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Www. Www.myfreetax.com myfreetax. Www.myfreetax.com com Publication 939 - Introductory Material Table of Contents What's New Future developments. Www.myfreetax.com IntroductionSimplified Method. Www.myfreetax.com Ordering forms and publications. Www.myfreetax.com Tax questions. Www.myfreetax.com Useful Items - You may want to see: What's New Beginning in 2013, distributions from an annuity under a nonqualified plan are considered net investment income for the purpose of figuring the net investment income tax (NIIT). Www.myfreetax.com For more information, see the instructions for Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts. Www.myfreetax.com Future developments. Www.myfreetax.com For the latest information about developments related to Publication 939, such as legislation enacted after it was published, go to www. Www.myfreetax.com IRS. Www.myfreetax.com gov/pub939. Www.myfreetax.com Introduction This publication gives you the information you need to determine the tax treatment of your pension and annuity income under the General Rule. Www.myfreetax.com Generally, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your net cost, and the taxable balance. Www.myfreetax.com What is the General Rule. Www.myfreetax.com The General Rule is one of the two methods used to figure the tax-free part of each annuity payment based on the ratio of your investment in the contract to the total expected return. Www.myfreetax.com The other method is the Simplified Method, which is discussed in Publication 575, Pension and Annuity Income. Www.myfreetax.com Who must use the General Rule. Www.myfreetax.com Use this publication if you receive pension or annuity payments from: A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan), A qualified plan if: Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you do not qualify to use, or did not choose to use, the Simplified Method, or Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years. Www.myfreetax.com If your annuity starting date was between July 1, 1986 and November 19, 1996, you were able to elect to use the Simplified Method or the General Rule. Www.myfreetax.com This choice is irrevocable and applied to all later annuity payments. Www.myfreetax.com The following are qualified plans. Www.myfreetax.com A qualified employee plan. Www.myfreetax.com A qualified employee annuity. Www.myfreetax.com A tax-sheltered annuity (TSA) plan or contract. Www.myfreetax.com Simplified Method. Www.myfreetax.com If you receive pension or annuity payments from a qualified plan and you are not required to use the General Rule, you must use the Simplified Method to determine the tax-free part of each annuity payment. Www.myfreetax.com This method is described in Publication 575, Pension and Annuity Income. Www.myfreetax.com Also, if, at the time the annuity payments began, you were at least age 75 and were entitled to annuity payments from a qualified plan with fewer than 5 years of guaranteed payments, you must use the Simplified Method. Www.myfreetax.com Beginning in 2013, distributions from an annuity under a nonqualified plan are considered net investment income for the purpose of figuring the net investment income tax (NIIT). Www.myfreetax.com For more information, see the instructions for Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts. Www.myfreetax.com Topics not covered in this publication. Www.myfreetax.com Certain topics related to pensions and annuities are not covered in this publication. Www.myfreetax.com They include: Simplified Method. Www.myfreetax.com This method is covered in Publication 575. Www.myfreetax.com That publication also covers nonperiodic payments (amounts not received as an annuity) from a qualified pension or annuity plan, rollovers, special averaging and capital gain treatment of lump-sum distributions, and special additional taxes on early distributions, excess distributions, and excess accumulations (not making required minimum distributions). Www.myfreetax.com Individual retirement arrangements (IRAs). Www.myfreetax.com Information on the tax treatment of amounts you receive from an IRA is included in Publication 590, Individual Retirement Arrangements (IRAs). Www.myfreetax.com Life insurance payments. Www.myfreetax.com If you receive life insurance payments because of the death of the insured person, get Publication 525, Taxable and Nontaxable Income, for information on the tax treatment of the proceeds. Www.myfreetax.com Help from IRS. Www.myfreetax.com If, after reading this publication, you need help to figure the taxable part of your pension or annuity, the IRS can do it for you for a fee. Www.myfreetax.com For information on this service, see Requesting a Ruling on Taxation of Annuity , later. Www.myfreetax.com Comments and suggestions. Www.myfreetax.com We welcome your comments about this publication and your suggestions for future editions. Www.myfreetax.com You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Www.myfreetax.com NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Www.myfreetax.com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www.myfreetax.com You can send your comments from www. Www.myfreetax.com irs. Www.myfreetax.com gov/formspubs/. Www.myfreetax.com Click on “More Information” and then on “Comment on Tax Forms and Publications”. Www.myfreetax.com Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Www.myfreetax.com Ordering forms and publications. Www.myfreetax.com Visit www. Www.myfreetax.com irs. Www.myfreetax.com gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Www.myfreetax.com Internal Revenue Service 1201 N. Www.myfreetax.com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Www.myfreetax.com If you have a tax question, check the information available on IRS. Www.myfreetax.com gov or call 1-800-829-1040. Www.myfreetax.com We cannot answer tax questions sent to either of the above addresses. Www.myfreetax.com Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 571 Tax-Sheltered Annuity Plans (403(b) Plans) 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 721 Tax Guide to U. Www.myfreetax.com S. Www.myfreetax.com Civil Service Retirement Benefits 910 Guide To Free Tax Services Form (and Instructions) 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Www.myfreetax.com See How To Get Tax Help near the end of this publication for information about getting these publications and forms. Www.myfreetax.com Prev Up Next Home More Online Publications
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Www. Www.myfreetax.com myfreetax. Www.myfreetax.com com Publication 3 - Main Content Table of Contents Gross IncomeForeign Source Income Military Spouses Residency Relief Act (MSRRA) Community Property Form W-2 Codes Adjustments to IncomeArmed Forces Reservists Individual Retirement Arrangements Moving Expenses Combat Zone ExclusionCombat Zone Serving in a Combat Zone Amount of Exclusion Alien StatusResident Aliens Nonresident Aliens Dual-Status Aliens Sale of HomePeriod of suspension. Www.myfreetax.com Qualified official extended duty. Www.myfreetax.com ForeclosuresLump Sum Portion of Settlement Payment. Www.myfreetax.com Interest Payment on Lump Sum Portion of Settlement Payment. Www.myfreetax.com Lost Equity Portion of Settlement Payment. Www.myfreetax.com The rules that apply to a lost equity payment you received for the foreclosure of a property that was not your main home are different. Www.myfreetax.com Interest Payment on Lost Equity Portion of Settlement Payment. Www.myfreetax.com Itemized DeductionsEmployee Business Expenses Repayments CreditsFirst-Time Homebuyer Credit Child Tax Credit Earned Income Credit Credit for Excess Social Security Tax Withheld Forgiveness of Decedent's Tax LiabilityCombat Zone Related Forgiveness Terrorist or Military Action Related Forgiveness Claims for Tax Forgiveness Filing ReturnsSame-Sex Marriage Where To File When To File Signing Returns Extension of DeadlinesService That Qualifies for an Extension of Deadline Length of Extension Actions for Which Deadlines Are Extended Deferral of Payment Maximum Rate of Interest How To Get Tax HelpLow Income Taxpayer Clinics Gross Income Members of the Armed Forces receive many different types of pay and allowances. Www.myfreetax.com Some are included in gross income while others are excluded from gross income. Www.myfreetax.com Included items (Table 1) are subject to tax and must be reported on your tax return. Www.myfreetax.com Excluded items (Table 2) are not subject to tax, but may have to be shown on your tax return. Www.myfreetax.com For information on the exclusion of pay for service in a combat zone and other tax benefits for combat zone participants, see Combat Zone Exclusion and Extension of Deadlines , later. Www.myfreetax.com Table 1. Www.myfreetax.com Included Items These items are included in gross income, unless the pay is for service in a combat zone. Www.myfreetax.com Basic pay • Active duty Bonus pay • Career status • Attendance at a designated service school • Enlistment • Officer • Back wages • Overseas extension • CONUS COLA • Reenlistment • Drills • Reserve training • Training duty Other pay • Accrued leave • High deployment per diem Special • Aviation