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Tax Software Review

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Tax Software Review

Tax software review 5. Tax software review   Figuring Your Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tax Year Identification NumberF-1 and M-1 visa holders. Tax software review J-1 visa holders. Tax software review Filing StatusResident Aliens Nonresident Aliens Reporting Your Income DeductionsResident Aliens Nonresident Aliens ExemptionsResident Aliens Nonresident Aliens Itemized DeductionsResident Aliens Nonresident Aliens Tax Credits and PaymentsResident Aliens Nonresident Aliens Bona Fide Residents of American Samoa or Puerto Rico Introduction After you have determined your alien status, the source of your income, and if and how that income is taxed in the United States, your next step is to figure your tax. Tax software review The information in this chapter is not as comprehensive for resident aliens as it is for nonresident aliens. Tax software review Resident aliens should get publications, forms, and instructions for U. Tax software review S. Tax software review citizens, because the information for filing returns for resident aliens is generally the same as for U. Tax software review S. Tax software review citizens. Tax software review If you are both a nonresident alien and a resident alien in the same tax year, see chapter 6 for a discussion of dual-status aliens. Tax software review Topics - This chapter discusses: Identification numbers, Filing status, Deductions, Exemptions, Tax credits and payments, and Special rules for bona fide residents of American Samoa and Puerto Rico. Tax software review Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 501 Exemptions, Standard Deduction, and Filing Information 521 Moving Expenses 526 Charitable Contributions 535 Business Expenses 597 Information on the United States–Canada Income Tax Treaty Form (and Instructions) W-7 Application for IRS Individual Taxpayer Identification Number 1040 U. Tax software review S. Tax software review Individual Income Tax Return 1040NR U. Tax software review S. Tax software review Nonresident Alien Income Tax Return 1040NR-EZ U. Tax software review S. Tax software review Income Tax Return for Certain Nonresident Aliens With No Dependents 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3903 Moving Expenses 4563 Exclusion of Income for Bona Fide Residents of American Samoa 8959 Additional Medicare Tax See chapter 12 for information about getting these publications and forms. Tax software review Tax Year You must figure your income and file a tax return on the basis of an annual accounting period called a tax year. Tax software review If you have not previously established a fiscal tax year, your tax year is the calendar year. Tax software review A calendar year is 12 consecutive months ending on December 31. Tax software review If you have previously established a regular fiscal year (12 consecutive months ending on the last day of a month other than December or a 52–53 week year) and are considered to be a U. Tax software review S. Tax software review resident for any calendar year, you will be treated as a U. Tax software review S. Tax software review resident for any part of your fiscal year that falls within that calendar year. Tax software review Identification Number A taxpayer identification number must be furnished on returns, statements, and other tax-related documents. Tax software review For an individual, this is a social security number (SSN). Tax software review If you do not have and are not eligible to get an SSN, you must apply for an individual taxpayer identification number (ITIN). Tax software review An employer identification number (EIN) is required if you are engaged in a trade or business as a sole proprietor and have employees or a qualified retirement plan. Tax software review You must furnish a taxpayer identification number if you are: An alien who has income effectively connected with the conduct of a U. Tax software review S. Tax software review trade or business at any time during the year, An alien who has a U. Tax software review S. Tax software review office or place of business at any time during the year, A nonresident alien spouse treated as a resident, as discussed in chapter 1, or Any other alien who files a tax return, an amended return, or a refund claim (but not information returns). Tax software review Social security number (SSN). Tax software review   Generally, you can get an SSN if you have been lawfully admitted to the United States for permanent residence or under other immigration categories that authorize U. Tax software review S. Tax software review employment. Tax software review   To apply for this number, get Form SS-5, Application for a Social Security Card, from your local Social Security Administration (SSA) office or call the SSA at 1-800-772-1213. Tax software review You can also download Form SS-5 from the SSA's website at www. Tax software review socialsecurity. Tax software review gov/ssnumber/ss5. Tax software review htm. Tax software review You must visit an SSA office in person and submit your Form SS-5 along with original documentation showing your age, identity, immigration status, and authority to work in the United States. Tax software review Generally, you will receive your card about 2 weeks after the SSA has all of the necessary information. Tax software review F-1 and M-1 visa holders. Tax software review    If you are an F-1 or M-1 student, you must also show your Form I-20. Tax software review For more information, see SSA Publication 05-10181, International Students and Social Security Numbers, available online at www. Tax software review socialsecurity. Tax software review gov/pubs/10181. Tax software review html. Tax software review J-1 visa holders. Tax software review   If you are a J-1 exchange visitor, you will also need to show your Form DS-2019. Tax software review For more information, see SSA Publication 05-10107, Foreign Workers and Social Security Numbers, available online at www. Tax software review socialsecurity. Tax software review gov/pubs/10107. Tax software review html. Tax software review Individual taxpayer identification number (ITIN). Tax software review   If you do not have and are not eligible to get an SSN, you must apply for an ITIN. Tax software review For details on how to do so, see Form W-7 and its instructions. Tax software review Allow 6 to 10 weeks for the IRS to notify you of your ITIN. Tax software review If you already have an ITIN, enter it wherever an SSN is required on your tax return. Tax software review   An ITIN is for tax use only. Tax software review It does not entitle you to social security benefits or change your employment or immigration status under U. Tax software review S. Tax software review law. Tax software review   In addition to those aliens who are required to furnish a taxpayer identification number and are not eligible for an SSN, a Form W-7 must be filed for: Alien individuals who are claimed as dependents and are not eligible for an SSN, and Alien spouses who are claimed as exemptions and are not eligible for an SSN. Tax software review Employer identification number (EIN). Tax software review   An individual may use an SSN (or ITIN) for individual taxes and an EIN for business taxes. Tax software review To apply for an EIN, file Form SS-4, Application for Employer Identification Number, with the IRS. Tax software review Filing Status The amount of your tax depends on your filing status. Tax software review Your filing status is important in determining whether you can take certain deductions and credits. Tax software review The rules for determining your filing status are different for resident aliens and nonresident aliens. Tax software review Resident Aliens Resident aliens can use the same filing statuses available to U. Tax software review S. Tax software review citizens. Tax software review See your form instructions or Publication 501 for more information on filing status. Tax software review Married filing jointly. Tax software review   Generally, you can file as married filing jointly only if both you and your spouse were resident aliens for the entire tax year, or if you make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. Tax software review Qualifying widow(er). Tax software review   If your spouse died in 2011 or 2012, you did not remarry before the end of 2013, and you have a dependent child living with you, you may qualify to file as a qualifying widow(er) and use the joint return tax rates. Tax software review This applies only if you could have filed a joint return with your spouse for the year your spouse died. Tax software review Head of household. Tax software review   You can qualify as head of household if you are unmarried or considered unmarried on the last day of the year and you pay more than half the cost of keeping up a home for you and a qualifying person. Tax software review You must be a resident alien for the entire tax year. Tax software review   You are considered unmarried for this purpose if your spouse was a nonresident alien at any time during the year and you do not make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. Tax software review Note. Tax software review   Even if you are considered unmarried for head of household purposes because you are married to a nonresident alien, you may still be considered married for purposes of the earned income credit. Tax software review In that case, you will not be entitled to the credit. Tax software review See Publication 596 for more information. Tax software review Nonresident Aliens If you are a nonresident alien filing Form 1040NR, you may be able to use one of the filing statuses discussed later. Tax software review If you are filing Form 1040NR-EZ, you can only claim “Single nonresident alien” or “Married nonresident alien” as your filing status. Tax software review Married nonresident alien. Tax software review   Married nonresident aliens who are not married to U. Tax software review S. Tax software review citizens or residents generally must use the Tax Table column or the Tax Computation Worksheet for married filing separate returns when determining the tax on income effectively connected with a U. Tax software review S. Tax software review trade or business. Tax software review Exceptions. Tax software review   Married nonresident aliens normally cannot use the Tax Table column or the Tax Computation Worksheet for single individuals. Tax software review However, you may be able to file as single if you lived apart from your spouse during the last 6 months of the year and you are a married resident of Canada, Mexico, South Korea, or are a married U. Tax software review S. Tax software review national. Tax software review See the instructions for Form 1040NR or Form 1040NR-EZ to see if you qualify. Tax software review U. Tax software review S. Tax software review national is defined later in this section under Qualifying widow(er) . Tax software review   A nonresident alien generally cannot file as married filing jointly. Tax software review However, a nonresident alien who is married to a U. Tax software review S. Tax software review citizen or resident can choose to be treated as a resident and file a joint return on Form 1040, Form 1040A, or Form 1040EZ. Tax software review For information on these choices, see chapter 1. Tax software review If you do not make the choice to file jointly, file Form 1040NR or Form 1040NR-EZ and use the Tax Table column or the Tax Computation Worksheet for married individuals filing separately. Tax software review Qualifying widow(er). Tax software review   You may be eligible to file as a qualifying widow(er) and use the joint return tax rates if all of the following conditions apply. Tax software review You were a resident of Canada, Mexico, or South Korea, or a U. Tax software review S. Tax software review national (defined later). Tax software review Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. Tax software review You have a dependent child living with you. Tax software review See the instructions for Form 1040NR for the rules for filing as a qualifying widow(er) with a dependent child. Tax software review   A U. Tax software review S. Tax software review national is an individual who, although not a U. Tax software review S. Tax software review citizen, owes his or her allegiance to the United States. Tax software review U. Tax software review S. Tax software review nationals include American Samoans and Northern Mariana Islanders who chose to become U. Tax software review S. Tax software review nationals instead of U. Tax software review S. Tax software review citizens. Tax software review Head of