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1040ez Instruction Booklet

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1040ez Instruction Booklet

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The 1040ez Instruction Booklet

1040ez instruction booklet 10. 1040ez instruction booklet   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. 1040ez instruction booklet Eligible educational institution. 1040ez instruction booklet Dependent for whom you claim an exemption. 1040ez instruction booklet MAGI when using Form 1040A. 1040ez instruction booklet MAGI when using Form 1040. 1040ez instruction booklet Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. 1040ez instruction booklet S. 1040ez instruction booklet savings bonds. 1040ez instruction booklet If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. 1040ez instruction booklet However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. 1040ez instruction booklet Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. 1040ez instruction booklet S. 1040ez instruction booklet savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. 1040ez instruction booklet You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. 1040ez instruction booklet Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. 1040ez instruction booklet Your filing status is not married filing separately. 1040ez instruction booklet Qualified U. 1040ez instruction booklet S. 1040ez instruction booklet savings bonds. 1040ez instruction booklet   A qualified U. 1040ez instruction booklet S. 1040ez instruction booklet savings bond is a series EE bond issued after 1989 or a series I bond. 1040ez instruction booklet The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). 1040ez instruction booklet   The owner must be at least 24 years old before the bond's issue date. 1040ez instruction booklet The issue date is printed on the front of the savings bond. 1040ez instruction booklet    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). 1040ez instruction booklet Qualified education expenses. 1040ez instruction booklet   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. 1040ez instruction booklet Tuition and fees required to enroll at or attend an eligible educational institution. 1040ez instruction booklet Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. 1040ez instruction booklet Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). 1040ez instruction booklet Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). 1040ez instruction booklet Adjusted qualified education expenses. 1040ez instruction booklet   You must reduce your qualified education expenses by all of the following tax-free benefits. 1040ez instruction booklet Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). 1040ez instruction booklet Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). 1040ez instruction booklet Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). 1040ez instruction booklet Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). 1040ez instruction booklet Any expenses used in figuring the American opportunity and lifetime learning credits. 1040ez instruction booklet See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. 1040ez instruction booklet Eligible educational institution. 1040ez instruction booklet   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 1040ez instruction booklet S. 1040ez instruction booklet Department of Education. 1040ez instruction booklet It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 1040ez instruction booklet The educational institution should be able to tell you if it is an eligible educational institution. 1040ez instruction booklet   Certain educational institutions located outside the United States also participate in the U. 1040ez instruction booklet S. 1040ez instruction booklet Department of Education's Federal Student Aid (FSA) programs. 1040ez instruction booklet Dependent for whom you claim an exemption. 1040ez instruction booklet   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. 1040ez instruction booklet Modified adjusted gross income (MAGI). 1040ez instruction booklet   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. 1040ez instruction booklet However, as discussed below, there may be other modifications. 1040ez instruction booklet MAGI when using Form 1040A. 1040ez instruction booklet   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). 1040ez instruction booklet MAGI when using Form 1040. 1040ez instruction booklet   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. 1040ez instruction booklet    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. 1040ez instruction booklet If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. 1040ez instruction booklet Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. 1040ez instruction booklet Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). 1040ez instruction booklet    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. 1040ez instruction booklet Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. 1040ez instruction booklet See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. 1040ez instruction booklet Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. 1040ez instruction booklet However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. 1040ez instruction booklet To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. 1040ez instruction booklet The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. 1040ez instruction booklet The denominator (bottom part) of the fraction is the total proceeds you received during the year. 1040ez instruction booklet Example. 1040ez instruction booklet In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. 1040ez instruction booklet S. 1040ez instruction booklet savings bond. 1040ez instruction booklet They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. 1040ez instruction booklet In 2013, they paid $7,650 of their daughter's college tuition. 1040ez instruction booklet They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. 1040ez instruction booklet Their MAGI for 2013 was $80,000. 1040ez instruction booklet   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. 1040ez instruction booklet They must pay tax on the remaining $450 ($3,000 − $2,550) interest. 1040ez instruction booklet Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. 1040ez instruction booklet Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. 1040ez instruction booklet Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. 1040ez instruction booklet Attach Form 8815 to your tax return. 1040ez instruction booklet Prev  Up  Next   Home   More Online Publications