career incentives • Personal money allowances paid to pay • Career sea high-ranking officers • Diving duty • Student loan repayment from programs • Foreign duty (outside the 48 contiguous such as the Department of Defense states and the District of Columbia) Educational Loan Repayment Program • Foreign language proficiency when year's service (requirement) is not • Hardship duty attributable to a combat zone • Hostile fire or imminent danger • Medical and dental officers Incentive pay • Submarine • Nuclear-qualified officers • Flight • Optometry • Hazardous duty • Pharmacy • High altitude/Low Opening (HALO) • Special compensation for assistance with activities of daily living (SCAADL) • Special duty assignment pay • Veterinarian • Voluntary Separation Incentive Basic allowance for housing (BAH). Www.myfreetax.com You can still deduct mortgage interest and real estate taxes on your home if you pay these expenses with your BAH. Www.myfreetax.com Table 2. Www.myfreetax.com Excluded Items The exclusion for certain items applies whether the item is furnished in kind or is a reimbursement or allowance. Www.myfreetax.com There is no exclusion for the personal use of a government-provided vehicle. Www.myfreetax.com Combat zone pay • Compensation for active service while in a combat zone Note: Limited amount for officers • Housing and cost-of-living allowances abroad paid by the U. Www.myfreetax.com S. Www.myfreetax.com Government or by a foreign government • OHA (Overseas Housing Allowance) Other pay • Defense counseling • Disability, including payments received for injuries incurred as a direct result of a terrorist or military action • Group-term life insurance Moving • Dislocation • Professional education allowances • Military base realignment and • ROTC educational and subsistence closure benefit allowances (the exclusion is limited as • State bonus pay for service in a described above) combat zone • Move-in housing • Survivor and retirement protection • Moving household and plan premiums personal items • Uniform allowances • Moving trailers or mobile homes • Uniforms furnished to enlisted • Storage personnel • Temporary lodging and temporary lodging expenses Travel • Annual round trip for dependent Death • Burial services allowances students allowances • Death gratuity payments to • Leave between consecutive eligible survivors overseas tours • Travel of dependents to burial site • Reassignment in a dependent restricted status Family • Certain educational expenses for • Transportation for you or your allowances dependents dependents during ship overhaul • Emergencies or inactivation • Evacuation to a place of safety • Per diem • Separation In-kind military • Dependent-care assistance program Living • BAH (Basic Allowance for Housing) benefits • Legal assistance allowances • BAS (Basic Allowance for Subsistence) • Medical/dental care • Commissary/exchange discounts • Space-available travel on government aircraft Death gratuity. Www.myfreetax.com Any death gratuity paid to a survivor of a member of the Armed Forces is excluded from gross income. Www.myfreetax.com Differential wage payments. Www.myfreetax.com Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and that represent all or a portion of the wages the individual would have received from the employer if the individual was performing services for the employer. Www.myfreetax.com These amounts are taxable and cannot be excluded as combat pay. Www.myfreetax.com Military base realignment and closure benefit. Www.myfreetax.com Payments made under the Homeowners Assistance Program (HAP) generally are excluded from income. Www.myfreetax.com However, the excludable amount cannot be more than the maximum amount described in subsection (c) of 42 USC 3374 as in effect on November 6, 2009. Www.myfreetax.com Any part of the payment that is more than this limit is included in gross income. Www.myfreetax.com For more information about the HAP, see http://hap. Www.myfreetax.com usace. Www.myfreetax.com army. Www.myfreetax.com mil/Overview. Www.myfreetax.com html. Www.myfreetax.com Qualified reservist distribution (QRD). Www.myfreetax.com A QRD is a distribution to an individual of all or part of the individual's balance in a cafeteria plan or health flexible spending arrangement if: The individual was a reservist who was ordered or called to active duty for more than 179 days or for an indefinite period, and The distribution is made no sooner than the date the reservist was ordered or called to active duty and no later than the last day reimbursements could otherwise be made under the arrangement for the plan year which includes the date of the order or the call to duty. Www.myfreetax.com A QRD is included in gross income and is subject to employment taxes. Www.myfreetax.com The employer must include the QRD (reduced by after-tax contributions to the health flexible spending arrangement) as wages on Form W-2, Wage and Tax Statement. Www.myfreetax.com Thrift Savings Plan (TSP) distributions. Www.myfreetax.com If you participate in the Uniformed Services TSP and receive a distribution from your account, the distribution is generally included in your taxable income. Www.myfreetax.com If your contributions included tax-exempt combat zone pay, the part of the distribution attributable to those contributions is tax exempt. Www.myfreetax.com However, the earnings on the tax-exempt portion of the distribution are taxable. Www.myfreetax.com The TSP will provide a statement showing the taxable and non-taxable portions of the distribution. Www.myfreetax.com Roth Thrift Savings Plan (TSP) balance. Www.myfreetax.com You may be able to contribute to a designated Roth Account through the TSP known as the Roth TSP. Www.myfreetax.com Roth TSP contributions are after-tax contributions, subject to the same contribution limits as the traditional TSP. Www.myfreetax.com Qualified distributions from a Roth TSP are not included in your income. Www.myfreetax.com For more details, see Thrift Savings Accounts in Part II of Publication 721, Tax Guide to U. Www.myfreetax.com S. Www.myfreetax.com Civil Service Retirement Benefits. Www.myfreetax.com State bonus payments. Www.myfreetax.com Bonus payments made by a state (or a political subdivision thereof) to a member or former member of the uniformed services of the United States or to a dependent of such member are considered combat pay (and therefore may not be taxable) if the payments are made only because of the member's service in a combat zone. Www.myfreetax.com See Combat Zone , later, for a list of designated combat zones. Www.myfreetax.com Foreign Source Income If you are a U. Www.myfreetax.com S. Www.myfreetax.com citizen with income from sources outside the United States (foreign income), you must report all of that income (except for amounts that U. Www.myfreetax.com S. Www.myfreetax.com law allows you to exclude) on your tax return. Www.myfreetax.com This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or a Form 1099. Www.myfreetax.com This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Www.myfreetax.com Certain taxpayers can exclude income earned in foreign countries. Www.myfreetax.com For 2013, this exclusion amount can be as much as $97,600. Www.myfreetax.com However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U. Www.myfreetax.com S. Www.myfreetax.com Government. Www.myfreetax.com Employees of the U. Www.myfreetax.com S. Www.myfreetax.com Government include those who work at United States Armed Forces exchanges, commissioned and noncommissioned officers' messes, Armed Forces motion picture services, and similar personnel. Www.myfreetax.com Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion. Www.myfreetax.com For more information on the exclusion, see Publication 54. Www.myfreetax.com Residents of American Samoa may be able to exclude income from American Samoa. Www.myfreetax.com This possession exclusion does not apply to wages and salaries of military and civilian employees of the U. Www.myfreetax.com S. Www.myfreetax.com Government. Www.myfreetax.com If you need information on the possession exclusion, see Publication 570, Tax Guide for Individuals With Income From U. Www.myfreetax.com S. Www.myfreetax.com Possessions. Www.myfreetax.com Military Spouses Residency Relief Act (MSRRA) If you are the civilian spouse of an active duty U. Www.myfreetax.com S. Www.myfreetax.com military servicemember and your domicile is the same as the servicemember's, you can choose to keep your prior residence or domicile for tax purposes when you accompany the servicemember spouse, who is relocating under military orders to a new duty station in one of the 50 states, the District of Columbia, or a U. Www.myfreetax.com S. Www.myfreetax.com possession. Www.myfreetax.com See Publication 570 for more information. Www.myfreetax.com Domicile. Www.myfreetax.com Your domicile is the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. Www.myfreetax.com It is not always where you presently live. Www.myfreetax.com Community Property The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. Www.myfreetax.com The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Www.myfreetax.com Marital status. Www.myfreetax.com Community property rules apply to married