household. Tax software review   You cannot file as head of household if you are a nonresident alien at any time during the tax year. Tax software review However, if you are married, your spouse can qualify as a head of household if: Your spouse is a resident alien or U. Tax software review S. Tax software review citizen for the entire tax year, You do not choose to be treated as a resident alien, and Your spouse meets the other requirements for this filing status, as discussed earlier under Resident Aliens . Tax software review Note. Tax software review   Even if your spouse is considered unmarried for head of household purposes because you are a nonresident alien, your spouse may still be considered married for purposes of the earned income credit. Tax software review In that case, your spouse will not be entitled to the credit. Tax software review See Publication 596 for more information. Tax software review Estates and trusts. Tax software review   A nonresident alien estate or trust using Form 1040NR must use Tax Rate Schedule W in the Form 1040NR instructions when determining the tax on income effectively connected with a U. Tax software review S. Tax software review trade or business. Tax software review Special rules for aliens from certain U. Tax software review S. Tax software review possessions. Tax software review   A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year and who is temporarily working in the United States should read Bona Fide Residents of American Samoa or Puerto Rico, at the end of this chapter, for information about special rules. Tax software review Reporting Your Income You must report each item of income that is taxable according to the rules in chapters 2, 3, and 4. Tax software review For resident aliens, this includes income from sources both within and outside the United States. Tax software review For nonresident aliens, this includes both income that is effectively connected with a trade or business in the United States (subject to graduated tax rates) and income from U. Tax software review S. Tax software review sources that is not effectively connected (subject to a flat 30% tax rate or lower tax treaty rate). Tax software review Deductions Resident and nonresident aliens can claim similar deductions on their U. Tax software review S. Tax software review tax returns. Tax software review However, nonresident aliens generally can claim only deductions related to income that is effectively connected with their U. Tax software review S. Tax software review trade or business. Tax software review Resident Aliens You can claim the same deductions allowed to U. Tax software review S. Tax software review citizens if you are a resident alien for the entire tax year. Tax software review While the discussion that follows contains some of the same general rules and guidelines that apply to you, it is specifically directed toward nonresident aliens. Tax software review You should get Form 1040 and instructions for more information on how to claim your allowable deductions. Tax software review Nonresident Aliens You can claim deductions to figure your effectively connected taxable income. Tax software review You generally cannot claim deductions related to income that is not connected with your U. Tax software review S. Tax software review business activities. Tax software review Except for personal exemptions, and certain itemized deductions, discussed later, you can claim deductions only to the extent they are connected with your effectively connected income. Tax software review Ordinary and necessary business expenses. Tax software review   You can deduct all ordinary and necessary expenses in the operation of your U. Tax software review S. Tax software review trade or business to the extent they relate to income effectively connected with that trade or business. Tax software review The deduction for travel expenses while in the United States is discussed under Itemized Deductions, later. Tax software review For information about other business expenses, see Publication 535. Tax software review Losses. Tax software review   You can deduct losses resulting from transactions that you entered into for profit and that you were not reimbursed for by insurance, etc. Tax software review to the extent that they relate to income that is effectively connected with a trade or business in the United States. Tax software review Educator expenses. Tax software review   If you were an eligible educator in 2013, you can deduct as an adjustment to income up to $250 in unreimbursed qualified expenses you paid or incurred during 2013 for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment, and other equipment and materials used in the classroom. Tax software review For more information, see your tax form instructions. Tax software review Individual retirement arrangement (IRA). Tax software review   If you made contributions to a traditional IRA for 2013, you may be able to take an IRA deduction. Tax software review But you must have taxable compensation effectively connected with a U. Tax software review S. Tax software review trade or business to do so. Tax software review A Form 5498 should be sent to you by May 31, 2014, that shows all contributions to your traditional IRA for 2013. Tax software review If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, SEP, SIMPLE, etc. Tax software review ) at work or through self-employment, your IRA deduction may be reduced or eliminated. Tax software review But you can still make contributions to a traditional IRA even if you cannot deduct them. Tax software review If you made nondeductible contributions to a traditional IRA for 2013, you must report them on Form 8606, Nondeductible IRAs. Tax software review   For more information, see Publication 590, Individual Retirement Arrangements (IRAs). Tax software review Moving expenses. Tax software review   If you are a nonresident alien temporarily in the United States earning taxable income for performing personal services, you can deduct moving expenses to the United States if you meet both of the following tests. Tax software review You are a full-time employee for at least 39 weeks during the 12 months right after you move, or if you are self-employed, you work full time for at least 39 weeks during the first 12 months and 78 weeks during the first 24 months right after you move. Tax software review Your new job location is at least 50 miles farther (by the shortest commonly traveled route) from your former home than your former job location was. Tax software review If you had no former job location, the new job location must be at least 50 miles from your former home. Tax software review   You cannot deduct the moving expense you have when returning to your home abroad or moving to a foreign job site. Tax software review   Figure your deductible moving expenses to the United States on Form 3903, and deduct them on line 26 of Form 1040NR. Tax software review   For more information on the moving expense deduction, see Publication 521. Tax software review Reimbursements. Tax software review   If your employer reimbursed you for allowable moving expenses under an accountable plan, your employer should have excluded these reimbursements from your income. Tax software review You can only deduct allowable moving expenses that were not reimbursed by your employer or that were reimbursed but the reimbursement was included in your income. Tax software review For more information, see Publication 521. Tax software review Moving expense or travel expense. Tax software review   If you deduct moving expenses to the United States, you cannot also deduct travel expenses (discussed later under Itemized Deductions) while temporarily away from your tax home in a foreign country. Tax software review Moving expenses are based on a change in your principal place of business while travel expenses are based on your temporary absence from your principal place of business. Tax software review Self-employed SEP, SIMPLE, and qualified retirement plans. Tax software review   If you are self-employed, you may be able to deduct contributions to a SEP, SIMPLE, or qualified retirement plan that provides retirement benefits for yourself and your common-law employees, if any. Tax software review To make deductible contributions for yourself, you must have net earnings from self-employment that are effectively connected with your U. Tax software review S. Tax software review trade or business. Tax software review   Get Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), for further information. Tax software review Penalty on early withdrawal of savings. Tax software review   You must include in income all effectively connected interest income you receive or that is credited to your account during the year. Tax software review Do not reduce it by any penalty you must pay on an early withdrawal from a time savings account. Tax software review However, if the interest income is effectively connected with your U. Tax software review S. Tax software review trade or business during the year, you can deduct on line 30 of Form 1040NR the amount of the early withdrawal penalty that the banking institution charged. Tax software review Student loan interest expense. Tax software review   If you paid interest on a student loan in 2013, you may be able to deduct up to $2,500 of the interest you paid. Tax software review Generally, you can claim the deduction if all the following requirements are met. Tax software review Your filing status is any filing status except married filing separately. Tax software review Your modified adjusted gross income is less than $75,000. Tax software review No one else is claiming an exemption for you on his or her 2013 tax return. Tax software review You paid interest on a loan taken out only to pay tuition and other qualified higher education expenses for yourself, your spouse, someone who was your dependent when the loan was taken out, or someone you could have claimed as a dependent for the year the loan was taken out except that: The person filed a joint return, The person had gross income that was equal to or more than the exemption amount for that year ($3,900 for 2013), or You could be claimed as a dependent on someone else's return. Tax software review The loan is not from a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan. Tax software review The education expenses were paid or incurred within a reasonable period of time before or after the loan was taken out. Tax software review The person for whom the expenses were paid or incurred was an eligible student. Tax software review Use the worksheet in the Form 1040NR or Form 1040NR-EZ instructions to figure the deduction. Tax software review For more information, see Publication 970, Tax Benefits for Education. Tax software review Exemptions Resident aliens can claim personal exemptions and exemptions for dependents in the same way as U. Tax software review S. Tax software review citizens. Tax software review However, nonresident aliens generally can claim only a personal exemption for themselves on their U. Tax software review S. Tax software review tax return. Tax software review Resident Aliens You can claim personal exemptions and exemptions for dependents according to the dependency rules for U. Tax software review S. Tax software review citizens. Tax software review You can claim an exemption for your spouse on a separate return if your spouse had no gross income for U. Tax software review S. Tax software review tax purposes and was not the dependent of another taxpayer. Tax software review You can claim this exemption even if your spouse has not been a resident alien for a full tax year or is an alien who has not come to the United States. Tax software review You can claim an exemption for each person who qualifies as a dependent according to the rules for U. Tax software review S. Tax software review citizens. Tax software review The dependent must be a citizen or national (defined earlier) of the United States or be a resident of the United States, Canada, or Mexico for some part of the calendar year in which your tax year begins. Tax software review Get Publication 501 for more information. Tax software review Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. Tax software review See Identification Number, earlier. Tax software review Nonresident Aliens Generally, if you are a nonresident alien engaged in a trade or business in the United States, you can claim only one personal exemption ($3,900 for 2013). Tax software review You may be able to claim an exemption for a spouse and a dependent if you are described in any of the following discussions. Tax software review Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. Tax software review See Identification