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File taxes online free 3. File taxes online free   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. File taxes online free Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. File taxes online free In addition, you will contribute matching or nonelective contributions. File taxes online free SIMPLE plans can only be maintained on a calendar-year basis. File taxes online free A SIMPLE plan can be set up in either of the following ways. File taxes online free Using SIMPLE IRAs (SIMPLE IRA plan). File taxes online free As part of a 401(k) plan (SIMPLE 401(k) plan). File taxes online free Many financial institutions will help you set up a SIMPLE plan. File taxes online free SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. File taxes online free Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. File taxes online free For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. File taxes online free Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. File taxes online free You meet the employee limit. File taxes online free You do not maintain another qualified plan unless the other plan is for collective bargaining employees. File taxes online free Employee limit. File taxes online free   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. File taxes online free Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. File taxes online free Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). File taxes online free   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. File taxes online free Grace period for employers who cease to meet the 100-employee limit. File taxes online free   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. File taxes online free   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. File taxes online free Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. File taxes online free Coverage under the plan has not significantly changed during the grace period. File taxes online free The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. File taxes online free    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. File taxes online free Other qualified plan. File taxes online free   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. File taxes online free Exception. File taxes online free   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. File taxes online free Who Can Participate in a SIMPLE IRA Plan? Eligible employee. File taxes online free   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. File taxes online free The term “employee” includes a self-employed individual who received earned income. File taxes online free   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. File taxes online free For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. File taxes online free However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. File taxes online free Excludable employees. File taxes online free   The following employees do not need to be covered under a SIMPLE IRA plan. File taxes online free Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. File taxes online free Nonresident alien employees who have received no U. File taxes online free S. File taxes online free source wages, salaries, or other personal services compensation from you. File taxes online free Compensation. File taxes online free   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. File taxes online free Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. File taxes online free If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. File taxes online free How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. File taxes online free Each form is a model savings incentive match plan for employees (SIMPLE) plan document. File taxes online free Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. File taxes online free Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. File taxes online free Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. File taxes online free The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. File taxes online free Keep the original form. File taxes online free Do not file it with the IRS. File taxes online free Other uses of the forms. File taxes online free   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. File taxes online free Meeting employer notification requirements for the SIMPLE IRA plan. File taxes online free Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. File taxes online free Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. File taxes online free Deadline for setting up a SIMPLE IRA plan. File taxes online free   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. File taxes online free This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. File taxes online free If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. File taxes online free A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. File taxes online free Setting up a SIMPLE IRA. File taxes online free   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. File taxes online free A SIMPLE IRA must be set up for each eligible employee. File taxes online free Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. File taxes online free   A SIMPLE IRA cannot be a Roth IRA. File taxes online free Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. File taxes online free Deadline for setting up a SIMPLE IRA. File taxes online free   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. File taxes online free See Time limits for contributing funds , later, under Contribution Limits. File taxes online free Credit for startup costs. File taxes online free   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. File taxes online free For more information, see Credit for startup costs under Reminders, earlier. File taxes online free Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. File taxes online free The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. File taxes online free Your decision to make either matching contributions or nonelective contributions (discussed later). File taxes online free A summary description provided by the financial institution. File taxes online free Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. File taxes online free Election period. File taxes online free   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). File taxes online free However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. File taxes online free   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. File taxes online free For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. File taxes online free Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. File taxes online free Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. File taxes online free You, as the employer, must make either matching contributions or nonelective contributions, defined later. File taxes online free No other contributions can be made to the SIMPLE IRA plan. File taxes online free These contributions, which you can deduct, must be made timely. File taxes online free See Time limits for contributing funds , later. File taxes online free Salary reduction contributions. File taxes online free   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. File taxes online free These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. File taxes online free You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. File taxes online free   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. File taxes online free Catch-up contributions. File taxes online free   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. File taxes online free The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. File taxes online free Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. File taxes online free However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. File taxes online free The catch-up contribution limit. File taxes online free