More information. Tax preparation software   For more information about exemptions, see Publication 501. Tax preparation software Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. Tax preparation software Exceptions are explained under Canadian, Mexican, and Israeli charities, later. Tax preparation software You can deduct contributions to a U. Tax preparation software S. Tax preparation software organization that transfers funds to a charitable foreign organization if the U. Tax preparation software S. Tax preparation software organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. Tax preparation software S. Tax preparation software organization. Tax preparation software Canadian, Mexican, and Israeli charities. Tax preparation software   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. Tax preparation software Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Tax preparation software See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. Tax preparation software Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. Tax preparation software Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. Tax preparation software See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. Tax preparation software Foreign moves. Tax preparation software   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. Tax preparation software A foreign move does not include a move back to the United States or its possessions. Tax preparation software Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. Tax preparation software If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. Tax preparation software Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Tax preparation software Year to which expense is connected. Tax preparation software   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. Tax preparation software It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. Tax preparation software   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. Tax preparation software The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. Tax preparation software The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. Tax preparation software Amount allocable to excluded income. Tax preparation software   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. Tax preparation software The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. Tax preparation software Example. Tax preparation software On November 1, 2012, you transfer to Monaco. Tax preparation software Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. Tax preparation software In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. Tax preparation software You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. Tax preparation software The reimbursement is included in your income. Tax preparation software Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. Tax preparation software Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. Tax preparation software Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. Tax preparation software You have no housing exclusion. Tax preparation software The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). Tax preparation software To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. Tax preparation software The result, $5,562, is your nondeductible amount. Tax preparation software    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. Tax preparation software In the preceding example, this year was 2012. Tax preparation software You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. Tax preparation software Move between foreign countries. Tax preparation software   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. Tax preparation software New place of work in U. Tax preparation software S. Tax preparation software   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. Tax preparation software If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. Tax preparation software Storage expenses. Tax preparation software   These expenses are attributable to work you do during the year in which you incur the storage expenses. Tax preparation software You cannot deduct the amount allocable to excluded income. Tax preparation software Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. Tax preparation software By then, you should have all the information needed to properly figure the moving expense deduction. Tax preparation software See Extensions under When To File and Pay in chapter 1. Tax preparation software If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. Tax preparation software You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Tax preparation software Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. Tax preparation software If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. Tax preparation software You cannot claim it on the return for the second year. Tax preparation software Forms To File Report your moving expenses on Form 3903. Tax preparation software Report your moving expense deduction on line 26 of Form 1040. Tax preparation software If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. Tax preparation software For more information about figuring moving expenses, see Publication 521. Tax preparation software Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. Tax preparation software In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Tax preparation software Do not reduce your compensation by the foreign housing deduction. Tax preparation software If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. Tax preparation software This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Tax preparation software Other modifications are also required. Tax preparation software For more information on IRAs, see Publication 590. Tax preparation software Taxes of Foreign Countries and U. Tax preparation software S. Tax preparation software Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. Tax preparation software S. Tax preparation software possession. Tax preparation software Taken as a deduction, foreign income taxes reduce your taxable income. Tax preparation software Taken as a credit, foreign income taxes reduce your tax liability. Tax preparation software You must treat all foreign income taxes the same way. Tax preparation software If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. Tax preparation software However, you may be able to deduct other foreign taxes. Tax preparation software See Deduction for Other Foreign Taxes, later. Tax preparation software There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. Tax preparation software In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. Tax preparation software S. Tax preparation software tax liability, rather than as a deduction in figuring taxable income. Tax preparation software However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. Tax preparation software S. Tax preparation software income is small, a lower final tax may result from deducting the foreign income taxes. Tax preparation software In any event, you should figure your tax liability both ways and then use the one that is better for you. Tax preparation software You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. Tax preparation software Foreign income taxes. Tax preparation software   These are generally income taxes you pay to any foreign country or possession of the United States. Tax preparation software Foreign income taxes on U. Tax preparation software S. Tax preparation software return. Tax preparation software   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. Tax preparation software These amounts cannot be included as withheld income taxes on Form 1040, line 62. Tax preparation software Foreign taxes paid on excluded income. Tax preparation software   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. Tax preparation software Foreign earned income exclusion. Tax preparation software Foreign housing exclusion. Tax preparation software Possession exclusion. Tax preparation software If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. Tax preparation software   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. Tax preparation software You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. Tax preparation software The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). Tax preparation software The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Tax preparation software   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. Tax preparation software    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. Tax preparation software Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. Tax preparation software Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. Tax preparation software Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. Tax preparation software The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. Tax preparation software The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. Tax preparation software You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. Tax preparation software Subsidies. Tax preparation software   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. Tax preparation software This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. Tax preparation software   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Tax preparation software A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. Tax preparation software Limit The foreign tax credit is limited to the part of your total U. Tax preparation software S. Tax preparation software tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. Tax preparation software The allowable foreign tax credit cannot be more than your actual foreign tax liability. Tax preparation software Exemption from limit. Tax preparation software   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. Tax preparation software Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. Tax preparation software ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). Tax preparation software Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. Tax preparation software You elect this procedure. Tax preparation software If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. Tax preparation software Separate limit. Tax preparation software   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). Tax preparation software Figuring the limit. Tax preparation software   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. Tax preparation software Do not take any excluded amount into account. Tax preparation software   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. Tax preparation software   