persons whose domicile during the tax year was in a community property state. Www.myfreetax.com The rules may affect your tax liability if you file separate returns or are divorced during the year. Www.myfreetax.com Nevada, Washington, and California domestic partners. Www.myfreetax.com A registered domestic partner in Nevada, Washington, or California generally must report half the combined income of the individual and his or her domestic partner. Www.myfreetax.com See Form 8958 and Publication 555, Community Property. Www.myfreetax.com Nature of the payment. Www.myfreetax.com Active duty military pay is subject to community property laws. Www.myfreetax.com Armed Forces retired or retainer pay may be subject to community property laws. Www.myfreetax.com For more information on community property laws, see Publication 555. Www.myfreetax.com Form W-2 Codes Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. Www.myfreetax.com Form W-2 also shows other amounts that you may find important in box 12. Www.myfreetax.com The amounts shown in box 12 are generally preceded by a code. Www.myfreetax.com A list of codes used in box 12 is shown, next. Www.myfreetax.com Form W-2 Reference Guide for Box 12 Codes A Uncollected social security or RRTA J Nontaxable sick pay T Adoption benefits tax on tips K 20% excise tax on excess golden V Income from exercise of B Uncollected Medicare tax on tips parachute payments nonstatutory stock option(s) C Taxable cost of group-term life L Substantiated employee business W Employer contributions (including insurance over $50,000 expense reimbursements employee contributions through a cafeteria plan) to an employee's D Elective deferrals under a section M Uncollected social security or RRTA health savings account (HSA) 401(k) cash or deferred arrangement tax on taxable cost of group-term life plan (including a SIMPLE 401(k) insurance over $50,000 (former Y Deferrals under a section 409A arrangement) employees only) nonqualified deferred compensation plan E Elective deferrals under a section N Uncollected Medicare tax on taxable 403(b) salary reduction agreement cost of group-term life insurance Z Income under section 409A on a over $50,000 (former employees only) nonqualified deferred F Elective deferrals under a section compensation plan 408(k)(6) salary reduction SEP P Excludable moving expense reimbursements paid directly to AA Designated Roth contributions G Elective deferrals and employer employee under a section 401(k) plan contributions (including nonelective deferrals) to a section 457(b) Q Nontaxable combat pay BB Designated Roth contributions deferred compensation plan under a section 403(b) plan R Employer contributions to an Archer H Elective deferrals to a section MSA DD Cost of employer-sponsored 501(c)(18)(D) tax-exempt health coverage organization plan S Employee salary reduction contributions under a section 408(p) SIMPLE EE Designated Roth contributions under a governmental section 457(b) plan Note. Www.myfreetax.com For more information on these codes, see your Form(s) W-2. Www.myfreetax.com Adjustments to Income Adjusted gross income is your total income minus certain adjustments. Www.myfreetax.com The following adjustments are of particular interest to members of the Armed Forces. Www.myfreetax.com Armed Forces Reservists If you are a member of a reserve component of the Armed Forces and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your unreimbursed travel expenses as an adjustment to income on line 24 of Form 1040, U. Www.myfreetax.com S. Www.myfreetax.com Individual Income Tax Return, rather than as a miscellaneous itemized deduction. Www.myfreetax.com Include all unreimbursed expenses from the time you leave home until the time you return home. Www.myfreetax.com The deduction is limited to the amount the federal government generally reimburses its employees for travel expenses. Www.myfreetax.com For more information about this limit, see Per Diem and Car Allowances in chapter 6 of Publication 463. Www.myfreetax.com Member of a reserve component. Www.myfreetax.com You are a member of a reserve component of the Armed Forces if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service. Www.myfreetax.com How to report. Www.myfreetax.com If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. Www.myfreetax.com Then enter on Form 1040, line 24, the part of your expenses, up to the federal rate, included on Form 2106, line 10, or Form 2106-EZ, line 6, that is for reserve-related travel more than 100 miles from your home. Www.myfreetax.com Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. Www.myfreetax.com Example. Www.myfreetax.com Captain Harris, a member of the Army Reserve, traveled to a location 220 miles from his home to perform his work in the reserves in April 2013. Www.myfreetax.com He incurred $1,549 of unreimbursed expenses consisting of $249 for mileage (440 miles × 56. Www.myfreetax.com 5 cents per mile), $300 for meals, and $1,000 for lodging. Www.myfreetax.com He also had other deductible mileage expenses of $110 for several trips to a location 20 miles from his home. Www.myfreetax.com Only 50% of his meal expenses are deductible. Www.myfreetax.com He shows his total deductible travel expenses of $1,509 ($249 + $150 (50% of $300) + $1,000 + $110) on Form 2106, line 10. Www.myfreetax.com He enters the $1,399 ($249 + $150 + $1,000) for travel over 100 miles from home on Form 1040, line 24. Www.myfreetax.com He then subtracts that $1,399 from the amount on Form 2106, $1,509, and enters $110 on Schedule A (Form 1040), line 21. Www.myfreetax.com Individual Retirement Arrangements Generally, you can deduct the lesser of the contributions to your traditional individual retirement arrangement (IRA) for the year or the general limit (or spousal IRA limit, if applicable). Www.myfreetax.com However, if you or your spouse was covered by an employer-maintained retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. Www.myfreetax.com The Form W-2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. Www.myfreetax.com The “Retirement plan” box should have a mark in it if you were covered. Www.myfreetax.com For purposes of a deduction for contributions to a traditional IRA, Armed Forces members (including reservists on active duty for more than 90 days during the year) are considered covered by an employer-maintained retirement plan. Www.myfreetax.com Individuals serving in the U. Www.myfreetax.com S. Www.myfreetax.com Armed Forces or in support of the U. Www.myfreetax.com S. Www.myfreetax.com Armed Forces in designated combat zones have additional time to make a qualified retirement contribution to an IRA. Www.myfreetax.com For more information on this extension of deadline provision, see Extension of Deadlines , later. Www.myfreetax.com For more information on IRAs, see Publication 590. Www.myfreetax.com Combat Pay For IRA purposes, your compensation includes nontaxable combat pay. Www.myfreetax.com This means that even though you do not have to include the combat pay in your gross income, you do include it in your compensation when figuring the limits on contributions and deductions of contributions to IRAs. Www.myfreetax.com Qualified Reservist Distributions A qualified reservist distribution is defined below. Www.myfreetax.com It is not subject to the 10% additional tax on early distributions from certain retirement plans. Www.myfreetax.com Definition. Www.myfreetax.com A distribution you receive is a qualified reservist distribution if the following requirements are met. Www.myfreetax.com You were ordered or called to active duty after September 11, 2001. Www.myfreetax.com You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve component (see Member of a reserve component , earlier, under Armed Forces Reservists. Www.myfreetax.com ) The distribution is from an IRA or from amounts attributable to elective deferrals under a section 401(k) or 403(b) plan or a similar arrangement. Www.myfreetax.com The distribution was made no earlier than the date of the order or call to active duty and no later than the close of the active duty period. Www.myfreetax.com Qualified Reservist Repayments You may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined earlier) you received. Www.myfreetax.com You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Www.myfreetax.com You make these repayment contributions to an IRA, even if you received the qualified reservist distribution from a section 401(k) or 403(b) plan or a similar arrangement. Www.myfreetax.com Limit. Www.myfreetax.com Your qualified reservist repayments cannot be more than your qualified reservist distributions. Www.myfreetax.com When repayment contributions can be made. Www.myfreetax.com You cannot make these repayment contributions after the date that is 2 years after your active duty period ends. Www.myfreetax.com No deduction. Www.myfreetax.com You cannot deduct qualified reservist repayments. Www.myfreetax.com Figuring your IRA deduction. Www.myfreetax.com The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. Www.myfreetax.com Reporting the repayment. Www.myfreetax.com If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606, Nondeductible IRAs. Www.myfreetax.com Moving Expenses To deduct moving