The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. File taxes online free Employer matching contributions. File taxes online free   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. File taxes online free This requirement does not apply if you make nonelective contributions as discussed later. File taxes online free Example. File taxes online free In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. File taxes online free Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. File taxes online free You make 3% matching contributions. File taxes online free The total contribution you make for John is $2,000, figured as follows. File taxes online free Salary reduction contributions ($25,000 × . File taxes online free 05) $1,250 Employer matching contribution ($25,000 × . File taxes online free 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. File taxes online free Salary reduction contributions ($40,000 × . File taxes online free 10) $4,000 Employer matching contribution ($40,000 × . File taxes online free 03) 1,200 Total contributions $5,200 Lower percentage. File taxes online free   If you choose a matching contribution less than 3%, the percentage must be at least 1%. File taxes online free You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. File taxes online free You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. File taxes online free Nonelective contributions. File taxes online free   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. File taxes online free If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. File taxes online free Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). File taxes online free   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. File taxes online free Example 1. File taxes online free In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. File taxes online free Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. File taxes online free You make a 2% nonelective contribution. File taxes online free Both of you are under age 50. File taxes online free The total contribution you make for Jane is $4,320, figured as follows. File taxes online free Salary reduction contributions ($36,000 × . File taxes online free 10) $3,600 2% nonelective contributions ($36,000 × . File taxes online free 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. File taxes online free Salary reduction contributions ($50,000 × . File taxes online free 10) $5,000 2% nonelective contributions ($50,000 × . File taxes online free 02) 1,000 Total contributions $6,000 Example 2. File taxes online free Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. File taxes online free Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . File taxes online free 02) 1,500 Total contributions $13,500 Time limits for contributing funds. File taxes online free   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. File taxes online free You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. File taxes online free Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. File taxes online free When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. File taxes online free You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. File taxes online free Example 1. File taxes online free Your tax year is the fiscal year ending June 30. File taxes online free Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. File taxes online free Example 2. File taxes online free You are a sole proprietor whose tax year is the calendar year. File taxes online free Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. File taxes online free Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. File taxes online free For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. File taxes online free Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. File taxes online free (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. File taxes online free ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. File taxes online free SIMPLE IRA plan contributions are not subject to federal income tax withholding. File taxes online free However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. File taxes online free Matching and nonelective contributions are not subject to these taxes. File taxes online free Reporting on Form W-2. File taxes online free   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. File taxes online free You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. File taxes online free You must also include them in box 12. File taxes online free Mark the “Retirement plan” checkbox in box 13. File taxes online free For more information, see the Form W-2 instructions. File taxes online free Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. File taxes online free Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. File taxes online free However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. File taxes online free Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. File taxes online free Early withdrawals generally are subject to a 10% additional tax. File taxes online free However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. File taxes online free More information. File taxes online free   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. File taxes online free More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. File taxes online free SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. File taxes online free A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. File taxes online free However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. File taxes online free Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. File taxes online free If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. File taxes online free See Catch-up contributions , earlier under Contribution Limits. File taxes online free You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. File taxes online free No other contributions can be made to the trust. File taxes online free No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. File taxes online free The employee's rights to any contributions are nonforfeitable. File taxes online free No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). File taxes online free Compensation is defined earlier in this chapter. File taxes online free Employee notification. File taxes online free   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. File taxes online free See Notification Requirement in this chapter. File taxes online free Credit for startup costs. File taxes online free   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. File taxes online free For more information, see Credit for startup costs under Reminders, earlier. File taxes online free Note on Forms. File taxes online free   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. File taxes online free To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. File taxes online free Prev  Up  Next   Home   More Online Publications