Number, earlier. Tax software review Residents of Mexico or Canada or U. Tax software review S. Tax software review nationals. Tax software review   If you are a resident of Mexico or Canada or a national of the United States (defined earlier), you can also claim a personal exemption for your spouse if your spouse had no gross income for U. Tax software review S. Tax software review tax purposes and cannot be claimed as the dependent on another U. Tax software review S. Tax software review taxpayer's return. Tax software review In addition, you can claim exemptions for your dependents who meet certain tests. Tax software review Residents of Mexico, Canada, or nationals of the United States must use the same rules as U. Tax software review S. Tax software review citizens to determine who is a dependent and for which dependents exemptions can be claimed. Tax software review See Publication 501 for these rules. Tax software review For purposes of these rules, dependents who are U. Tax software review S. Tax software review nationals meet the citizenship test discussed in Publication 501. Tax software review Residents of South Korea. Tax software review   Nonresident aliens who are residents of South Korea may be able to claim exemptions for a spouse and children. Tax software review The income tax treaty with South Korea imposes two additional requirements on South Korean residents: The spouse and all children claimed must live with the alien in the United States at some time during the tax year, and The additional deduction for the exemptions must be prorated based on the ratio of the alien's U. Tax software review S. Tax software review source gross income effectively connected with a U. Tax software review S. Tax software review trade or business for the tax year to the alien's entire income from all sources during the tax year. Tax software review Example. Tax software review Mr. Tax software review Park, a nonresident alien who is a resident of South Korea, lives temporarily in the United States with his wife and two children. Tax software review During the tax year he receives U. Tax software review S. Tax software review compensation of $18,000. Tax software review He also receives $6,000 of income from sources outside the United States that is not effectively connected with his U. Tax software review S. Tax software review trade or business. Tax software review Thus, his total income for the year is $24,000. Tax software review Mr. Tax software review Park meets all requirements for claiming exemptions for his spouse and two children. Tax software review The additional deduction for 2013 is $8,775 figured as follows: $18,000 $24,000 × $11,700* = $8,775               *3 × $3,900 = $11,700   Students and business apprentices from India. Tax software review   Students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty may be able to claim exemptions for their spouse and dependents. Tax software review   You can claim an exemption for your spouse if he or she had no gross income during the year and cannot be claimed as a dependent on another U. Tax software review S. Tax software review taxpayer's return. Tax software review   You can claim exemptions for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Tax software review S. Tax software review citizens. Tax software review See Publication 501 for these rules. Tax software review   List your spouse and dependents on line 7c of Form 1040NR. Tax software review Enter the total on the appropriate line to the right of line 7c. Tax software review Itemized Deductions Nonresident aliens can claim some of the same itemized deductions that resident aliens can claim. Tax software review However, nonresident aliens can claim itemized deductions only if they have income effectively connected with their U. Tax software review S. Tax software review trade or business. Tax software review Resident Aliens You can claim the same itemized deductions as U. Tax software review S. Tax software review citizens, using Schedule A of Form 1040. Tax software review These deductions include certain medical and dental expenses, state and local income taxes, real estate taxes, interest you paid on a home mortgage, charitable contributions, casualty and theft losses, and miscellaneous deductions. Tax software review If you do not itemize your deductions, you can claim the standard deduction for your particular filing status. Tax software review For further information, see Form 1040 and instructions. Tax software review Nonresident Aliens You can deduct certain itemized deductions if you receive income effectively connected with your U. Tax software review S. Tax software review trade or business. Tax software review These deductions include state and local income taxes, charitable contributions to U. Tax software review S. Tax software review organizations, casualty and theft losses, and miscellaneous deductions. Tax software review Use Schedule A of Form 1040NR to claim itemized deductions. Tax software review If you are filing Form 1040NR-EZ, you can only claim a deduction for state or local income taxes. Tax software review If you are claiming any other itemized deduction, you must file Form 1040NR. Tax software review Standard deduction. Tax software review   Nonresident aliens cannot claim the standard deduction. Tax software review However, see Students and business apprentices from India , next. Tax software review Students and business apprentices from India. Tax software review   A special rule applies to students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty. Tax software review You can claim the standard deduction provided you do not claim itemized deductions. Tax software review   Use Worksheet 5-1 to figure your standard deduction. Tax software review If you are married and your spouse files a return and itemizes deductions, you cannot take the standard deduction. Tax software review State and local income taxes. Tax software review   You can deduct state and local income taxes you paid on income that is effectively connected with a trade or business in the United States. Tax software review If you received a refund or rebate in 2013 of taxes you paid in an earlier year, do not reduce your deduction by that amount. Tax software review Instead, you must include the refund or rebate in income if you deducted the taxes in the earlier year and the deduction reduced your tax. Tax software review See Recoveries in Publication 525 for details on how to figure the amount to include in income. Tax software review Charitable contributions. Tax software review   You can deduct your charitable contributions or gifts to qualified organizations subject to certain limits. Tax software review Qualified organizations include organizations that are religious, charitable, educational, scientific, or literary in nature, or that work to prevent cruelty to children or animals. Tax software review Certain organizations that promote national or international amateur sports competition are also qualified organizations. Tax software review Foreign organizations. Tax software review   Contributions made directly to a foreign organization are not deductible. Tax software review However, you can deduct contributions to a U. Tax software review S. Tax software review organization that transfers funds to a charitable foreign organization if the U. Tax software review S. Tax software review organization controls the use of the funds or if the foreign organization is only an administrative arm of the U. Tax software review S. Tax software review organization. Tax software review   For more information about organizations that qualify to receive charitable contributions, see Publication 526, Charitable Contributions. Tax software review Worksheet 5-1. Tax software review 2013 Standard Deduction Worksheet for Students and Business Apprentices From India Caution. Tax software review If you are married filing a separate return and your spouse itemizes deductions, do not complete this worksheet. Tax software review You cannot take the standard deduction even if you were born before January 2, 1949, or are blind. Tax software review 1 Enter the amount shown below for your filing status. Tax software review           Single or married filing separately—$6,100 Qualifying widow(er)—$12,200 1. Tax software review           2 Can you be claimed as a dependent on someone else's U. Tax software review S. Tax software review income tax return?  No. Tax software review Enter the amount from line 1 on line 4. Tax software review Skip line 3 and go to line 5. Tax software review   Yes. Tax software review Go to line 3. Tax software review         3 Is your earned income* more than $650?           Yes. Tax software review Add $350 to your earned income. Tax software review Enter the total. Tax software review           No. Tax software review Enter $1,000 3. Tax software review       4 Enter the smaller of line 1 or line 3 4. Tax software review   5 If born before January 2, 1949, OR blind, enter $1,200 ($1,500 if single). Tax software review If born before January 2, 1949, AND blind, enter $2,400 ($3,000 if single). Tax software review Otherwise, enter -0- 5. Tax software review   6 Add lines 4 and 5. Tax software review Enter the total here and on Form 1040NR, line 38 (or Form 1040NR-EZ, line 11). Tax software review Print “Standard Deduction Allowed Under U. Tax software review S. Tax software review –India Income Tax Treaty” in the space to the left of these lines. Tax software review This is your standard deduction for 2013. Tax software review 6. Tax software review   *Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Tax software review It also includes any amount received as a scholarship that you must include in your income. Tax software review Generally, your earned income is the total of the amount(s) you reported on Form 1040NR, lines 8,12,13, and 19, minus amounts on lines 27 and 31 (or Form 1040NR-EZ, lines 3 and 5, minus any amount on line 8). Tax software review Contributions from which you benefit. Tax software review   If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Tax software review   If you pay more than the fair market value to a qualified organization for merchandise, goods, or services, the amount you pay that is more than the value of the item can be a charitable contribution. Tax software review For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Tax software review Cash contributions. Tax software review   You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written record from the charity. Tax software review The written record must include the name of the charity, date of the contribution, and the amount of the contribution. Tax software review   You may deduct a cash contribution of $250 or more only if you have a written statement from the charitable organization showing: The amount of any money contributed, Whether the organization gave you any goods or services in return for your contribution, and A description and estimate of the value of any goods or services described in (2). Tax software review If you received only intangible religious benefits, the organization must state this, but it does not have to describe or value the benefit. Tax software review Noncash contributions. Tax software review   For contributions not made in cash, the records you must keep depend on the amount of your deduction. Tax software review See Publication 526 for details. Tax software review For example, if you make a noncash contribution and the amount of your deduction is more than $500, you must complete and attach to your tax return Form 8283, Noncash Charitable Contributions. Tax software review If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. Tax software review If your total deduction is over $5,000, you also may have to get appraisals of the values of the property. Tax software review If the donated property is valued at more than $5,000, you must obtain a qualified appraisal. Tax software review You generally must attach to your tax return an appraisal of any property if your deduction for the property is more than $500,000. Tax software review See Form 8283 and its instructions for details. Tax software review Contributions of appreciated property. Tax software review   If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Tax software review However, if you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. Tax software review Your basis in the property is generally what you paid for it. Tax software review If you need more information about basis, get Publication 551, Basis of Assets. Tax software review   Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. Tax software review For information about these rules, see Publication 526. Tax software review Limit. Tax software