expenses, you generally must meet certain time and distance tests. Www.myfreetax.com However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests. Www.myfreetax.com You can deduct your unreimbursed moving expenses on Form 3903. Www.myfreetax.com Permanent change of station. Www.myfreetax.com A permanent change of station includes: A move from your home to your first post of active duty, A move from one permanent post of duty to another, and A move from your last post of duty to your home or to a nearer point in the United States. Www.myfreetax.com The move must occur within 1 year of ending your active duty or within the period allowed under the Joint Federal Travel Regulations. Www.myfreetax.com Spouse and dependents. Www.myfreetax.com If you are the spouse or dependent of a member of the Armed Forces who deserts, is imprisoned, or dies, a permanent change of station for you includes a move to: The member's place of enlistment or induction, Your, or the member's, home of record, or A nearer point in the United States. Www.myfreetax.com If the military moves you to or from a different location than the member, the moves are treated as a single move to your new main job location. Www.myfreetax.com Services or reimbursements provided by the government. Www.myfreetax.com Do not include in your income the value of moving and storage services provided by the government because of a permanent change of station. Www.myfreetax.com Similarly, do not include in income amounts received as a dislocation allowance, temporary lodging expense, temporary lodging allowance, or move-in housing allowance. Www.myfreetax.com Generally, if the total reimbursements or allowances that you receive from the government because of the move are more than your actual moving expenses, the excess is included in your wages on Form W-2. Www.myfreetax.com However, if any reimbursements or allowances (other than dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances) exceed the cost of moving and the excess is not included in your wages on Form W-2, the excess still must be included in gross income on Form 1040, line 7. Www.myfreetax.com Use Form 3903 to deduct qualified expenses that exceed your reimbursements and allowances (including dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances that are excluded from gross income). Www.myfreetax.com If you must relocate and your spouse and dependents move to or from a different location, do not include in income reimbursements, allowances, or the value of moving and storage services provided by the government to move you and your spouse and dependents to and from the separate locations. Www.myfreetax.com Do not deduct any expenses for moving services that were provided by the government. Www.myfreetax.com Also, do not deduct any expenses that were reimbursed by an allowance you did not include in income. Www.myfreetax.com Deductible Moving Expenses If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household. Www.myfreetax.com You can deduct expenses (if not reimbursed or furnished in kind) for: Moving household goods and personal effects, and Travel. Www.myfreetax.com Moving household goods and personal effects. Www.myfreetax.com You can deduct the expenses of moving your household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. Www.myfreetax.com You cannot deduct expenses for moving furniture or other goods you bought on the way from your old home to your new home. Www.myfreetax.com Storing and insuring household goods and personal effects. Www.myfreetax.com You can include only the cost of storing and insuring your household goods and personal effects within any period of 30 consecutive days after the day these goods and effects are moved from your former home and before they are delivered to your new home. Www.myfreetax.com Travel. Www.myfreetax.com You can deduct the expenses of traveling (including lodging but not meals) from your old home to your new home, including car expenses and air fare. Www.myfreetax.com You can deduct as car expenses either: Your actual out-of-pocket expenses such as gas and oil, or The standard mileage rate of 24 cents a mile. Www.myfreetax.com You can add parking fees and tolls to the amount claimed under either method. Www.myfreetax.com You cannot deduct any expenses for meals. Www.myfreetax.com You cannot deduct the cost of unnecessary side trips or lavish and extravagant lodging. Www.myfreetax.com Member of your household. Www.myfreetax.com A member of your household is anyone who has both your former home and your new home as his or her main home. Www.myfreetax.com It does not include a tenant or employee unless you can claim that person as a dependent. Www.myfreetax.com Foreign Moves A foreign move is a move from the United States or its possessions to a foreign country or from one foreign country to another foreign country. Www.myfreetax.com A move from a foreign country to the United States or its possessions is not a foreign move. Www.myfreetax.com For a foreign move, the deductible moving expenses described earlier are expanded to include the reasonable expenses of: Moving your household goods and personal effects to and from storage, and Storing these items for part or all of the time the new job location remains your main job location. Www.myfreetax.com The new job location must be outside the United States. Www.myfreetax.com Reporting Moving Expenses Figure moving expense deductions on Form 3903. Www.myfreetax.com Carry the deduction from Form 3903 to Form 1040, line 26. Www.myfreetax.com For more information, see Publication 521 and Form 3903. Www.myfreetax.com Combat Zone Exclusion If you are a member of the U. Www.myfreetax.com S. Www.myfreetax.com Armed Forces who serves in a combat zone (defined later), you can exclude certain pay from your income. Www.myfreetax.com This pay is generally referred to as “combat pay. Www.myfreetax.com ” You do not actually need to show the exclusion on your tax return because income that qualifies for the combat zone exclusion is not included in the wages reported on your Form W-2. Www.myfreetax.com (See Form W-2 , later. Www.myfreetax.com ) The month for which you receive the pay must be a month in which you either served in a combat zone or were hospitalized as a result of wounds, disease, or injury incurred while serving in the combat zone. Www.myfreetax.com You do not have to receive the excluded pay while you are in a combat zone, are hospitalized, or in the same year you served in a combat zone. Www.myfreetax.com If you are an enlisted member, warrant officer, or commissioned warrant officer, you can exclude the following amounts from your income. Www.myfreetax.com (Other officer personnel are discussed under Amount of Exclusion , later. Www.myfreetax.com ) Active duty pay earned in any month you served in a combat zone. Www.myfreetax.com Imminent danger/hostile fire pay. Www.myfreetax.com A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zone. Www.myfreetax.com Pay for accrued leave earned in any month you served in a combat zone. Www.myfreetax.com The Department of Defense must determine that the unused leave was earned during that period. Www.myfreetax.com Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other nonappropriated fund activities. Www.myfreetax.com The pay must be earned in a month you served in a combat zone. Www.myfreetax.com Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone. Www.myfreetax.com Student loan repayments. Www.myfreetax.com If the entire year of service required to earn the repayment was performed in a combat zone, the entire repayment made because of that year of service is excluded. Www.myfreetax.com If only part of that year of service was performed in a combat zone, only part of the repayment qualifies for exclusion. Www.myfreetax.com For example, if you served in a combat zone for 5 months, 5/12 of your repayment qualifies for exclusion. Www.myfreetax.com Retirement pay and pensions do not qualify for the combat zone exclusion. Www.myfreetax.com Partial (month) service. Www.myfreetax.com If you serve in a combat zone for any part of one or more days during a particular month, you are entitled to an exclusion for that entire month. Www.myfreetax.com Form W-2. Www.myfreetax.com The wages shown in box 1 of your 2013 Form W-2 should not include military pay excluded from your income under the combat zone exclusion provisions. Www.myfreetax.com If it does, you will need to get a corrected Form W-2 from your finance office. Www.myfreetax.com You cannot exclude as combat pay any wages shown in box 1 of Form W-2. Www.myfreetax.com Combat Zone A combat zone is any area the President of the United States designates by Executive Order as an area in which the U. Www.myfreetax.com S. Www.myfreetax.com Armed Forces are engaging or have engaged in combat. Www.myfreetax.com An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order. Www.myfreetax.com Afghanistan area. Www.myfreetax.com By Executive Order No. Www.myfreetax.com 13239, Afghanistan (and airspace above) was designated as a combat zone beginning September 19, 2001. Www.myfreetax.com On December 14, 2001, the following countries were certified by the Department of Defense for combat zone tax benefits due to their