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File taxes online free 1. File taxes online free   Investment Income Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: General InformationSSN for joint account. File taxes online free Custodian account for your child. File taxes online free Penalty for failure to supply SSN. File taxes online free Certification. File taxes online free Underreported interest and dividends. File taxes online free How to stop backup withholding due to underreporting. File taxes online free How to stop backup withholding due to an incorrect identification number. File taxes online free Reporting backup withholding. File taxes online free Nonresident aliens. File taxes online free Penalties. File taxes online free Savings account with parent as trustee. File taxes online free Interest IncomeInterest not reported on Form 1099-INT. File taxes online free Nominees. File taxes online free Incorrect amount. File taxes online free Information reporting requirement. File taxes online free Taxable Interest — General Below-Market Loans U. File taxes online free S. File taxes online free Savings Bonds U. File taxes online free S. File taxes online free Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Discount on Debt InstrumentsOriginal Issue Discount (OID) Market Discount Bonds Discount on Short-Term Obligations Election To Report All Interest as OID When To Report Interest IncomeConstructive receipt. File taxes online free How To Report Interest IncomeSchedule B (Form 1040A or 1040). File taxes online free Worksheet for savings bonds distributed from a retirement or profit-sharing plan. File taxes online free File Form 1099-INT with the IRS. File taxes online free Dividends and Other DistributionsDividends not reported on Form 1099-DIV. File taxes online free Nominees. File taxes online free Ordinary Dividends Capital Gain Distributions Nondividend Distributions Liquidating Distributions Distributions of Stock and Stock Rights Other Distributions How To Report Dividend IncomeElection. File taxes online free Independent contractor. File taxes online free Investment interest deducted. File taxes online free Exception 1. File taxes online free Exception 2. File taxes online free Undistributed capital gains. File taxes online free File Form 1099-DIV with the IRS. File taxes online free Stripped Preferred Stock REMICs, FASITs, and Other CDOsREMICs Collateralized Debt Obligations (CDOs) FASITs S CorporationsLimit on losses and deductions. File taxes online free Passive activity losses. File taxes online free Form 8582. File taxes online free Investment ClubsInvestments in name of member. File taxes online free Tax Treatment of the Club Topics - This chapter discusses: Interest Income , Discount on Debt Instruments , When To Report Interest Income , How To Report Interest Income , Dividends and Other Distributions , How To Report Dividend Income , Stripped Preferred Stock , Real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs) , S Corporations , and Investment Clubs . File taxes online free Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 537 Installment Sales 590 Individual Retirement Arrangements (IRAs) 925 Passive Activity and At-Risk Rules 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses 1040 U. File taxes online free S. File taxes online free Individual Income Tax Return 1040A U. File taxes online free S. File taxes online free Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1099 General Instructions for Certain Information Returns 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 3115 Application for Change in Accounting Method 6251 Alternative Minimum Tax — Individuals 8582 Passive Activity Loss Limitations 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends 8815 Exclusion of Interest From Series EE and I U. File taxes online free S. File taxes online free Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. File taxes online free S. File taxes online free Savings Bonds Issued After 1989 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets 8960 Net Investment Income Tax—Individuals, Estates, and Trusts See chapter 5, How To Get Tax Help , for information about getting these publications and forms. File taxes online free General Information A few items of general interest are covered here. File taxes online free Recordkeeping. File taxes online free You should keep a list showing sources and investment income amounts you receive during the year. File taxes online free Also keep the forms you receive showing your investment income (Forms 1099-INT, Interest Income, and 1099-DIV, Dividends and Distributions, for example) as an important part of your records. File taxes online free Net investment income tax (NIIT). File taxes online free   Beginning in 2013, you may be subject to the NIIT. File taxes online free The NIIT is a 3. File taxes online free 8% tax on the lesser of your net investment income or the amount of your modified adjusted gross income (MAGI) that is over a threshold amount based on your filing status. File taxes online free    Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household (with qualifying person) $200,000 Qualifying Widow(er) with dependent child $250,000    For more information, see Form 8960 and Instructions for Form 8960. File taxes online free Tax on unearned income of certain children. File taxes online free   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. File taxes online free This may happen if all of the following are true. File taxes online free The child had more than $2,000 of unearned income. File taxes online free The child is required to file a tax return. File taxes online free The child was: Under age 18 at the end of 2013, Age 18 at the end of 2013 and did not have earned income that was more than half of the child's support, or A full-time student over age 18 and under age 24 at the end of 2013 and did not have earned income that was more than half of the child's support. File taxes online free At least one of the child's parents was alive at the end of 2013. File taxes online free The child does not file a joint return for 2013. File taxes online free A child born on January 1, 1996, is considered to be age 18 at the end of 2013; a child born on January 1, 1995, is considered to be age 19 at the end of 2013; a child born on January 1, 1990, is considered to be age 24 at the end of 2013. File taxes online free   If all of these statements are true, Form 8615 must be completed and attached to the child's tax return. File taxes online free If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate. File taxes online free    However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. File taxes online free Use Form 8814 for this purpose. File taxes online free   For more information about the tax on unearned income of children and the parents' election, see Publication 929, Tax Rules for Children and Dependents. File taxes online free Beneficiary of an estate or trust. File taxes online free   Interest, dividends, and other investment income you receive as a beneficiary of an estate or trust is generally taxable income. File taxes online free You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. File taxes online free , from the fiduciary. File taxes online free Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. File taxes online free Social security number (SSN). File taxes online free   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. File taxes online free This includes payers of interest and dividends. File taxes online free If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. File taxes online free SSN for joint account. File taxes online free   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. File taxes online free (For information on who owns the funds in a joint account, see Joint accounts , later. File taxes online free ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. File taxes online free This is because only one name and SSN can be shown on Form 1099. File taxes online free   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. File taxes online free For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. File taxes online free Custodian account for your child. File taxes online free   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. File taxes online free For example, you must give your child's SSN to the payer of dividends on stock owned by your child, even though the dividends are paid to you as custodian. File taxes online free Penalty for failure to supply SSN. File taxes online free   You will be subject to a penalty if, when required, you fail to: Include your SSN on any return, statement, or other document, Give your SSN to another person who must include it on any return, statement, or other document, or Include the SSN of another person on any return, statement, or other document. File taxes online free The penalty is $50 for each failure up to a maximum penalty of $100,000 for any