review   The amount you can deduct in a tax year is limited in the same way it is for a citizen or resident of the United States. Tax software review For a discussion of limits on charitable contributions and other information, get Publication 526. Tax software review Casualty and theft losses. Tax software review   You can deduct your loss from fire, storm, shipwreck, or other casualty, or theft of property even though your property is not connected with a U. Tax software review S. Tax software review trade or business. Tax software review The property can be personal use property or income-producing property not connected with a U. Tax software review S. Tax software review trade or business. Tax software review The property must be located in the United States at the time of the casualty or theft. Tax software review You can deduct theft losses only in the year in which you discover the loss. Tax software review   The amount of the loss is the fair market value of the property immediately before the casualty or theft less its fair market value immediately after the casualty or theft (but not more than its cost or adjusted basis) less any insurance or other reimbursement. Tax software review The fair market value of property immediately after a theft is considered zero, because you no longer have the property. Tax software review   If your property is covered by insurance, you should file a timely insurance claim for reimbursement. Tax software review If you do not, you cannot deduct this loss as a casualty or theft loss. Tax software review   Figure your deductible casualty and theft losses on Form 4684, Casualties and Thefts. Tax software review Losses from personal use property. Tax software review    You cannot deduct the first $100 of each casualty or theft loss to property held for personal use. Tax software review You can deduct only the total of these losses for the year (reduced by the $100 limit) that is more than 10% of your adjusted gross income (line 37, Form 1040NR) for the year. Tax software review Losses from income-producing property. Tax software review   These losses are not subject to the limitations that apply to personal use property. Tax software review Use Section B of Form 4684 to figure your deduction for these losses. Tax software review Job expenses and other miscellaneous deductions. Tax software review   You can deduct job expenses, such as allowable unreimbursed travel expenses (discussed next), and other miscellaneous deductions. Tax software review Generally, the allowable deductions must be related to effectively connected income. Tax software review Deductible expenses include: Union dues, Safety equipment and small tools needed for your job, Dues to professional organizations, Subscriptions to professional journals, Tax return preparation fees, and Casualty and theft losses of property used in performing services as an employee (employee property). Tax software review   Most miscellaneous itemized deductions are deductible only if they are more than 2% of your adjusted gross income (line 37, Form 1040NR). Tax software review For more information on miscellaneous deductions, see the instructions for Form 1040NR. Tax software review Travel expenses. Tax software review   You may be able to deduct your ordinary and necessary travel expenses while you are temporarily performing personal services in the United States. Tax software review Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less. Tax software review You must be able to show you were present in the United States on an activity that required your temporary absence from your regular place of work. Tax software review   For example, if you have established a “tax home” through regular employment in a foreign country, and intend to return to similar employment in the same country at the end of your temporary stay in the United States, you can deduct reasonable travel expenses you paid. Tax software review You cannot deduct travel expenses for other members of your family or party. Tax software review Deductible travel expenses. Tax software review   If you qualify, you can deduct your expenses for: Transportation—airfare, local transportation, including train, bus, etc. Tax software review , Lodging—rent paid, utilities (do not include telephone), hotel or motel room expenses, and Meal expenses—actual expenses allowed if you keep records of the amounts, or, if you do not wish to keep detailed records, you are generally allowed a standard meal allowance amount depending on the date and area of your travel. Tax software review You generally can deduct only 50% of unreimbursed meal expenses. Tax software review The standard meal allowance rates for high-cost areas are available at www. Tax software review gsa. Tax software review gov/perdiem. Tax software review The rates for other areas are in Publication 463. Tax software review   Use Form 2106 or 2106-EZ to figure your allowable expenses that you claim on line 7 of Schedule A (Form 1040NR). Tax software review Expenses allocable to U. Tax software review S. Tax software review tax-exempt income. Tax software review   You cannot deduct an expense, or part of an expense, that is allocable to U. Tax software review S. Tax software review tax-exempt income, including income exempt by tax treaty. Tax software review Example. Tax software review Irina Oak, a citizen of Poland, resided in the United States for part of the year to acquire business experience from a U. Tax software review S. Tax software review company. Tax software review During her stay in the United States, she received a salary of $8,000 from her Polish employer. Tax software review She received no other U. Tax software review S. Tax software review source income. Tax software review She spent $3,000 on travel expenses, of which $1,000 were for meals. Tax software review None of these expenses were reimbursed. Tax software review Under the tax treaty with Poland, $5,000 of her salary is exempt from U. Tax software review S. Tax software review income tax. Tax software review In filling out Form 2106-EZ, she must reduce her deductible meal expenses by half ($500). Tax software review She must reduce the remaining $2,500 of travel expenses by 62. Tax software review 5% ($1,563) because 62. Tax software review 5% ($5,000 ÷ $8,000) of her salary is exempt from tax. Tax software review She enters the remaining total of $937 on line 7 of Schedule A (Form 1040NR). Tax software review She completes the remaining lines according to the instructions for Schedule A. Tax software review More information. Tax software review   For more information about deductible expenses, reimbursements, and recordkeeping, get Publication 463. Tax software review Tax Credits and Payments This discussion covers tax credits and payments for resident aliens, followed by a discussion of the credits and payments for nonresident aliens. Tax software review Resident Aliens Resident aliens generally claim tax credits and report tax payments, including withholding, using the same rules that apply to U. Tax software review S. Tax software review citizens. Tax software review The following items are some of the credits you may be able to claim. Tax software review Foreign tax credit. Tax software review   You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. Tax software review You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. Tax software review To claim a credit for income taxes paid or accrued to a foreign country, you generally will file Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), with your Form 1040. Tax software review   For more information, get Publication 514, Foreign Tax Credit for Individuals. Tax software review Child and dependent care credit. Tax software review   You may be able to take this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Tax software review Generally, you must be able to claim an exemption for your dependent. Tax software review   For more information, get Publication 503, Child and Dependent Care Expenses, and Form 2441, Child and Dependent Care Expenses. Tax software review Credit for the elderly or the disabled. Tax software review   You may qualify for this credit if you are 65 or older or if you retired on permanent and total disability. Tax software review For more information on this credit, get Publication 524, Credit for the Elderly or the Disabled, and Schedule R (Form 1040A or 1040). Tax software review Education credits. Tax software review   You may qualify for these credits if you paid qualified education expenses for yourself, your spouse, or your dependent. Tax software review There are two education credits: the American Opportunity Credit and the lifetime learning credit. Tax software review You cannot claim these credits if you are married filing separately. Tax software review Use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to figure the credit. Tax software review For more information, see Publication 970. Tax software review Retirement savings contributions credit. Tax software review   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. Tax software review You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than: $59,000, if your filing status is married filing jointly, $44,250, if your filing status is head of household, or $29,500, if your filing status is single, married filing separately, or qualifying widow(er). Tax software review Use Form 8880, Credit for Qualified Retirement Savings Contributions, to figure the credit. Tax software review For more information, see Publication 590. Tax software review Child tax credit. Tax software review   You may be able to take this credit if you have a qualifying child. Tax software review   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. Tax software review Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Tax software review Is a U. Tax software review S. Tax software review citizen, a U. Tax software review S. Tax software review national, or a resident alien. Tax software review Did not provide over half of his or her own support for 2013. Tax software review Lived with you more than half of 2013. Tax software review Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. Tax software review Is claimed as a dependent on your return. Tax software review An adopted child is always treated as your own child. Tax software review An adopted child includes a child lawfully placed with you for legal adoption. Tax software review   See your form instructions for additional details. Tax software review Adoption credit. Tax software review   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. Tax software review This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. Tax software review To claim the adoption credit, file Form 8839, Qualified Adoption Expenses, with your Form 1040. Tax software review Earned income credit. Tax software review   You may qualify for an earned income credit of up to $3,250 if a child lived with you in the United States and your earned income and adjusted gross income were each less than $37,870 ($43,210 if married filing jointly). Tax software review If two children lived with you in the United States and your earned income and adjusted gross income were each less than $43,038 ($48,378 if married filing jointly), your credit could be as much as $5,372. Tax software review If three or more children lived with you in the United States and your earned income and adjusted gross income were each less than $46,227 ($51,567 if married filing jointly), your credit could be as much as $6,044. Tax software review If you do not have a qualifying child and your earned income and adjusted gross income were each less than $14,340 ($19,680 if married filing jointly), your credit could be as much as $487. Tax software review You cannot claim the earned income credit if your filing status is married filing separately. Tax software review    You and your spouse (if filing a joint return) and any qualifying child must have valid SSNs to claim this credit. Tax software review You cannot claim the credit using an ITIN. Tax software review If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. Tax software review An example of a federally funded benefit is Medicaid. Tax software review If a card has this legend and the individual's immigration status has changed so that the individual is now a U. Tax software review S. Tax software review citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. Tax software review Other information. Tax software review   There are other eligibility rules that are not discussed here. Tax software review For more information, get Publication 596, Earned Income Credit. Tax software review Nonresident Aliens You can claim some of the same credits that resident aliens can claim. Tax