direct support of military operations in the Afghanistan combat zone. Www.myfreetax.com Djibouti. Www.myfreetax.com Jordan. Www.myfreetax.com Kyrgyzstan. Www.myfreetax.com Pakistan. Www.myfreetax.com Somalia. Www.myfreetax.com Syria. Www.myfreetax.com Tajikistan. Www.myfreetax.com Uzbekistan. Www.myfreetax.com Yemen. Www.myfreetax.com The Philippines. Www.myfreetax.com Note. Www.myfreetax.com For the Philippines only, the personnel must be deployed in conjunction with Operation Enduring Freedom supporting military operations in the Afghanistan combat zone. Www.myfreetax.com The Kosovo area. Www.myfreetax.com By Executive Order No. Www.myfreetax.com 13119, the following locations (including airspace above) were designated as a combat zone beginning March 24, 1999. Www.myfreetax.com Federal Republic of Yugoslavia (Serbia/Montenegro). Www.myfreetax.com Albania. Www.myfreetax.com Kosovo. Www.myfreetax.com The Adriatic Sea. Www.myfreetax.com The Ionian Sea—north of the 39th parallel. Www.myfreetax.com Note. Www.myfreetax.com The combat zone designation for Montenegro and Kosovo (previously a province within Serbia) under Executive Order 13119 remains in force even though Montenegro and Kosovo became independent nations since EO 13119 was signed. Www.myfreetax.com Arabian peninsula. Www.myfreetax.com By Executive Order No. Www.myfreetax.com 12744, the following locations (and airspace above) were designated as a combat zone beginning January 17, 1991. Www.myfreetax.com The Persian Gulf. Www.myfreetax.com The Red Sea. Www.myfreetax.com The Gulf of Oman. Www.myfreetax.com The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude. Www.myfreetax.com The Gulf of Aden. Www.myfreetax.com The total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates. Www.myfreetax.com Jordan which is in direct support of the Arabian Peninsula. Www.myfreetax.com Serving in a Combat Zone You are considered to be serving in a combat zone if you are either assigned on official temporary duty to a combat zone or you qualify for hostile fire/imminent danger pay while in a combat zone. Www.myfreetax.com Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, or leave. Www.myfreetax.com If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes. Www.myfreetax.com Hospitalized While Serving in a Combat Zone If you are hospitalized while serving in a combat zone, the wound, disease, or injury causing the hospitalization will be presumed to have been incurred while serving in the combat zone unless there is clear evidence to the contrary. Www.myfreetax.com Example. Www.myfreetax.com You are hospitalized for a specific disease in a combat zone where you have been serving for 3 weeks, and the disease for which you are hospitalized has an incubation period of 2 to 4 weeks. Www.myfreetax.com The disease is presumed to have been incurred while you were serving in the combat zone. Www.myfreetax.com On the other hand, if the incubation period of the disease is 1 year, the disease would not have been incurred while you were serving in the combat zone. Www.myfreetax.com Hospitalized After Leaving a Combat Zone In some cases, the wound, disease, or injury may have been incurred while you were serving in the combat zone, even though you were not hospitalized until after you left. Www.myfreetax.com In that case, you can exclude military pay earned while you are hospitalized as a result of the wound, disease, or injury. Www.myfreetax.com Example. Www.myfreetax.com You were hospitalized for a specific disease 3 weeks after you left the combat zone. Www.myfreetax.com The incubation period of the disease is from 2 to 4 weeks. Www.myfreetax.com The disease is presumed to have been incurred while serving in the combat zone. Www.myfreetax.com Nonqualifying Presence in Combat Zone None of the following types of military service qualify as service in a combat zone. Www.myfreetax.com Presence in a combat zone while on leave from a duty station located outside the combat zone. Www.myfreetax.com Passage over or through a combat zone during a trip between two points that are outside a combat zone. Www.myfreetax.com Presence in a combat zone solely for your personal convenience. Www.myfreetax.com Service Outside Combat Zone Considered Service in Combat Zone Military service outside a combat zone is considered to be performed in a combat zone if: The Department of Defense designates that the service is in direct support of military operations in the combat zone, and The service qualifies you for special military pay for duty subject to hostile fire or imminent danger. Www.myfreetax.com Military pay received for this service will qualify for the combat zone exclusion if all of the requirements (other than service in a combat zone) are met and the pay is verifiable by reference to military pay records. Www.myfreetax.com Amount of Exclusion If you are an enlisted member, warrant officer, or commissioned warrant officer and you serve in a combat zone during any part of a month, you can exclude all of your military pay for that month. Www.myfreetax.com It should not be included in the wages reported on your Form W-2. Www.myfreetax.com You also can exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. Www.myfreetax.com If you are hospitalized, you cannot exclude any military pay received for any month of service that begins more than 2 years after the end of combat activities in the combat zone. Www.myfreetax.com Your hospitalization does not have to be in the combat zone. Www.myfreetax.com If you are a commissioned officer (other than a commissioned warrant officer), you can exclude your pay according to the rules just discussed. Www.myfreetax.com However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there. Www.myfreetax.com Alien Status For tax purposes, an alien is an individual who is not a U. Www.myfreetax.com S. Www.myfreetax.com citizen. Www.myfreetax.com An alien is in one of three categories: resident, nonresident, or dual-status. Www.myfreetax.com Placement in the correct category is crucial in determining what income to report and what forms to file. Www.myfreetax.com Under peacetime enlistment rules, you generally cannot enlist in the Armed Forces unless you are a citizen or have been legally admitted to the United States for permanent residence. Www.myfreetax.com If you are an alien enlistee in the Armed Forces, you are probably a resident alien. Www.myfreetax.com If, under an income tax treaty, you are considered a resident of a foreign country, see your base legal officer. Www.myfreetax.com Other aliens who are in the United States only because of military assignments and who have a home outside the United States are nonresident aliens. Www.myfreetax.com Guam and Puerto Rico have special rules. Www.myfreetax.com Residents of those areas should contact their taxing authority with their questions. Www.myfreetax.com Most members of the Armed Forces are U. Www.myfreetax.com S. Www.myfreetax.com citizens or resident aliens. Www.myfreetax.com However, if you have questions about your alien status or the alien status of your dependents or spouse, you should read the information in the following paragraphs and see Publication 519. Www.myfreetax.com Resident Aliens You are considered a resident alien of the United States for tax purposes if you meet either the “green card test” or the “substantial presence test” for the calendar year (January 1–December 31). Www.myfreetax.com If you meet the substantial presence test for 2014, you did not meet either the green card test or the substantial presence test for 2012 or 2013, and you did not choose to be treated as a resident for part of 2012, you may be able to choose to be treated as a U. Www.myfreetax.com S. Www.myfreetax.com resident for part of 2013. Www.myfreetax.com See First-Year Choice in Publication 519. Www.myfreetax.com These tests are explained in Publication 519. Www.myfreetax.com Generally, resident aliens are taxed on their worldwide income and file the same tax forms as U. Www.myfreetax.com S. Www.myfreetax.com citizens. Www.myfreetax.com Treating nonresident alien spouse as resident alien. Www.myfreetax.com A nonresident alien spouse can be treated as a resident alien if all the following conditions are met. Www.myfreetax.com One spouse is a U. Www.myfreetax.com S. Www.myfreetax.com citizen or resident alien at the end of the tax year. Www.myfreetax.com That spouse is married to the nonresident alien at the end of the tax year. Www.myfreetax.com You both choose to treat the nonresident alien spouse as a resident alien. Www.myfreetax.com Making the choice. Www.myfreetax.com Both you and your spouse must sign a statement and attach it to your joint return for the first tax year for which the choice applies. Www.myfreetax.com Include in the statement: A declaration that one spouse was a nonresident alien and the other was a U. Www.myfreetax.com S. Www.myfreetax.com citizen or resident alien on the last day of the year, A declaration that both spouses choose to be treated as U. Www.myfreetax.com S. Www.myfreetax.com residents for the entire tax year, and The name, address, and taxpayer identification number (social security number or individual taxpayer identification number) of each spouse. Www.myfreetax.com If the