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. Tax preparation software The numerator (top number) of the fraction is your gross foreign income in the separate limit category. Tax preparation software The denominator (bottom number) of the fraction is your gross income from all sources. Tax preparation software For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. Tax preparation software You must use special rules for deducting interest expenses. Tax preparation software For more information on allocating and apportioning your deductions, see Publication 514. Tax preparation software Exemptions. Tax preparation software   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. Tax preparation software Recapture of foreign losses. Tax preparation software   If you have an overall foreign loss and the loss reduces your U. Tax preparation software S. Tax preparation software source income (resulting in a reduction of your U. Tax preparation software S. Tax preparation software tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. Tax preparation software This is done by treating a part of your taxable income from foreign sources in later years as U. Tax preparation software S. Tax preparation software source income. Tax preparation software This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. Tax preparation software Recapture of domestic losses. Tax preparation software   If you have an overall domestic loss (resulting in no U. Tax preparation software S. Tax preparation software tax liability), you cannot claim a foreign tax credit for taxes paid during that year. Tax preparation software You must recapture the loss in later years when you have U. Tax preparation software S. Tax preparation software source taxable income. Tax preparation software This is done by treating a part of your taxable income from U. Tax preparation software S. Tax preparation software sources in later years as foreign source income. Tax preparation software This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. Tax preparation software Foreign tax credit carryback and carryover. Tax preparation software   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. Tax preparation software   More information on figuring the foreign tax credit can be found in Publication 514. Tax preparation software Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). Tax preparation software You can deduct only foreign income taxes paid on income that is subject to U. Tax preparation software S. Tax preparation software tax. Tax preparation software You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. Tax preparation software Foreign earned income exclusion. Tax preparation software Foreign housing exclusion. Tax preparation software Possession exclusion. Tax preparation software Example. Tax preparation software You are a U. Tax preparation software S. Tax preparation software citizen and qualify to exclude your foreign earned income. Tax preparation software Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. Tax preparation software You received dividends from Country X of $2,000 on which you paid income tax of $600. Tax preparation software You can deduct the $600 tax payment because the dividends relating to it are subject to U. Tax preparation software S. Tax preparation software tax. Tax preparation software Because you exclude your wages, you cannot deduct the income tax of $10,000. Tax preparation software If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. Tax preparation software Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. Tax preparation software You take this deduction on Schedule A (Form 1040). Tax preparation software You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Tax preparation software On the other hand, you generally can deduct personal property taxes when you pay them to U. Tax preparation software S. Tax preparation software possessions. Tax preparation software But if you claim the possession exclusion, see Publication 570. Tax preparation software The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Tax preparation software You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. Tax preparation software How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. Tax preparation software If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. Tax preparation software Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Tax preparation software Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. Tax preparation software If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. Tax preparation software You figure that amount by subtracting from the total deduction the amount related to excluded income. Tax preparation software Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Tax preparation software Attach a statement to your return showing how you figured the deductible amount. Tax preparation software Example 1. Tax preparation software You are a U. Tax preparation software S. Tax preparation software citizen employed as an accountant. Tax preparation software Your tax home is in Germany for the entire tax year. Tax preparation software You meet the physical presence test. Tax preparation software Your foreign earned income for the year was $122,000 and your investment income was $10,380. Tax preparation software After excluding $97,600, your AGI is $34,780. Tax preparation software You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. Tax preparation software These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). Tax preparation software You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. Tax preparation software You must fill out Form 2106. Tax preparation software On that form, reduce your deductible meal and entertainment expenses by 50% ($250). Tax preparation software You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. Tax preparation software You carry the remaining total of $450 to line 21 of Schedule A. Tax preparation software Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. Tax preparation software On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. Tax preparation software Enter $254 on line 27 of Schedule A. Tax preparation software Example 2. Tax preparation software You are a U. Tax preparation software S. Tax preparation software citizen, have a tax home in Spain, and meet the physical presence test. Tax preparation software You are self-employed and personal services produce the business income. Tax preparation software Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. Tax preparation software You choose the foreign earned income exclusion and exclude $97,600 of your gross income. Tax preparation software Since your excluded income is 83. Tax preparation software 47% of your total income, 83. Tax preparation software 47% of your business expenses are not deductible. Tax preparation software Report your total income and expenses on Schedule C (Form 1040). Tax preparation software On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. Tax preparation software 47% × $66,895) business expenses attributable to the exclusion. Tax preparation software In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. Tax preparation software Example 3. Tax preparation software Assume in Example 2 that both capital and personal services combine to produce the business income. Tax preparation software No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. Tax preparation software Your exclusion of $15,011 is 12. Tax preparation software 84% of your gross income ($15,011 ÷ $116,931). Tax preparation software Because you excluded 12. Tax preparation software 84% of your total income, $8,589 (. Tax preparation software 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. Tax preparation software Example 4. Tax preparation software You are a U. Tax preparation software S. Tax preparation software citizen, have a tax home in Brazil, and meet the physical presence test. Tax preparation software You are self-employed and both capital and personal services combine to produce business income. Tax preparation software Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. Tax preparation software A reasonable allowance for the services you performed for the business is $77,000. Tax preparation software Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. Tax preparation software The $77,000 is foreign earned income. Tax preparation software If you choose to exclude the $77,000, you exclude 52. Tax preparation software 74% of your gross income ($77,000 ÷ $146,000), and 52. Tax preparation software 74% of your business expenses ($90,713) is attributable to that income and is not deductible. Tax preparation software Show your total income and expenses on Schedule C (Form 1040). Tax preparation software On Form 2555, exclude $77,000 and show $90,713 on line 44. Tax preparation software Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. Tax preparation software Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. Tax preparation software In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. Tax preparation software If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. Tax preparation software To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. Tax preparation software See Choosing the Exclusion in chapter 4. Tax preparation software Example 5. Tax preparation software You are a U. Tax preparation software S. Tax preparation software citizen, have a tax home in Panama, and meet the bona fide residence test. Tax preparation software You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. Tax preparation software Capital investment is not material in producing the partnership's income. Tax preparation software Under the terms of the partnership agreement, you are to receive 50% of the net profits. Tax preparation software The partnership received gross income of $244,000 and incurred operating expenses of $98,250. Tax preparation software Of the net profits of $145,750, you received $72,875 as your distributive share. Tax preparation software You choose to exclude $97,600 of your share of the gross income. Tax preparation software Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. Tax preparation software 80 × $49,125). Tax preparation software Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. Tax preparation software On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. Tax preparation software Your exclusion on Form 2555 is $58,300. Tax preparation software In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. Tax preparation software Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Iowa Office of the Attorney General