software review You can also report certain taxes you paid, are considered to have paid, or that were withheld from your income. Tax software review Credits Credits are allowed only if you receive effectively connected income. Tax software review You may be able to claim some of the following credits. Tax software review Foreign tax credit. Tax software review   If you receive foreign source income that is effectively connected with a trade or business in the United States, you can claim a credit for any income taxes paid or accrued to any foreign country or U. Tax software review S. Tax software review possession on that income. Tax software review   If you do not have foreign source income effectively connected with a U. Tax software review S. Tax software review trade or business, you cannot claim credits against your U. Tax software review S. Tax software review tax for taxes paid or accrued to a foreign country or U. Tax software review S. Tax software review possession. Tax software review   You cannot take any credit for taxes imposed by a foreign country or U. Tax software review S. Tax software review possession on your U. Tax software review S. Tax software review source income if those taxes were imposed only because you are a citizen or resident of the foreign country or possession. Tax software review   If you claim a foreign tax credit, you generally will have to attach to your return a Form 1116. Tax software review See Publication 514 for more information. Tax software review Child and dependent care credit. Tax software review   You may qualify for this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Tax software review Generally, you must be able to claim an exemption for your dependent. Tax software review   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. Tax software review S. Tax software review citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Joint Return Test in Publication 503). Tax software review   The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year. Tax software review Earned income generally means wages, salaries, and professional fees for personal services performed. Tax software review   For more information, get Publication 503. Tax software review Education credits. Tax software review   If you are a nonresident alien for any part of the year, you generally cannot claim the education credits. Tax software review However, if you are married and choose to file a joint return with a U. Tax software review S. Tax software review citizen or resident spouse as discussed in chapter 1, you may be eligible for these credits. Tax software review Retirement savings contributions credit. Tax software review   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. Tax software review You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than $29,500. Tax software review Use Form 8880 to figure the credit. Tax software review For more information, see Publication 590. Tax software review Child tax credit. Tax software review   You may be able to take this credit if you have a qualifying child. Tax software review   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. Tax software review Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Tax software review Is a U. Tax software review S. Tax software review citizen, a U. Tax software review S. Tax software review national, or a resident alien. Tax software review Did not provide over half of his or her own support for 2013. Tax software review Lived with you more than half of 2013. Tax software review Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. Tax software review Is claimed as a dependent on your return. Tax software review An adopted child is always treated as your own child. Tax software review An adopted child includes a child lawfully placed with you for legal adoption. Tax software review   See your form instructions for additional details. Tax software review Adoption credit. Tax software review   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. Tax software review This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. Tax software review To claim the adoption credit, file Form 8839 with your Form 1040NR. Tax software review   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. Tax software review S. Tax software review citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Not Filing Jointly in the Form 8839 instructions). Tax software review Credit for prior year minimum tax. Tax software review   If you paid alternative minimum tax in a prior year, get Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, to see if you qualify for this credit. Tax software review Earned income credit. Tax software review   If you are a nonresident alien for any part of the tax year, you generally cannot get the earned income credit. Tax software review However, if you are married and choose to file a joint return with a U. Tax software review S. Tax software review citizen or resident spouse as discussed in chapter 1, you may be eligible for the credit. Tax software review    You, your spouse, and any qualifying child must have valid SSNs to claim this credit. Tax software review You cannot claim the credit using an ITIN. Tax software review If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. Tax software review An example of a federally funded benefit is Medicaid. Tax software review If a card has this legend and the individual's immigration status has changed so that the individual is now a U. Tax software review S. Tax software review citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. Tax software review   See Publication 596 for more information on the credit. Tax software review Tax Withheld You can claim the tax withheld during the year as a payment against your U. Tax software review S. Tax software review tax. Tax software review You claim it on line 61 of Form 1040NR or on line 18 of Form 1040NR-EZ. Tax software review The tax withheld reduces any tax you owe with Form 1040NR or Form 1040NR-EZ. Tax software review Withholding from wages. Tax software review   Any federal income tax withheld from your wages during the tax year while you were a nonresident alien is allowed as a payment against your U. Tax software review S. Tax software review income tax liability for the same year. Tax software review You can claim the income tax withheld whether or not you were engaged in a trade or business in the United States during the year, and whether or not the wages (or any other income) were connected with a trade or business in the United States. Tax software review Excess social security tax withheld. Tax software review   If you have two or more employers, you may be able to claim a credit against your U. Tax software review S. Tax software review income tax liability for social security tax withheld in excess of the maximum required. Tax software review See Social Security and Medicare Taxes in chapter 8 for more information. Tax software review Additional Medicare Tax. Tax software review   Your employer is responsible for withholding the 0. Tax software review 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in 2013. Tax software review If you do not owe Additional Medicare Tax, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959. Tax software review Tax paid on undistributed long-term capital gains. Tax software review   If you are a shareholder in a mutual fund (or other regulated investment company) or real estate investment trust, you can claim a credit for your share of any taxes paid by the company on its undistributed long-term capital gains. Tax software review You will receive information on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, which you must attach to your return. Tax software review Tax withheld at the source. Tax software review   You can claim as a payment any tax withheld at the source on investment and other fixed or determinable annual or periodic income paid to you. Tax software review Fixed or determinable income includes interest, dividend, rental, and royalty income that you do not claim to be effectively connected income. Tax software review Wage or salary payments can be fixed or determinable income to you, but usually are subject to withholding as discussed above. Tax software review Taxes on fixed or determinable income are withheld at a 30% rate or at a lower treaty rate. Tax software review Tax withheld on partnership income. Tax software review   If you are a foreign partner in a partnership, the partnership will withhold tax on your share of effectively connected taxable income from the partnership. Tax software review The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. Tax software review A partnership that is publicly traded may withhold on your actual distributions of effectively connected income. Tax software review In this case, the partnership will give you a statement on Form 1042-S. Tax software review Claim the tax withheld as a payment on line 61b or 61d of Form 1040NR, as appropriate. Tax software review Claiming tax withheld on your return. Tax software review   When you fill out your tax return, take extra care to enter the correct amount of any tax withheld shown on your information documents. Tax software review The following table lists some of the more common information documents and shows where to find the amount of tax withheld. Tax software review Form number Location  of tax  withheld RRB-1042S Box 12 SSA-1042S Box 9 W-2 Box 2 W-2c Box 2 1042-S Box 9 8805 Line 10 8288-A Box 2 Bona Fide Residents of American Samoa or Puerto Rico If you are a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you generally are taxed the same as resident aliens. Tax software review You should file Form 1040 and report all income from sources both in and outside the United States. Tax software review However, you can exclude the income discussed in the following paragraphs. Tax software review For tax purposes other than reporting income, however, you will be treated as a nonresident alien. Tax software review For example, you are not allowed the standard deduction, you cannot file a joint return, and you are not allowed a deduction for a dependent unless that person is a citizen or national of the United States. Tax software review There are also limits on what deductions and credits are allowed. Tax software review See Nonresident Aliens under Deductions , Itemized Deductions , and Tax Credits and Payments in this chapter. Tax software review Residents of Puerto Rico. Tax software review   If you are a bona fide resident of Puerto Rico for the entire year, you can exclude from gross income all income from sources in Puerto Rico (other than amounts for services performed as an employee of the United States or any of its agencies). Tax software review   If you report income on a calendar year basis and you do not have wages subject to withholding, file your return and pay your tax by June 15. Tax software review You must also make your first payment of estimated tax by June 15. Tax software review You cannot file a joint income tax return or make joint payments of estimated tax. Tax software review However, if you are married to a U. Tax software review S. Tax software review citizen or resident, see Nonresident Spouse Treated as a Resident in chapter 1. Tax software review   If you earn wages subject to withholding, your U. Tax software review S. Tax software review income tax return is due by April 15. Tax software review Your first payment of estimated tax is also due by April 15. Tax software review For information on withholding and estimated tax, see chapter 8 . Tax software review Residents of American Samoa. Tax software review   If you are a bona fide resident of American Samoa for the entire year, you can exclude from gross income all income from sources in American Samoa (other than amounts for services performed as an employee of the U. Tax software review S. Tax software review government or any of its agencies). Tax software review An employee of the American Samoan government is not considered an employee of the U. Tax software review S. Tax software review government or any of its agencies for purposes of the exclusion. Tax software review For more information about this exclusion, get Form 4563 and Publication 570, Tax Guide for Individuals With Income From U. Tax software review S. Tax software review Possessions. 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Understanding your CP71D Notice

You received this notice to remind you of the amount you owe in tax, penalty and interest.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully — it will explain how much money you owe on your taxes.

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Answers to Common Questions

Am I charged interest on the money I owe?