nonresident alien spouse is not eligible to get a social security number, he or she should file Form W-7, Application for IRS Individual Taxpayer Identification Number. Www.myfreetax.com Once you make this choice, the nonresident alien spouse's worldwide income is subject to U. Www.myfreetax.com S. Www.myfreetax.com tax. Www.myfreetax.com If the nonresident alien spouse has substantial foreign income, there may be no advantage to making this choice. Www.myfreetax.com Ending the choice. Www.myfreetax.com Once you make this choice, it applies to all later years unless one of the following situations occurs. Www.myfreetax.com You or your spouse revokes the choice. Www.myfreetax.com You or your spouse dies. Www.myfreetax.com You and your spouse become legally separated under a decree of divorce or separate maintenance. Www.myfreetax.com The Internal Revenue Service ends the choice because you or your spouse kept inadequate records. Www.myfreetax.com For specific details on these situations, see Publication 519. Www.myfreetax.com If the choice is ended for any of these reasons, neither spouse can make the choice for any later year. Www.myfreetax.com Choice not made. Www.myfreetax.com If you and your nonresident alien spouse do not make this choice: You cannot file a joint return. Www.myfreetax.com You can file as married filing separately, or head of household if you qualify. Www.myfreetax.com You can claim an exemption for your nonresident alien spouse if he or she has no gross income for U. Www.myfreetax.com S. Www.myfreetax.com tax purposes and is not another taxpayer's dependent. Www.myfreetax.com The nonresident alien spouse generally does not have to file a federal income tax return if he or she had no income from sources in the United States. Www.myfreetax.com If a return has to be filed, see the next discussion. Www.myfreetax.com The nonresident alien spouse is not eligible for the earned income credit if he or she has to file a return. Www.myfreetax.com Nonresident Aliens If you are an alien who does not meet the requirements discussed earlier to be a resident alien, you are a nonresident alien. Www.myfreetax.com If you are required to file a federal tax return, you must file either Form 1040NR, U. Www.myfreetax.com S. Www.myfreetax.com Nonresident Alien Income Tax Return, or Form 1040NR-EZ, U. Www.myfreetax.com S. Www.myfreetax.com Income Tax Return for Certain Nonresident Aliens With No Dependents. Www.myfreetax.com See the form instructions for information on who must file and filing status. Www.myfreetax.com If you are a nonresident alien, you generally must pay tax on income from sources in the United States. Www.myfreetax.com Your income from conducting a trade or business in the United States is taxed at graduated U. Www.myfreetax.com S. Www.myfreetax.com tax rates. Www.myfreetax.com Other income from U. Www.myfreetax.com S. Www.myfreetax.com sources is taxed at a flat 30% (or lower treaty) rate. Www.myfreetax.com For example, dividends from a U. Www.myfreetax.com S. Www.myfreetax.com corporation paid to a nonresident alien generally are subject to a 30% (or lower treaty) rate. Www.myfreetax.com Dual-Status Aliens You can be both a nonresident and resident alien during the same tax year. Www.myfreetax.com This usually occurs in the year you arrive in or depart from the United States. Www.myfreetax.com If you are a dual-status alien, you are taxed on income from all sources for the part of the year you are a resident alien. Www.myfreetax.com Generally, for the part of the year you are a nonresident alien, you are taxed only on income from sources in the United States. Www.myfreetax.com Sale of Home You may not have to pay tax on all or part of the gain from the sale of your main home. Www.myfreetax.com Usually, your main home is the one you live in most of the time. Www.myfreetax.com It can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Www.myfreetax.com You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home in 2013. Www.myfreetax.com The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every 2 years. Www.myfreetax.com To be eligible, during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test). Www.myfreetax.com Exception to ownership and use tests. Www.myfreetax.com You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station. Www.myfreetax.com 5-year test period suspended. Www.myfreetax.com You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. Www.myfreetax.com This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. Www.myfreetax.com Example. Www.myfreetax.com David bought and moved into a home in 2005. Www.myfreetax.com He lived in it as his main home for 2½ years. Www.myfreetax.com For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. Www.myfreetax.com He then sold the home at a gain in 2013. Www.myfreetax.com To meet the use test, David chooses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. Www.myfreetax.com This means he can disregard those 6 years. Www.myfreetax.com Therefore, David's 5-year test period consists of the 5 years before he went on qualifying official extended duty. Www.myfreetax.com He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. Www.myfreetax.com Period of suspension. Www.myfreetax.com The period of suspension cannot last more than 10 years. Www.myfreetax.com You cannot suspend the 5-year period for more than one property at a time. Www.myfreetax.com You can revoke your choice to suspend the 5-year period at any time. Www.myfreetax.com Qualified official extended duty. Www.myfreetax.com You are on qualified official extended duty if you serve on extended duty either: At a duty station at least 50 miles from your main home, or While you live in Government quarters under Government orders. Www.myfreetax.com You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period. Www.myfreetax.com Property used for rental or business. Www.myfreetax.com You may be able to exclude your gain from the sale of a home that you have used as a rental property or for business. Www.myfreetax.com However, you must meet the ownership and use tests discussed in Publication 523. Www.myfreetax.com Nonqualified use. Www.myfreetax.com If the sale of your main home results in a gain that is allocated to one or more period(s) of nonqualified use, you cannot exclude that gain from your income. Www.myfreetax.com Nonqualified use means any period after 2008 when neither you nor your spouse (or your former spouse) used the property as a main home, with certain exceptions. Www.myfreetax.com For example, a period of nonqualified use does not include any period (not to exceed a total of 10 years) during which you or your spouse is serving on qualified official extended duty. Www.myfreetax.com Loss. Www.myfreetax.com You cannot deduct a loss from the sale of your main home. Www.myfreetax.com More information. Www.myfreetax.com For more information, see Publication 523. Www.myfreetax.com Foreclosures There may be tax consequences as a result of compensation payments for foreclosures. Www.myfreetax.com Payments made for violations of the Service Members Civil Relief Act (SCRA). Www.myfreetax.com All service members who received a settlement payment reported on a Form 1099 may need to report the amount on their tax return. Www.myfreetax.com Generally, you must include settlement payments in income. Www.myfreetax.com However, the tax treatment of settlement payments will depend on the facts and circumstances. Www.myfreetax.com Lump Sum Portion of Settlement Payment. Www.myfreetax.com Generally, you must include the lump sum payment in gross income. Www.myfreetax.com In limited circumstances you may be able to exclude part or all of the lump sum payment from gross income. Www.myfreetax.com For example, you may qualify to exclude part or all of the payment from gross income if you can show that the payment was made to reimburse specific nondeductible expenses (such as living expenses) you incurred because of the SCRA violation. Www.myfreetax.com Interest Payment on Lump Sum Portion of Settlement Payment. Www.myfreetax.com You must include any interest on the lump sum portion of your settlement payment in your income. Www.myfreetax.com Lost Equity Portion of Settlement Payment. Www.myfreetax.com If you lost your main home in foreclosure, you should treat the lost equity payment as an additional amount you received on the foreclosure of the home. Www.myfreetax.com You will have a gain on the foreclosure only if the sum of the lost equity payment and the value of the main home at foreclosure is more than what you paid for the home. Www.myfreetax.com In many cases, this gain may be excluded from income. Www.myfreetax.com For more information on the rules for excluding all or part of any gain from the sale (including a foreclosure) of a main home, see Pub. Www.myfreetax.com 523, Selling Your Home. Www.myfreetax.com The rules that apply to a lost equity payment you received for the foreclosure of a property that was not your main home are different. Www.myfreetax.com To find rules for reporting gain or loss on the foreclosure of property that was not your main home, see Pub. Www.myfreetax.com 544, Sales and Other Dispositions of Assets. Www.myfreetax.com Interest Payment on Lost Equity Portion of