calendar year. File taxes online free   You will not be subject to this penalty if you can show that your failure to provide the SSN was due to reasonable cause and not to willful neglect. File taxes online free   If you fail to supply an SSN, you may also be subject to backup withholding. File taxes online free Backup withholding. File taxes online free   Your investment income is generally not subject to regular withholding. File taxes online free However, it may be subject to backup withholding to ensure that income tax is collected on the income. File taxes online free Under backup withholding, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. File taxes online free   Backup withholding applies if: You do not give the payer your identification number (either a social security number or an employer identification number) in the required manner, The IRS notifies the payer that you gave an incorrect identification number, The IRS notifies the payer that you are subject to backup withholding on interest or dividends because you have underreported interest or dividends on your income tax return, or You are required, but fail, to certify that you are not subject to backup withholding for the reason described in (3). File taxes online free Certification. File taxes online free   For new accounts paying interest or dividends, you must certify under penalties of perjury that your SSN is correct and that you are not subject to backup withholding. File taxes online free Your payer will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or similar form, to make this certification. File taxes online free If you fail to make this certification, backup withholding may begin immediately on your new account or investment. File taxes online free Underreported interest and dividends. File taxes online free   You will be considered to have underreported your interest and dividends if the IRS has determined for a tax year that: You failed to include any part of a reportable interest or dividend payment required to be shown on your return, or You were required to file a return and to include a reportable interest or dividend payment on that return, but you failed to file the return. File taxes online free How to stop backup withholding due to underreporting. File taxes online free   If you have been notified that you underreported interest or dividends, you can request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. File taxes online free You must show that at least one of the following situations applies. File taxes online free No underreporting occurred. File taxes online free You have a bona fide dispute with the IRS about whether underreporting occurred. File taxes online free Backup withholding will cause or is causing an undue hardship, and it is unlikely that you will underreport interest and dividends in the future. File taxes online free You have corrected the underreporting by filing a return if you did not previously file one and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments. File taxes online free   If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sent notices earlier. File taxes online free How to stop backup withholding due to an incorrect identification number. File taxes online free   If you have been notified by a payer that you are subject to backup withholding because you have provided an incorrect SSN or employer identification number, you can stop it by following the instructions the payer gives you. File taxes online free Reporting backup withholding. File taxes online free   If backup withholding is deducted from your interest or dividend income or other reportable payment, the bank or other business must give you an information return for the year (for example, a Form 1099-INT) indicating the amount withheld. File taxes online free The information return will show any backup withholding as “Federal income tax withheld. File taxes online free ” Nonresident aliens. File taxes online free    Generally, payments made to nonresident aliens are not subject to backup withholding. File taxes online free You can use Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to certify exempt status. File taxes online free However, this does not exempt you from the 30% (or lower treaty) withholding rate that may apply to your investment income. File taxes online free For information on the 30% rate, see Publication 519, U. File taxes online free S. File taxes online free Tax Guide for Aliens. File taxes online free Penalties. File taxes online free   There are civil and criminal penalties for giving false information to avoid backup withholding. File taxes online free The civil penalty is $500. File taxes online free The criminal penalty, upon conviction, is a fine of up to $1,000, or imprisonment of up to 1 year, or both. File taxes online free Where to report investment income. File taxes online free   Table 1-1 gives an overview of the forms and schedules to use to report some common types of investment income. File taxes online free But see the rest of this publication for detailed information about reporting investment income. File taxes online free Joint accounts. File taxes online free   If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law. File taxes online free Community property states. File taxes online free   If you are married and receive a distribution that is community income, one-half of the distribution is generally considered to be received by each spouse. File taxes online free If you file separate returns, you must each report one-half of any taxable distribution. File taxes online free See Publication 555, Community Property, for more information on community income. File taxes online free   If the distribution is not considered community property and you and your spouse file separate returns, each of you must report your separate taxable distributions. File taxes online free Example. File taxes online free You and your spouse have a joint money market account. File taxes online free Under state law, half the income from the account belongs to you, and half belongs to your spouse. File taxes online free If you file separate returns, you each report half the income. File taxes online free Income from property given to a child. File taxes online free   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. File taxes online free   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. File taxes online free Savings account with parent as trustee. File taxes online free   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. File taxes online free The savings account legally belongs to the child. File taxes online free The parents are not legally permitted to use any of the funds to support the child. File taxes online free Table 1-1. File taxes online free Where To Report Common Types of Investment Income (For detailed information about reporting investment income, see the rest of this publication, especially How To Report Interest Income and How To Report Dividend Income in chapter 1. File taxes online free ) Type of Income If you file Form 1040, report on . File taxes online free . File taxes online free . File taxes online free If you can file Form 1040A, report on . File taxes online free . File taxes online free . File taxes online free If you can file Form 1040EZ, report on . File taxes online free . File taxes online free . File taxes online free Tax-exempt interest (Form 1099-INT, box 8) Line 8b Line 8b Space to the left of line 2 (enter “TEI” and the amount) Taxable interest that totals $1,500 or less Line 8a (You may need to file Schedule B as well. File taxes online free ) Line 8a (You may need to file Schedule B as well. File taxes online free ) Line 2 Taxable interest that totals more than $1,500 Line 8a; also use Schedule B, line 1 Line 8a; also use Schedule B, line 1   Savings bond interest you will exclude because of higher education expenses Schedule B; also use Form 8815 Schedule B; also use Form 8815   Ordinary dividends