Yes, interest accrues on your unpaid balance until you pay it in full.

Do I receive a penalty if I cannot pay the full amount?
Yes, you receive a late payment penalty.

What happens if I cannot pay the full amount I owe?
You can arrange to make a payment plan with us if you cannot pay the full amount you owe.

How can I set up a payment plan?
Call the toll-free number listed on the top right corner of your notice to discuss payment options or learn more about payment arrangements.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 06-Mar-2014

The Tax Software Review

Tax software review 3. Tax software review   Unrelated Trade or Business Table of Contents Selling of products of exempt functions. Tax software review Dual use of assets or facilities. Tax software review Exploitation of exempt functions. Tax software review ExamplesExceptions. Tax software review Excluded Trade or Business ActivitiesQualified sponsorship payment. Tax software review Advertising. Tax software review Exception for contingent payments. Tax software review Exception for periodicals. Tax software review Exception for conventions and trade shows. Tax software review Legal definition. Tax software review Legal where played. Tax software review No for-profit games where played. Tax software review Unrelated business income. Tax software review   Unrelated business income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. Tax software review   Certain trade or business activities are not treated as an unrelated trade or business. Tax software review See Excluded Trade or Business Activities, later. Tax software review Trade or business. Tax software review   The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. Tax software review An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purposes of the organization. Tax software review   For example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose its identity as a trade or business, even though the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purpose. Tax software review Similarly, soliciting, selling, and publishing commercial advertising is a trade or business even though the advertising is published in an exempt organization's periodical that contains editorial matter related to the organization's exempt purpose. Tax software review Regularly conducted. Tax software review   Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. Tax software review   For example, a hospital auxiliary's operation of a sandwich stand for 2 weeks at a state fair would not be the regular conduct of a trade or business. Tax software review The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. Tax software review However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. Tax software review Not substantially related. Tax software review    A business activity is not substantially related to an organization's exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds). Tax software review Whether an activity contributes importantly depends in each case on the facts involved. Tax software review   In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. Tax software review For example, to the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. Tax software review The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Tax software review   Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. Tax software review Selling of products of exempt functions. Tax software review   Ordinarily, selling products that result from the performance of exempt functions is not an unrelated trade or business if the product is sold in substantially the same state it is in when the exempt functions are completed. Tax software review Thus, for an exempt organization engaged in rehabilitating handicapped persons (its exempt function), selling articles made by these persons as part of their rehabilitation training is not an unrelated trade or business. Tax software review   However, if a completed product resulting from an exempt function is used or exploited in further business activity beyond what is reasonably appropriate or necessary to dispose of it as is, the activity is an unrelated trade or business. Tax software review For example, if an exempt organization maintains an experimental dairy herd for scientific purposes, the sale of milk and cream produced in the ordinary course of operation of the project is not an unrelated trade or business. Tax software review But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. Tax software review , the sale of these products is an unrelated trade or business unless the manufacturing activities themselves contribute importantly to the accomplishment of an exempt purpose of the organization. Tax software review Dual use of assets or facilities. Tax software review   If an asset or facility necessary to the conduct of exempt functions is also used in commercial activities, its use for exempt functions does not, by itself, make the commercial activities a related trade or business. Tax software review The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. Tax software review   For example, a museum has a theater auditorium designed for showing educational films in connection with its program of public education in the arts and sciences. Tax software review The theater is a principal feature of the museum and operates continuously while the museum is open to the public. Tax software review If the organization also operates the theater as a motion picture theater for the public when the museum is closed, the activity is an unrelated trade or business. Tax software review   For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. Tax software review Exploitation of exempt functions. Tax software review   Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. Tax software review When an organization exploits such an intangible in commercial activities, the fact that the income depends in part upon an exempt function of the organization does not make the commercial activities a related trade or business. Tax software review Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. Tax software review   For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. Tax software review Examples The following are examples of activities that were determined to be (or not to be) unrelated trades or businesses using the definitions and principles just discussed. Tax software review Sales commissions. Tax software review   An agricultural organization, whose exempt purposes are to promote better conditions for cattle breeders and to improve the breed generally, engages in an unrelated trade or business when it regularly sells cattle for its members on a commission basis. Tax software review Artists' facilities. Tax software review   An organization whose exempt purpose is to stimulate and foster public interest in the fine arts by promoting art exhibits, sponsoring cultural events, and furnishing information about fine arts leases studio apartments to artist tenants and operates a dining hall primarily for these tenants. Tax software review These two activities do not contribute importantly to accomplishing the organization's exempt purpose. Tax software review Therefore, they are unrelated trades or businesses. Tax software review Membership list sales. Tax software review   An exempt educational organization regularly sells membership mailing lists to business firms. Tax software review This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. Tax software review Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. Tax software review Hospital facilities. Tax software review   An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. Tax software review The group provides all diagnostic and therapeutic procedures to the hospital's patients and operates the hospital's emergency room on a 24-hour basis. Tax software review The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. Tax software review   The hospital also operates a gift shop patronized by patients, visitors making purchases for patients, and employees; a cafeteria and coffee shop primarily for employees and medical staff; and a parking lot for patients and visitors only. Tax software review These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. Tax software review Book publishing. Tax software review   An exempt organization engages primarily in activities that further its exempt purposes. Tax software review It also owns the publication rights to a book that does not relate to any of its exempt purposes. Tax software review The organization exploits the book in a commercial manner by arranging for printing, distribution, publicity, and advertising in connection with the sale of the book. Tax software review These activities constitute a trade or business regularly conducted. Tax software review Because exploiting the book is unrelated to the organization's exempt purposes (except for the use of the book's profits), the income is unrelated business income. Tax software review   However, if the organization transfers publication rights to a commercial publisher in return for royalties, the royalty income received will not be unrelated business income. Tax software review See Royalties under Exclusions in chapter 4. Tax software review School handicraft shop. Tax software review   An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. Tax software review The students are paid a percentage of the sales price. Tax software review In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. Tax software review The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. Tax software review Although many local participants are former students of the school, any qualified person may participate in the program. Tax software review The sale of articles made by students does not constitute an unrelated trade or business, but the sale of products made by local residents is an unrelated trade or business and is subject to unrelated business income tax. Tax software review School facilities. Tax software review   An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. Tax software review During the summer, the school operates a tennis club open to the general public. Tax software review Employees of the school run the club, including collecting membership fees and scheduling court time. Tax software review   Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. Tax software review The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. Tax software review   In both situations, the exempt purpose is the advancement of education. Tax software review Furnishing tennis facilities in the manner described does not further that exempt purpose. Tax software review These activities are unrelated trades or businesses. Tax software review However, in the second situation the income derived from the leasing of the property is excluded from unrelated business taxable income as rent from real property. Tax software review See Rents under Exclusions in chapter 4. Tax software review Services provided with lease. Tax software review   An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. Tax software review Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. Tax software review It also provides dressing room, linen, and stadium security services for the professional team. Tax software review   Leasing of the stadium is an unrelated trade or business. Tax software review In addition, the substantial services furnished for the convenience of the lessee go beyond those usually provided with the rental of space for occupancy only. Tax software review Therefore, the income from this lease is rent from real property and unrelated business taxable income. Tax software review Broadcasting rights. Tax software review   An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. Tax software review Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. Tax software review An athletic program is considered an integral part of the educational process of a university. Tax software review   The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. Tax software review Also, the educational purposes served by exhibiting a game before an audience that is physically present and exhibiting the game on television or radio before a much larger audience are substantially similar. Tax software review Therefore, the sale of the broadcasting rights contributes importantly to the accomplishment of the organization's exempt purpose and is not an unrelated trade or business. Tax software review   In a similar situation, an exempt organization was created as a national governing body for amateur athletes to foster interest in amateur sports and to encourage widespread public participation. Tax software review The organization receives income each year from the sale of exclusive broadcasting rights to an independent producer, who contracts with a commercial network to broadcast many of the athletic events sponsored, supervised, and regulated by the organization. Tax software review   The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization's nationwide amateur program, and encourages public participation. Tax software review The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. Tax software review Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. Tax software review Yearbook advertising. Tax software review   An exempt organization receives income from the sale of advertising in its annual yearbook. Tax software review The organization hires an independent commercial firm, under a contract covering a full calendar year, to conduct an intensive advertising solicitation campaign in the organization's name. Tax software review This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. Tax software review This advertising activity is an unrelated trade or business. Tax software review Pet boarding and grooming services. Tax software review   An exempt organization, organized and operated for the prevention of cruelty to animals, receives unrelated business income from providing pet boarding and grooming services for the general public. Tax software review These activities do not contribute importantly to its purpose of preventing cruelty to animals. Tax software review Museum eating facilities. Tax software review   An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. Tax software review Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at mealtime. Tax software review The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. Tax software review Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business. Tax software review Halfway house workshop. Tax software review   A halfway house organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers also operates a furniture shop to provide full-time employment for its residents. Tax software review The profits are applied to the operating costs of the halfway house. Tax software review The income from this venture is not unrelated trade or business income because the furniture shop contributes importantly to the organization's purpose of aiding its residents' transition from treatment