Settlement Payment. Www.myfreetax.com You must include any interest on the lost equity portion of your settlement payment in your income. Www.myfreetax.com Itemized Deductions To figure your taxable income, you must subtract either your standard deduction or your itemized deductions from adjusted gross income. Www.myfreetax.com For information on the standard deduction, see Publication 501. Www.myfreetax.com Itemized deductions are figured on Schedule A (Form 1040). Www.myfreetax.com This chapter discusses miscellaneous itemized deductions of particular interest to members of the Armed Forces. Www.myfreetax.com For information on other itemized deductions, see the publications listed below. Www.myfreetax.com Publication 502, Medical and Dental Expenses. Www.myfreetax.com Publication 526, Charitable Contributions. Www.myfreetax.com Publication 547, Casualties, Disasters, and Thefts. Www.myfreetax.com Publication 550, Investment Income and Expenses. Www.myfreetax.com You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. Www.myfreetax.com For information on deductions that are not subject to the 2% limit, see Publication 529. Www.myfreetax.com Employee Business Expenses Deductible employee business expenses generally are miscellaneous itemized deductions subject to the 2% limit. Www.myfreetax.com Certain employee business expenses are deductible as adjustments to income. Www.myfreetax.com For information on many employee business expenses, see Publication 463. Www.myfreetax.com Generally, you must file Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, to claim these expenses. Www.myfreetax.com You do not have to file Form 2106 or Form 2106-EZ if you are claiming only unreimbursed expenses for uniforms, professional society dues, and work-related educational expenses (all discussed later). Www.myfreetax.com You can deduct these expenses directly on Schedule A (Form 1040). Www.myfreetax.com Reimbursement. Www.myfreetax.com Generally, to receive advances, reimbursements, or other allowances from the government, you must adequately account for your expenses and return any excess reimbursement. Www.myfreetax.com Your reimbursed expenses are not deductible. Www.myfreetax.com If your expenses are more than your reimbursement, the excess expenses are deductible (subject to the 2% limit) if you can prove them. Www.myfreetax.com You must file Form 2106 to report these expenses. Www.myfreetax.com You can use the shorter Form 2106-EZ if you meet all three of the following conditions. Www.myfreetax.com You are an employee deducting expenses related to your job. Www.myfreetax.com You were not reimbursed by your employer for your expenses. Www.myfreetax.com (Amounts included in box 1 of Form W-2 are not considered reimbursements. Www.myfreetax.com ) If you claim car expenses, you use the standard mileage rate. Www.myfreetax.com For 2013, the standard mileage rate is 56. Www.myfreetax.com 5 cents a mile for all business miles driven. Www.myfreetax.com This rate is adjusted periodically. Www.myfreetax.com Travel Expenses You can deduct unreimbursed travel expenses only if they are incurred while you are traveling away from home. Www.myfreetax.com If you are a member of the U. Www.myfreetax.com S. Www.myfreetax.com Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Www.myfreetax.com You cannot deduct your expenses for meals and lodging while at your permanent duty station. Www.myfreetax.com You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Www.myfreetax.com A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a home aboard ship for travel expense purposes. Www.myfreetax.com To be deductible, your travel expenses must be work related. Www.myfreetax.com You cannot deduct any expenses for personal travel, such as visits to family while on furlough, leave, or liberty. Www.myfreetax.com Away from home. Www.myfreetax.com Home is your permanent duty station (which can be a ship or base), regardless of where you or your family live. Www.myfreetax.com You are away from home if you are away from your permanent duty station substantially longer than an ordinary day's work and you need to get sleep or rest to meet the demands of your work while away from home. Www.myfreetax.com Examples of deductible travel expenses include: Expenses for business-related meals (generally limited to 50% of your unreimbursed cost), lodging, taxicabs, business telephone calls, tips, laundry, and dry cleaning while you are away from home on temporary duty or temporary additional duty, and Expenses of carrying out official business while on “No Cost” orders. Www.myfreetax.com You cannot deduct any expenses for travel away from home if the temporary assignment in a single location is realistically expected to last (and does in fact last) for more than 1 year. Www.myfreetax.com This rule may not apply if you are participating in a federal crime investigation or prosecution. Www.myfreetax.com For more information, see Publication 463 and the Form 2106 instructions. Www.myfreetax.com Transportation Expenses These expenses include the ordinary and necessary costs of: Getting from one workplace to another when you are not away from home, Going to a business meeting away from your regular workplace, and Getting from your home to a temporary workplace when you have a regular place of work. Www.myfreetax.com These expenses include the costs of transportation by air, bus, rail, taxi, and driving and maintaining your car. Www.myfreetax.com Transportation expenses incurred while traveling away from home are included with your travel expenses, discussed earlier. Www.myfreetax.com However, if you use your car while traveling away from home overnight, see the rules in chapter 4 of Publication 463 to figure your car expense deduction. Www.myfreetax.com If you must go from one workplace to another while on duty (for example, as a courier or to attend meetings) without being away from home, your unreimbursed transportation expenses are deductible. Www.myfreetax.com However, the expenses of getting to and from your regular place of work (commuting) are not deductible. Www.myfreetax.com Temporary work location. Www.myfreetax.com If you have one or more regular places of business away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location. Www.myfreetax.com Generally, if your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary. Www.myfreetax.com If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Www.myfreetax.com If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Www.myfreetax.com If you do not have a regular place of business, but you ordinarily work in the metropolitan area where you live, you can deduct daily transportation expenses between your home and a temporary work site outside your metropolitan area. Www.myfreetax.com However, you cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Www.myfreetax.com These are nondeductible commuting costs. Www.myfreetax.com Armed Forces reservists. Www.myfreetax.com A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Www.myfreetax.com You can deduct the expense of getting from one workplace to the other. Www.myfreetax.com You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Www.myfreetax.com In this case, your transportation generally is a nondeductible commuting expense. Www.myfreetax.com However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Www.myfreetax.com If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Www.myfreetax.com If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Www.myfreetax.com See Armed Forces Reservists under Adjustments to Income, earlier. Www.myfreetax.com Uniforms You usually cannot deduct the expenses for uniform cost and upkeep. Www.myfreetax.com Generally, you must wear uniforms when on duty and you are allowed to wear them when off duty. Www.myfreetax.com If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of the uniforms, but you must reduce your expenses by any allowance or reimbursement you receive. Www.myfreetax.com Unreimbursed expenses for the cost and upkeep of the following articles are deductible. Www.myfreetax.com Military battle dress uniforms and utility uniforms that you cannot wear when off duty. Www.myfreetax.com Articles not replacing regular clothing, including insignia of rank, corps devices, epaulets, aiguillettes, and swords. Www.myfreetax.com Reservists' uniforms if you can wear the uniform only while performing duties as a reservist. Www.myfreetax.com Professional Dues You can deduct unreimbursed dues paid to professional societies directly related to your military position. Www.myfreetax.com However, you cannot deduct amounts paid to an officers' club or a noncommissioned officers' club. Www.myfreetax.com Example. Www.myfreetax.com Lieutenant Margaret Allen, an electrical engineer at Maxwell Air Force Base, can deduct professional dues paid to the American Society of Electrical Engineers. Www.myfreetax.com Educational Expenses You can deduct the unreimbursed costs of qualifying work-related education. Www.myfreetax.com This is education that meets at least one of the following two tests. Www.myfreetax.com The education is required by your employer or the law to keep your present salary, status, or job. Www.myfreetax.com The required education must