that total $1,500 or less Line 9a (You may need to file Schedule B as well. File taxes online free ) Line 9a (You may need to file Schedule B as well. File taxes online free )   Ordinary dividends that total more than $1,500 Line 9a; also use Schedule B, line 5 Line 9a; also use Schedule B, line 5   Qualified dividends (if you do not have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2 Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2   Qualified dividends (if you have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, line 2 You cannot use Form 1040A    You cannot use Form 1040EZ Capital gain distributions (if you do not have to file Schedule D) Line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3 Line 10; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3   Capital gain distributions (if you have to file Schedule D) Schedule D, line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     Section 1250, 1202, or collectibles gain (Form 1099-DIV, box 2b, 2c, or 2d) Form 8949 and Schedule D     Nondividend distributions (Form 1099-DIV, box 3) Generally not reported*     Undistributed capital gains (Form 2439, boxes 1a - 1d) Schedule D     Gain or loss from sales of stocks or bonds Line 13; also use Form 8949, Schedule D, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet You cannot use Form 1040A   Gain or loss from exchanges of like-kind investment property Line 13; also use Schedule D, Form 8824, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     *Report any amounts in excess of your basis in your mutual fund shares on Form 8949. File taxes online free Use Part II if you held the shares more than 1 year. File taxes online free Use Part I if you held your mutual fund shares 1 year or less. File taxes online free For details on Form 8949, see Reporting Capital Gains and Losses in chapter 4, and the Instructions for Form 8949. File taxes online free Accuracy-related penalty. File taxes online free   An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregard of rules or regulations or substantial understatement of tax. File taxes online free For information on the penalty and any interest that applies, see Penalties in chapter 2. File taxes online free Interest Income This section discusses the tax treatment of different types of interest income. File taxes online free In general, any interest that you receive or that is credited to your account and can be withdrawn is taxable income. File taxes online free (It does not have to be entered in your passbook. File taxes online free ) Exceptions to this rule are discussed later. File taxes online free Form 1099-INT. File taxes online free   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. File taxes online free This form shows you the interest you received during the year. File taxes online free Keep this form for your records. File taxes online free You do not have to attach it to your tax return. File taxes online free   Report on your tax return the total interest income you receive for the tax year. File taxes online free Interest not reported on Form 1099-INT. File taxes online free   Even if you do not receive Form 1099-INT, you must still report all of your interest income. File taxes online free For example, you may receive distributive shares of interest from partnerships or S corporations. File taxes online free This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. File taxes online free , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. File taxes online free Nominees. File taxes online free   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. File taxes online free   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on Nominee distributions , later, under How To Report Interest Income. File taxes online free Incorrect amount. File taxes online free   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. File taxes online free The new Form 1099-INT you receive will be marked “Corrected. File taxes online free ” Form 1099-OID. File taxes online free   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. File taxes online free For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. File taxes online free Exempt-interest dividends. File taxes online free   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. File taxes online free (However, see Information reporting requirement , next. File taxes online free ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. File taxes online free You do not reduce your basis for distributions that are exempt-interest dividends. File taxes online free Information reporting requirement. File taxes online free   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. File taxes online free This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. File taxes online free See How To Report Interest Income , later. File taxes online free Note. File taxes online free Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. File taxes online free The exempt-interest dividends subject to the alternative minimum tax are shown in box 11 of Form 1099-DIV. File taxes online free See Form 6251 and its instructions for more information about this tax. File taxes online free Private activity bonds are discussed later under State or Local Government Obligations. File taxes online free Interest on VA dividends. File taxes online free   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. File taxes online free This includes interest paid on dividends on converted United States Government Life Insurance policies and on National Service Life Insurance policies. File taxes online free Individual retirement arrangements (IRAs). File taxes online free   Interest on a Roth IRA generally is not taxable. File taxes online free Interest on a traditional IRA is tax deferred. File taxes online free You generally do not include it in your income until you make withdrawals from the IRA. File taxes online free See Publication 590 for more information. File taxes online free Taxable Interest — General Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. File taxes online free The following are some sources of taxable interest. File taxes online free Dividends that are actually interest. File taxes online free   Certain distributions commonly called dividends are actually interest. File taxes online free You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. File taxes online free  The “dividends” will be shown as interest income on Form 1099-INT. File taxes online free Money market funds. File taxes online free   Money market funds are offered by nonbank financial institutions such as mutual funds and stock brokerage houses, and pay dividends. File taxes online free Generally, amounts you receive from money market funds should be reported as dividends, not as interest. File taxes online free Certificates of deposit and other deferred interest accounts. File taxes online free   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. File taxes online free You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. File taxes online free The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. File taxes online free If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. File taxes online free Interest subject to penalty for early withdrawal. File taxes online free   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. File taxes online free You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. File taxes online free See Penalty on early withdrawal of savings under How To Report Interest Income, later, for more information on how to report the interest and deduct the penalty. File taxes online free Money borrowed to invest in certificate of deposit. File taxes online free   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. File taxes online free You must report the total interest you earn on the certificate in your income. File taxes online free If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. File taxes online free See Interest Expenses in