to a normal and productive life. Tax software review Travel tour programs. Tax software review   Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose for which tax exemption was granted to the organization. Tax software review Example 1. Tax software review A tax-exempt university alumni association provides a travel tour program for its members and their families. Tax software review The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. Tax software review It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. Tax software review The organization provides an employee for each tour as a tour leader. Tax software review There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. Tax software review By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. Tax software review Even if the tours it offers support the university, financially and otherwise, and encourage alumni to do the same, they do not contribute importantly to the organization's exempt purpose of promoting education. Tax software review Therefore, the sale of the travel tours is an unrelated trade or business. Tax software review Example 2. Tax software review A tax-exempt organization formed for the purpose of educating individuals about the geography and the culture of the United States provides study tours to national parks and other locations within the United States. Tax software review These tours are conducted by teachers and others certified by the state board of education. Tax software review The tours are primarily designed for students enrolled in degree programs at state educational institutions but are open to all who agree to participate in the required study program associated with the tour taken. Tax software review A tour's study program consists of instruction on subjects related to the location being visited on the tour. Tax software review Each tour group brings along a library of material related to the subjects being studied on the tour. Tax software review During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. Tax software review Examinations are given at the end of each tour. Tax software review The state board of education awards academic credit for tour participation. Tax software review Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. Tax software review Insurance programs. Tax software review   An organization that acts as a group insurance policyholder for its members and collects a fee for performing administrative services is normally carrying on an unrelated trade or business. Tax software review Exceptions. Tax software review   Organizations whose exempt activities may include the provision of insurance benefits, such as fraternal beneficiary societies, voluntary employees beneficiary associations, and labor organizations, are generally exceptions to this rule. Tax software review Magazine publishing. Tax software review   An association of credit unions with tax-exempt status as a business league publishes a consumer-oriented magazine four times a year and makes it available to member credit unions for purchase. Tax software review   By selling a magazine to its members as a promotional device, the organization furnishes its members with a regular commercial service they can use in their own operations. Tax software review This service does not promote the improvement of business conditions of one or more lines of business, which is the exempt purpose of a business league. Tax software review   Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. Tax software review Directory of members. Tax software review   A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. Tax software review Each member has the same amount of space in the directory, and its format does not emphasize the relative importance or reputation of any member. Tax software review The directory contains no commercial advertisement and is sold only to the organization's members. Tax software review   The directory facilitates communication among the members and encourages the exchange of ideas and expertise. Tax software review Because the directory lists the members in a similar noncommercial format without advertising and is not distributed to the public, its sale does not confer private commercial benefits on the members. Tax software review The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. Tax software review This directory differs from the publication discussed next because of its noncommercial characteristics. Tax software review Sales of advertising space. Tax software review   A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. Tax software review The journal is distributed without charge, mainly to the organization's members. Tax software review   The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. Tax software review Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. Tax software review A business firm identified in a separate space is further identified in an Index of Advertisers. Tax software review   The organization solicits advertising by personal contacts. Tax software review Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. Tax software review The organization also solicits advertising in form letters appealing for corporate and personal contributions. Tax software review   An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. Tax software review Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. Tax software review Therefore, advertising in an exempt organization's publication is generally presumed to be placed for the purchaser's commercial benefit, even if it has no commercial message. Tax software review However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. Tax software review In that case, other factors should also be considered in determining whether a commercial benefit can be expected. Tax software review Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers. Tax software review   In this situation, the purchaser of a separate advertising space without a commercial message can nevertheless expect a commercial benefit from the goodwill derived from being identified in that manner as a patron of the organization. Tax software review However, the purchaser of a listing cannot expect more than an inconsequential benefit. Tax software review Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. Tax software review Publishing legal notices. Tax software review   A bar association publishes a legal journal containing opinions of the county court, articles of professional interest to lawyers, advertisements for products and services used by the legal profession, and legal notices. Tax software review The legal notices are published to satisfy state laws requiring publication of notices in connection with legal proceedings, such as the administration of estates and actions to quiet title to real property. Tax software review The state designated the bar association's journal as the place to publish the required notices. Tax software review   The publication of ordinary commercial advertising does not advance the exempt purposes of the association even when published in a periodical that contains material related to exempt purposes. Tax software review Although the advertising is directed specifically to members of the legal profession, it is still commercial in nature and does not contribute importantly to the exempt purposes of the association. Tax software review Therefore, the advertising income is unrelated trade or business income. Tax software review   On the other hand, the publication of legal notices is distinguishable from ordinary commercial advertising in that its purpose is to inform the general public of significant legal events rather than to stimulate demand for the products or services of an advertiser. Tax software review This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. Tax software review Therefore, the publishing of legal notices does not constitute an unrelated trade or business. Tax software review Museum greeting card sales. Tax software review    An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. Tax software review Each card is imprinted with the name of the artist, the title or subject matter of the work, the date or period of its creation, if known, and the museum's name. Tax software review The cards contain appropriate greetings and are personalized on request. Tax software review   The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. Tax software review It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. Tax software review As a result, a large number of cards are sold at a significant profit. Tax software review   The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. Tax software review The sale of greeting cards with printed reproductions of artworks contributes importantly to the achievement of the museum's exempt educational purposes by enhancing public awareness, interest, and appreciation of art. Tax software review The cards may encourage more people to visit the museum itself to share in its educational programs. Tax software review The fact that the cards are promoted and sold in a commercial manner at a profit and in competition with commercial greeting card publishers does not alter the fact that the activity is related to the museum's exempt purpose. Tax software review Therefore, these sales activities are not an unrelated trade or business. Tax software review Museum shop. Tax software review   An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums (prints suitable for framing, postcards, greeting cards, and slides); Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located. Tax software review   The shop also rents originals or reproductions of paintings contained in its collection. Tax software review All of its reproductions are imprinted with the name of the artist, the title or subject matter of the work from which it is reproduced, and the museum's name. Tax software review   Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. Tax software review   The sale and rental of reproductions and copies of works from the museum's own collection and reproductions of artistic works not owned by the museum contribute importantly to the achievement of the museum's exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public's understanding and appreciation of art. Tax software review The same is true for the sale of literature relating to art. Tax software review Therefore, these sales activities are not an unrelated trade or business. Tax software review   On the other hand, the sale of scientific books and souvenir items of the city where the museum is located has no causal relationship to art or to artistic endeavor and, therefore, does not contribute importantly to the accomplishment of the museum's exempt educational purposes. Tax software review The fact that selling some of these items could, under different circumstances, be held related to the exempt educational purpose of some other exempt educational organization does not change this conclusion. Tax software review Additionally, the sale of these items does not lose its identity as a trade or business merely because the museum also sells articles which do contribute importantly to the accomplishment of its exempt function. Tax software review Therefore, these sales are an unrelated trade or business. Tax software review Business league's parking and bus services. Tax software review   A business league, whose purpose is to retain and stimulate trade in a downtown area that has inadequate parking facilities, operates a fringe parking lot and shuttle bus service. Tax software review It also operates, as an insubstantial part of its activities, a park and shop plan. Tax software review   The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. Tax software review The merchants cannot offer free or discount parking or bus fares to their customers. Tax software review   The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. Tax software review Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. Tax software review   Operating the fringe parking lot and shuttle bus service provides easy and convenient access to the downtown area and, therefore, stimulates and improves business conditions in the downtown area generally. Tax software review That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. Tax software review   The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. Tax software review This provides a particular service to individual members of the organization and does not further its exempt purpose. Tax software review Therefore, operating the park and shop plan is an unrelated trade or business. Tax software review Youth residence. Tax software review   An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. Tax software review The residence units are operated on, and as a part of, the premises in which the organization carries on the social, recreational, and guidance programs for which it was recognized as exempt. Tax software review The facilities are under the management and supervision of trained career professionals who provide residents with personal counseling, physical education programs, and group recreational activities. Tax software review The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. Tax software review Health club program. Tax software review   An exempt charitable organization's purpose is to provide for the welfare of young people. Tax software review The organization conducts charitable activities and maintains facilities that will contribute to the physical, social, mental, and spiritual health of young people at minimum or no cost to them. Tax software review Nominal annual dues are charged for membership in the organization and use of the facilities. Tax software review   In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. Tax software review The annual fee is comparable to fees charged by similar local commercial health clubs and is sufficiently high to restrict participation in the program to a limited number of members of the community. Tax software review   The health club program is in addition to the general physical fitness program of the organization. Tax software review Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. Tax software review Miniature golf course. Tax software review   An exempt youth welfare organization operates a miniature golf course that is open to the general public. Tax software review The course, which is managed by salaried employees, is substantially similar to commercial courses. Tax software review The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. Tax software review   The operation of the miniature golf course in a commercial manner does not contribute importantly to the accomplishment of the organization's exempt purpose and, therefore, is an unrelated trade or business. Tax software review Sales of hearing aids. Tax software review   A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. Tax software review This activity is an essential part of the hospital's program to test and evaluate patients with hearing deficiencies