Website: Iowa Office of the Attorney General

Address: Iowa Office of the Attorney General
Consumer Protection Division
1305 E. Walnut St.
Des Moines, IA 50319

Phone Number: 515-281-5926

Toll-free: 1-888-777-4590 (IA)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Division of Banking

Website: Division of Banking

Address: Division of Banking
200 E. Grand Ave., Suite 300
Des Moines, IA 50309-1827

Phone Number: 515-281-4014

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Division of Insurance

Website: Division of Insurance

Address: Division of Insurance
330 Maple St.
Des Moines, IA 50319-0065

Phone Number: 515-281-5705

Toll-free: 1-877-955-1212 (IA)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Securities Bureau

Website: Securities Bureau

Address: Securities Bureau
340 Maple St.
Des Moines, IA 50319

Phone Number: 515-281-5705

Toll-free: 1-877-955-1212 (IA)

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Utilities Board

Website: Utilities Board

Address: Utilities Board
Customer Service Group
1375 E. Court Ave., Room 69
Des Moines, IA 50319-0069

Phone Number: 515-725-7321

Toll-free: 1-877-565-4450 (IA)

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The Tax Preparation Software

Tax preparation software Publication 584-B - Introductory Material Table of Contents What's New Introduction What's New The IRS has created a page on IRS. Tax preparation software gov for information about Publication 584-B, at www. Tax preparation software irs. Tax preparation software gov/pub584b. Tax preparation software Information about any future developments affecting Publication 584-B (such as legislation enacted after we released it) will be posted on that page. Tax preparation software Introduction This workbook is designed to help you figure your loss on business and income-producing property in the event of a disaster, casualty, or theft. Tax preparation software It contains schedules to help you figure the loss to your office furniture and fixtures, information systems, motor vehicles, office supplies, buildings, and equipment. Tax preparation software These schedules, however, are for your information only. Tax preparation software You must complete Form 4684, Casualties and Thefts, to report your loss. Tax preparation software Prev  Up  Next   Home   More Online Publications