chapter 3. File taxes online free Example. File taxes online free You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. File taxes online free The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. File taxes online free The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. File taxes online free The bank also gives you a statement showing that you paid $310 interest for 2013. File taxes online free You must include the $575 in your income. File taxes online free If you itemize your deductions on Schedule A (Form 1040), Itemized Deductions, you can deduct $310, subject to the net investment income limit. File taxes online free Gift for opening account. File taxes online free   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. File taxes online free   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. File taxes online free For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. File taxes online free The value is determined by the cost to the financial institution. File taxes online free Example. File taxes online free You open a savings account at your local bank and deposit $800. File taxes online free The account earns $20 interest. File taxes online free You also receive a $15 calculator. File taxes online free If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. File taxes online free You must report $35 interest income on your tax return. File taxes online free Interest on insurance dividends. File taxes online free   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. File taxes online free However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. File taxes online free Prepaid insurance premiums. File taxes online free   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. File taxes online free U. File taxes online free S. File taxes online free obligations. File taxes online free   Interest on U. File taxes online free S. File taxes online free obligations, such as U. File taxes online free S. File taxes online free Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. File taxes online free Interest on tax refunds. File taxes online free   Interest you receive on tax refunds is taxable income. File taxes online free Interest on condemnation award. File taxes online free   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. File taxes online free Installment sale payments. File taxes online free   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. File taxes online free That interest is taxable when you receive it. File taxes online free If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. File taxes online free See Unstated Interest and Original Issue Discount (OID) in Publication 537. File taxes online free Interest on annuity contract. File taxes online free   Accumulated interest on an annuity contract you sell before its maturity date is taxable. File taxes online free Usurious interest. File taxes online free   Usurious interest is interest charged at an illegal rate. File taxes online free This is taxable as interest unless state law automatically changes it to a payment on the principal. File taxes online free Interest income on frozen deposits. File taxes online free   Exclude from your gross income interest on frozen deposits. File taxes online free A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state in which the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. File taxes online free   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). File taxes online free If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income for information about reporting this interest income exclusion on your tax return. File taxes online free   The interest you exclude is treated as credited to your account in the following year. File taxes online free You must include it in income in the year you can withdraw it. File taxes online free Example. File taxes online free $100 of interest was credited on your frozen deposit during the year. File taxes online free You withdrew $80 but could not withdraw any more as of the end of the year. File taxes online free You must include $80 in your income and exclude $20 from your income for the year. File taxes online free You must include the $20 in your income for the year you can withdraw it. File taxes online free Bonds traded flat. File taxes online free    If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. File taxes online free The defaulted or unpaid interest is not income and is not taxable as interest if paid later. File taxes online free When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. File taxes online free Interest that accrues after the date of purchase, however, is taxable interest income for the year received or accrued. File taxes online free See Bonds Sold Between Interest Dates , later in this chapter. File taxes online free Below-Market Loans If you make a below-market gift or demand loan, you must report as interest income any forgone interest (defined later) from that loan. File taxes online free The below-market loan rules and exceptions are described in this section. File taxes online free For more information, see section 7872 of the Internal Revenue Code and its regulations. File taxes online free If you receive a below-market loan, you may be able to deduct the forgone interest as well as any interest you actually paid, but not if it is personal interest. File taxes online free Loans subject to the rules. File taxes online free   The rules for below-market loans apply to: Gift loans, Pay-related loans, Corporation-shareholder loans, Tax avoidance loans, and Certain loans made to qualified continuing care facilities under a continuing care contract. File taxes online free A pay-related loan is any below-market loan between an employer and an employee or between an independent contractor and a person for whom the contractor provides services. File taxes online free A tax avoidance loan is any below-market loan where the avoidance of federal tax is one of the main purposes of the interest arrangement. File taxes online free Forgone interest. File taxes online free   For any period, forgone interest is: The amount of interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. File taxes online free Applicable federal rate. File taxes online free   Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. File taxes online free Some IRS offices have these bulletins available for research. File taxes online free See chapter 5, How To Get Tax Help , for other ways to get this information. File taxes online free Rules for below-market loans. File taxes online free   The rules that apply to a below-market loan depend on whether the loan is a gift loan, demand loan, or term loan. File taxes online free Gift and demand loans. File taxes online free   A gift loan is any below-market loan where the forgone interest is in the nature of a gift. File taxes online free   A demand loan is a loan payable in full at any time upon demand by the lender. File taxes online free A demand loan is a below-market loan if no interest is charged or if interest is charged at a rate below the applicable federal rate. File taxes online free   A demand loan or gift loan that is a below-market loan is generally treated as an arm's-length transaction in which the lender is treated as having made: A loan to the borrower in exchange for a note that requires the payment of interest at the applicable federal rate, and An additional payment to the borrower in an amount equal to the forgone interest. File taxes online free The borrower is generally treated as transferring the additional payment back to the lender as interest. File taxes online free The lender must report that amount as interest income. File taxes online free   The lender's additional payment to the borrower is treated as a gift, dividend, contribution to capital, pay for services, or other payment, depending on the substance of the transaction. File taxes online free The borrower may have to report this payment as