and contributes importantly to its exempt purpose. Tax software review It is not an unrelated trade or business. Tax software review Nonpatient laboratory testing. Tax software review   Nonpatient laboratory testing performed by a tax-exempt teaching hospital on specimens needed for the conduct of its teaching activities is not an unrelated trade or business. Tax software review However, laboratory testing performed by a tax-exempt non-teaching hospital on referred specimens from private office patients of staff physicians is an unrelated trade or business if these services are otherwise available in the community. Tax software review Selling endorsements. Tax software review   An exempt scientific organization enjoys an excellent reputation in the field of biological research. Tax software review It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. Tax software review Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. Tax software review Accordingly, the sale of endorsements is an unrelated trade or business. Tax software review Sponsoring entertainment events. Tax software review   An exempt university has a regular faculty and a regularly enrolled student body. Tax software review During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. Tax software review Members of the general public also are admitted. Tax software review The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. Tax software review Although the presentation of the performances makes use of an intangible generated by the university's exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. Tax software review Therefore, the activity is not an unrelated trade or business. Tax software review Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. Tax software review Volunteer workforce. Tax software review   Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. Tax software review Example 1. Tax software review A retail store operated by an exempt orphanage where unpaid volunteers perform substantially all the work in carrying on the business is not an unrelated trade or business. Tax software review Example 2. Tax software review A volunteer fire company conducts weekly public dances. Tax software review Holding public dances and charging admission on a regular basis may, given the facts and circumstances of a particular case, be considered an unrelated trade or business. Tax software review However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. Tax software review Convenience of members. Tax software review   A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. Tax software review For example, a laundry operated by a college for the purpose of laundering dormitory linens and students' clothing is not an unrelated trade or business. Tax software review Qualified sponsorship activities. Tax software review   Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. Tax software review Qualified sponsorship payment. Tax software review   This is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. Tax software review “Use or acknowledgment” does not include advertising the sponsor's products or services. Tax software review The organization's activities include all its activities, whether or not related to its exempt purposes. Tax software review   For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax. Tax software review   Providing facilities, services, or other privileges (for example, complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) to a sponsor or the sponsor's designees in connection with a sponsorship payment does not affect whether the payment is a qualified sponsorship payment. Tax software review Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. Tax software review Generally, if the services or facilities are not a substantial benefit or if providing them is a related business activity, the payments will not be subject to the unrelated business income tax. Tax software review   Similarly, the sponsor's receipt of a license to use an intangible asset (for example, a trademark, logo, or designation) of the organization is treated as separate from the qualified sponsorship transaction in determining whether the organization has unrelated business taxable income. Tax software review   If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. Tax software review For example, if a sponsorship payment entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the unrelated business income tax does not apply to the part of the payment that is more than the fair market value of the product advertising. Tax software review Advertising. Tax software review   A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. Tax software review For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Tax software review   Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. Tax software review   The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. Tax software review In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising. Tax software review Exception for contingent payments. Tax software review   A payment is not a qualified sponsorship payment if its amount is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. Tax software review However, the fact that a sponsorship payment is contingent upon an event actually taking place or being broadcast does not, by itself, affect whether a payment qualifies. Tax software review Exception for periodicals. Tax software review   A payment is not a qualified sponsorship payment if it entitles the payer to the use or acknowledgment of the business name, logo, or product lines in the organization's periodical. Tax software review For this purpose, a periodical is any regularly scheduled and printed material (for example, a monthly journal) published by or on behalf of the organization. Tax software review It does not include material that is related to and primarily distributed in connection with a specific event conducted by the organization (for example, a program or brochure distributed at a sponsored event). Tax software review   The treatment of payments that entitle the payer to the depiction of the payer's name, logo, or products lines in an organization's periodical is determined under the rules that apply to advertising activities. Tax software review See Sales of advertising space under Examples, earlier in this chapter. Tax software review Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Tax software review Exception for conventions and trade shows. Tax software review   A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. Tax software review The exclusion of qualified convention or trade show activities from the definition of unrelated trade or business is explained later under Convention or trade show activity. Tax software review Selling donated merchandise. Tax software review   A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, is not an unrelated trade or business. Tax software review For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, is not an unrelated trade or business. Tax software review Employee association sales. Tax software review   The sale of certain items by a local association of employees described in section 501(c)(4), organized before May 17, 1969, is not an unrelated trade or business if the items are sold for the convenience of the association's members at their usual place of employment. Tax software review This exclusion applies only to the sale of work-related clothes and equipment and items normally sold through vending machines, food dispensing facilities, or by snack bars. Tax software review Bingo games. Tax software review   Certain bingo games are not included in the term “unrelated trade or business. Tax software review ” To qualify for this exclusion, the bingo game must meet the following requirements. Tax software review It meets the legal definition of bingo. Tax software review It is legal where it is played. Tax software review It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. Tax software review Legal definition. Tax software review   For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game. Tax software review   A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. Tax software review For example, “instant bingo,” in which a player buys a pre-packaged bingo card with pull-tabs that the player removes to determine if he or she is a winner, does not qualify. Tax software review Legal where played. Tax software review   This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. Tax software review The fact that a jurisdiction's law that prohibits bingo is rarely enforced or is widely disregarded does not make the conduct of bingo legal for this purpose. Tax software review No for-profit games where played. Tax software review   This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. Tax software review Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. Tax software review Example. Tax software review Tax-exempt organizations X and Y are organized under the laws of state N, which has a law that permits exempt organizations to conduct bingo games. Tax software review In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. Tax software review Several for-profit organizations conduct nightly games. Tax software review Y conducts weekly bingo games in city S, while X conducts weekly games in county R. Tax software review Since state law confines the for-profit organizations to city S, local jurisdiction controls. Tax software review Y's bingo games conducted in city S are an unrelated trade or business. Tax software review However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. Tax software review Gambling activities other than bingo. Tax software review   Any game of chance conducted by an exempt organization in North Dakota is not an unrelated trade or business if conducting the game does not violate any state or local law. Tax software review Pole rentals. Tax software review   The term unrelated trade or business does not include qualified pole rentals by a mutual or cooperative telephone or electric company described in section 501(c)(12). Tax software review A qualified pole rental is the rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires (in addition to the wires described in 1 ) for use in connection with the transmission by wire of electricity or of telephone or other communications. Tax software review For this purpose, the term rental includes any sale of the right to use the pole (or other structure). Tax software review Distribution of low cost articles. Tax software review   The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. Tax software review This applies to organizations described in section 501 that are eligible to receive charitable contributions. Tax software review   A distribution is considered incidental to the solicitation of a charitable contribution if: The recipient did not request the distribution, The distribution is made without the express consent of the recipient, and The article is accompanied by a request for a charitable contribution to the organization and a statement that the recipient may keep the low cost article regardless of whether a contribution is made. Tax software review   An article is considered low cost if the cost of an item (or the aggregate costs if more than one item) distributed to a single recipient in a tax year is not more than $5, indexed annually for inflation. Tax software review The maximum cost of a low cost article is $9. Tax software review 70 for 2011. Tax software review The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. Tax software review Exchange or rental of member lists. Tax software review   The exchange or rental of member or donor lists between organizations described in section 501 that are eligible to receive charitable contributions is not included in the term unrelated trade or business. Tax software review Hospital services. Tax software review   The providing of certain services at or below cost by an exempt hospital to other exempt hospitals that have facilities for 100 or fewer inpatients is not an unrelated trade or business. Tax software review This exclusion applies only to services described in section 501(e)(1)(A). Tax software review Public entertainment activity. Tax software review   An unrelated trade or business does not include a qualified public entertainment activity. Tax software review A public entertainment activity is one traditionally conducted at a fair or exposition promoting agriculture and education, including any activity whose purpose is designed to attract the public to fairs or expositions or to promote the breeding of animals or the development of products or equipment. Tax software review   A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities. Tax software review   For these purposes, a qualifying organization is an organization described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts an agricultural and educational fair or exposition as one of its substantial exempt purposes. Tax software review Its conducting qualified public entertainment activities will not affect determination of its exempt status. Tax software review Convention or trade show activity. Tax software review   An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. Tax software review   A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed. Tax software review   For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). Tax software review The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. Tax software review   The rental of display space to exhibitors (including exhibitors who are suppliers) at a qualified convention or trade show is not an unrelated trade or business even if the exhibitors who rent the space are permitted to sell or solicit orders. Tax software review For this purpose, a supplier's exhibit is one in which the exhibitor displays goods or services that are supplied to, rather than by, members of the qualifying organization in the conduct of these members' own trades or businesses. Tax software review    Certain Internet activities conducted by a trade association described in section 501(c)(6) will be considered qualified convention and trade show activity if conducted on a special supplementary section of the association's website in conjunction with a trade show conducted by the association. Tax software review The trade show itself must be a qualified convention and trade show activity. Tax software review The supplementary section of the website must be ancillary to, and serve to augment and enhance, the trade show, as when it makes available the same information available at the trade show and is available only during a time period that coincides with the time period that the trade show is in operation. Tax software review Conversely, Internet activities that are not conducted in conjunction with a qualified convention and trade show activity and that do not augment and enhance the trade show cannot themselves be qualified convention and trade show activity. Tax software review Prev  Up  Next   Home   More Online Publications