serve a bona fide business purpose of your employer. Www.myfreetax.com The education maintains or improves skills needed in your present work. Www.myfreetax.com However, even if the education meets one or both of the above tests, it is not qualifying education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. Www.myfreetax.com You can deduct the expenses for qualifying work-related education even if the education could lead to a degree. Www.myfreetax.com Example 1. Www.myfreetax.com Lieutenant Colonel Mason has a degree in financial management and is in charge of base finances at her post of duty. Www.myfreetax.com She took an advanced finance course. Www.myfreetax.com She already meets the minimum qualifications for her job. Www.myfreetax.com By taking the course, she is improving skills in her current position. Www.myfreetax.com The course does not qualify her for a new trade or business. Www.myfreetax.com She can deduct educational expenses that are more than the educational allowance she received. Www.myfreetax.com Example 2. Www.myfreetax.com Major Williams worked in the military base legal office as a legal intern. Www.myfreetax.com He was placed in excess leave status by his employer to attend law school. Www.myfreetax.com He paid all his educational expenses and was not reimbursed. Www.myfreetax.com After obtaining his law degree, he passed the state bar exam and worked as a judge advocate. Www.myfreetax.com His educational expenses are not deductible because the law degree qualified him for a new trade or business, even though the education maintained and improved his skills in his work. Www.myfreetax.com Travel to obtain education. Www.myfreetax.com If your work-related education qualifies, you can deduct the costs of travel, including meals (subject to the 50% limit), and lodging, if the main purpose of the trip is to obtain the education. Www.myfreetax.com You cannot deduct the cost of travel that is itself a form of education, even if it is directly related to your duties in your work or business. Www.myfreetax.com Transportation for education. Www.myfreetax.com If your work-related education qualifies for a deduction, you can deduct the costs of transportation to obtain that education. Www.myfreetax.com However, you cannot deduct the cost of services provided in kind, such as base-provided transportation to or from class. Www.myfreetax.com Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Www.myfreetax.com If you need more information on educational expenses, see Publication 970. Www.myfreetax.com Repayments If you had to repay to your employer an amount that you included in your income in an earlier year, you may be able to deduct the repaid amount from your income for the year in which you repaid it. Www.myfreetax.com Repayment of $3,000 or less. Www.myfreetax.com If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Www.myfreetax.com If you reported it as wages, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Www.myfreetax.com Repayment over $3,000. Www.myfreetax.com If the amount you repaid was more than $3,000, see Repayments in Publication 525. Www.myfreetax.com Credits After you have figured your taxable income and tax liability, you can determine if you are entitled to any tax credits. Www.myfreetax.com This publication discusses the first-time homebuyer credit, child tax credit, earned income credit, and credit for excess social security tax withheld. Www.myfreetax.com For information on other credits, see your tax form instructions. Www.myfreetax.com First-Time Homebuyer Credit The first-time homebuyer credit is not available for homes purchased after 2011. Www.myfreetax.com In 2011, this credit had already expired for most taxpayers, however, certain members of the uniformed services and Foreign Service and certain employees of the intelligence community could claim the credit for homes purchased in 2011. Www.myfreetax.com If you bought the home (and claimed the credit) after 2008, you generally must repay the credit if you dispose of the home or the home stops being your main home within the 36-month period beginning on the purchase date. Www.myfreetax.com If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit. Www.myfreetax.com If you bought your home in 2008, you generally must repay the credit over a 15-year period in 15 equal installments. Www.myfreetax.com For more information, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. Www.myfreetax.com Child Tax Credit The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your qualifying children. Www.myfreetax.com The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit. Www.myfreetax.com The child tax credit is not the same as the credit for child and dependent care expenses. Www.myfreetax.com See Publication 503 for information on the credit for child and dependent care expenses. Www.myfreetax.com Qualifying Child A qualifying child for purposes of the child tax credit is a child who: 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), Was under age 17 at the end of 2013, Did not provide over half of his or her own support for 2013, Lived with you for more than half of 2013 (see Exceptions to time lived with you, later), Is claimed as a dependent on your return, Does not file a joint return for the year (or files it only as a claim for refund), and Was a U. Www.myfreetax.com S. Www.myfreetax.com citizen, a U. Www.myfreetax.com S. Www.myfreetax.com national, or a U. Www.myfreetax.com S. Www.myfreetax.com resident alien. Www.myfreetax.com If the child was adopted, see Adopted child . Www.myfreetax.com For each qualifying child you must check the box on Form 1040 or Form 1040A, line 6c, column (4). Www.myfreetax.com Exceptions to time lived with you. Www.myfreetax.com A child is considered to have lived with you for all of 2013 if the child was born or died in 2013 and your home was this child's home for the entire time he or she was alive. Www.myfreetax.com Temporary absences by you or the child for special circumstances, such as school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the child lived with you. Www.myfreetax.com There are also exceptions for kidnapped children and children of divorced or separated parents. Www.myfreetax.com For details, see Publication 501. Www.myfreetax.com Qualifying child of more than one person. Www.myfreetax.com A special rule applies if your qualifying child is the qualifying child of more than one person. Www.myfreetax.com For details, see Publication 501. Www.myfreetax.com Adopted child. Www.myfreetax.com An adopted child is always treated as your own child. Www.myfreetax.com An adopted child includes a child lawfully placed with you for legal adoption. Www.myfreetax.com If you are a U. Www.myfreetax.com S. Www.myfreetax.com citizen or U. Www.myfreetax.com S. Www.myfreetax.com national and your adopted child lived with you as a member of your household all year, that child meets condition (7) above to be a qualifying child for the child tax credit. Www.myfreetax.com Amount of Credit The maximum amount you can claim for the credit is $1,000 for each qualifying child. Www.myfreetax.com Limits on the credit. Www.myfreetax.com You must reduce your child tax credit if either (1) or (2), below, applies. Www.myfreetax.com The amount on Form 1040, line 46, or Form 1040A, line 28, is less than the credit. Www.myfreetax.com If the amount is zero, you cannot take this credit because there is no tax to reduce. Www.myfreetax.com However, you may be able to take the additional child tax credit. Www.myfreetax.com See Additional Child Tax Credit , later. Www.myfreetax.com Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status. Www.myfreetax.com Married filing jointly — $110,000. Www.myfreetax.com Single, head of household, or qualifying widow(er) — $75,000. Www.myfreetax.com Married filing separately — $55,000. Www.myfreetax.com Modified AGI. Www.myfreetax.com For purposes of the child tax credit, your modified AGI is the amount on Form 1040, line 38, or Form 1040A, line 22, plus the following amounts that may apply to you. Www.myfreetax.com Any amount excluded from income because of the exclusion of income from Puerto Rico. Www.myfreetax.com Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. Www.myfreetax.com Any amount on line 18 of Form 2555-EZ, Foreign Earned Income Exclusion. Www.myfreetax.com Any amount on line 15 of Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa. Www.myfreetax.com If you do not have any of the above, your modified AGI is the same as your AGI. Www.myfreetax.com Claiming the Credit To claim the child tax credit, you must file Form 1040 or Form 1040A. Www.myfreetax.com For more information on the child tax credit, see the instructions for Form 1040 or Form 1040A. Www.myfreetax.com Also attach Schedule 8812, Child Tax Credit, if required. Www.myfreetax.com Additional Child Tax Credit This credit is for certain individuals who get less than the full amount of the child tax credit. Www.myfreetax.com The additional child tax credit may give you a refund even if you do not owe any tax. Www.myfreetax.com For more information, see the instructions for Form 1040 or Form 1040A, and Schedule 8812. Www.myfreetax.com Earned Income Credit The earned income credit (EIC) is a cr