taxable income, depending on its classification. File taxes online free These transfers are considered to occur annually, generally on December 31. File taxes online free Term loans. File taxes online free   A term loan is any loan that is not a demand loan. File taxes online free A term loan is a below-market loan if the amount of the loan is more than the present value of all payments due under the loan. File taxes online free   A lender who makes a below-market term loan other than a gift loan is treated as transferring an additional lump-sum cash payment to the borrower (as a dividend, contribution to capital, etc. File taxes online free ) on the date the loan is made. File taxes online free The amount of this payment is the amount of the loan minus the present value, at the applicable federal rate, of all payments due under the loan. File taxes online free An equal amount is treated as original issue discount (OID). File taxes online free The lender must report the annual part of the OID as interest income. File taxes online free The borrower may be able to deduct the OID as interest expense. File taxes online free See Original Issue Discount (OID) , later. File taxes online free Exceptions to the below-market loan rules. File taxes online free   Exceptions to the below-market loan rules are discussed here. File taxes online free Exception for loans of $10,000 or less. File taxes online free   The rules for below-market loans do not apply to any day on which the total outstanding amount of loans between the borrower and lender is $10,000 or less. File taxes online free This exception applies only to: Gift loans between individuals if the gift loan is not directly used to buy or carry income-producing assets, and Pay-related loans or corporation-shareholder loans if the avoidance of federal tax is not a principal purpose of the interest arrangement. File taxes online free This exception does not apply to a term loan described in (2) earlier that previously has been subject to the below-market loan rules. File taxes online free Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. File taxes online free Exception for loans to continuing care facilities. File taxes online free   Loans to qualified continuing care facilities under continuing care contracts are not subject to the rules for below-market loans for the calendar year if the lender or the lender's spouse is age 62 or older at the end of the year. File taxes online free For the definitions of qualified continuing care facility and continuing care contract, see Internal Revenue Code section 7872(h). File taxes online free Exception for loans without significant tax effect. File taxes online free   Loans are excluded from the below-market loan rules if their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. File taxes online free These loans include: Loans made available by the lender to the general public on the same terms and conditions that are consistent with the lender's customary business practice; Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public; Certain employee-relocation loans; Certain loans from a foreign person, unless the interest income would be effectively connected with the conduct of a U. File taxes online free S. File taxes online free trade or business and would not be exempt from U. File taxes online free S. File taxes online free tax under an income tax treaty; Gift loans to a charitable organization, contributions to which are deductible, if the total outstanding amount of loans between the organization and lender is $250,000 or less at all times during the tax year; and Other loans on which the interest arrangement can be shown to have no significant effect on the federal tax liability of the lender or the borrower. File taxes online free For a loan described in (6) above, all the facts and circumstances are used to determine if the interest arrangement has a significant effect on the federal tax liability of the lender or borrower. File taxes online free Some factors to be considered are: Whether items of income and deduction generated by the loan offset each other; The amount of these items; The cost to you of complying with the below-market loan rules, if they were to apply; and Any reasons other than taxes for structuring the transaction as a below-market loan. File taxes online free If you structure a transaction to meet this exception and one of the principal purposes of that structure is the avoidance of federal tax, the loan will be considered a tax-avoidance loan, and this exception will not apply. File taxes online free Limit on forgone interest for gift loans of $100,000 or less. File taxes online free   For gift loans between individuals, if the outstanding loans between the lender and borrower total $100,000 or less, the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. File taxes online free If the borrower's net investment income is $1,000 or less, it is treated as zero. File taxes online free This limit does not apply to a loan if the avoidance of federal tax is one of the main purposes of the interest arrangement. File taxes online free Effective dates. File taxes online free    These rules apply to term loans made after June 6, 1984, and to demand loans outstanding after that date. File taxes online free U. File taxes online free S. File taxes online free Savings Bonds This section provides tax information on U. File taxes online free S. File taxes online free savings bonds. File taxes online free It explains how to report the interest income on these bonds and how to treat transfers of these bonds. File taxes online free U. File taxes online free S. File taxes online free savings bonds currently offered to individuals include Series EE bonds and Series I bonds. File taxes online free For other information on U. File taxes online free S. File taxes online free savings bonds, write to:  For Series HH/H: Bureau of the Fiscal Service Division of Customer Assistance P. File taxes online free O. File taxes online free Box 2186 Parkersburg, WV 26106-2186  For Series EE and I paper savings bonds: Bureau of the Fiscal Service Division of Customer Assistance P. File taxes online free O. File taxes online free Box 7012 Parkersburg, WV 26106-7012  For Series EE and I electronic bonds: Bureau of the Fiscal Service  Division of Customer Assistance P. File taxes online free O. File taxes online free Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. File taxes online free treasurydirect. File taxes online free gov/indiv/indiv. File taxes online free htm. File taxes online free Accrual method taxpayers. File taxes online free   If you use an accrual method of accounting, you must report interest on U. File taxes online free S. File taxes online free savings bonds each year as it accrues. File taxes online free You cannot postpone reporting interest until you receive it or until the bonds mature. File taxes online free Cash method taxpayers. File taxes online free   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. File taxes online free S. File taxes online free savings bonds when you receive it. File taxes online free But see Reporting options for cash method taxpayers , later. File taxes online free Series HH bonds. File taxes online free   These bonds were issued at face value. File taxes online free Interest is paid twice a year by direct deposit to your bank account. File taxes online free If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. File taxes online free   Series HH bonds were first offered in 1980 and last offered in August 2004. File taxes online free Before 1980, series H bonds were issued. File taxes online free Series H bonds are treated the same as series HH bonds. File taxes online free If you are a cash method taxpayer, you must report the interest when you receive it. File taxes online free   Series H bonds have a maturity period of 30 years. File taxes online free Series HH bonds mature in 20 years. File taxes online free The last series H bonds matured in 2009. File taxes online free The last series HH bonds will mature in 2024. File taxes online free Series EE and series I bonds. File taxes online free   Interest on these bonds is payable when you redeem the bonds. File taxes online free The difference between the purchase price and the redemption value is taxable interest. File taxes online free Series EE bonds. File taxes online free   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. File taxes online free Before July 1980, series E bonds were issued. File taxes online free The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. File taxes online free Paper series EE and series E bonds are issued at a discount. File taxes online free The face value is payable to you at maturity. File taxes online free Electronic series EE bonds are issued at their face value. File taxes online free The face value plus accrued interest is payable to you at maturity. File taxes online free As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. File taxes online free    Owners of paper series EE bonds can convert them to electronic bonds. File taxes online free These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). File taxes online free Series I bonds. File taxes online free   Series I bonds were first offered in 1998. File taxes online free These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. File taxes online free The face value plus all accrued interest is payable to you at maturity. File taxes online free Reporting options for cash method taxpayers. File taxes online free   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. File taxes online free Method 1. File taxes online free Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. File taxes online free (However, see Savings bonds traded , later. File taxes online free )  Note. File taxes online free Series EE bonds issued in 1983 matured in 2013. File taxes online free If you have used method 1, you generally must report the interest on these bonds on your 2013 return. File taxes online free The last series E bonds were issued in 1980 and matured in 2010. File taxes online free If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. File taxes online free Method 2. File taxes online free Choose to report the increase in redemption value as interest each year. File taxes online free  You must use the same method for all series EE, series E, and series I bonds you own. File taxes online free If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. File taxes online free If you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use method 1 because you may be able to exclude the interest from your income. File taxes online free To learn how, see Education Savings Bond Program, later. File taxes online free Change from method 1. File taxes online free   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. File taxes online free In the year of change, you must report all interest accrued to date and not previously reported for all your bonds. File taxes online free   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. File taxes online free Change from method 2. File taxes online free   To change from method 2 to method 1, you must request permission from the IRS. File taxes online free Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. File taxes online free You have typed or printed the following number at the top: “131. File taxes online free ” It includes your name and social security number under “131. File taxes online free ” It includes the year of change (both the beginning and ending dates). File taxes online free It identifies the savings bonds for which you are requesting this change. File taxes online free It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest; and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. File taxes online free   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). File taxes online free   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. File taxes online free On the statement, type or print “Filed pursuant to section 301. File taxes online free 9100-2. File taxes online free ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). File taxes online free    By the date you file the original statement with your return, you must also send a signed copy to the address below. File taxes online free    Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. File taxes online free O. File taxes online free Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. File taxes online free Internal Revenue Service Attention: CC:IT&A  (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW Washington, DC 20224    Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115. File taxes online free In that case, follow the form instructions for an automatic change. File taxes online free No user fee is required. File taxes online free Co-owners. File taxes online free   If a U. File taxes online free S. File taxes online free savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. File taxes online free One co-owner's funds used. File taxes online free   If you used your funds to buy the bond, you must pay the tax on the interest. File taxes online free This is true even if you let the other co-owner redeem the bond and keep all the proceeds. File taxes online free Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. File taxes online free The co-owner who redeemed the bond is a “nominee. File taxes online free ” See Nominee distributions under How To Report Interest Income, later, for more information about how a person who is a nominee reports interest income belonging to another person. File taxes online free Both co-owners' funds used. File taxes online free   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. File taxes online free Community property. File taxes online free   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. File taxes online free If you file separate returns, each of you generally must report one-half of the bond interest. File taxes online free For more information about community property, see Publication 555. File taxes online free Table 1-2. File taxes online free   These rules are also shown in Table 1-2. File taxes online free Child as only owner. File taxes online free   Interest on U. File taxes online free S. File taxes online free savings bonds bought for and registered only in the name of your child is income to your child, even if you paid for the bonds and are named as beneficiary. File taxes online free If the bonds are series EE, series E, or series I bonds, the interest on the bonds is income to your child in the earlier of the year the bonds are cashed or disposed of or the year the bonds mature, unless your child chooses to report the interest income each year. File taxes online free Choice to report interest each year. File taxes online free   The choice to report the accrued interest each year can be made either by your child or by you for your child. File taxes online free This choice is made by filing an income tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. File taxes online free Either you or your child should keep a copy of this return. File taxes online free   Unless your child is otherwise required to file a tax return for any year after making this choice, your child does not have to file a return only to report the annual accrual of U. File taxes online free S. File taxes online free savings bond interest under this choice. File taxes online free However, see Tax on unearned income of certain children , earlier, under General Information. File taxes online free Neither you nor your child can change the way you report the interest unless you request permission from the IRS, as discussed earlier under Change from method 2 . File taxes online free Ownership transferred. File taxes online free   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. File taxes online free But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. File taxes online free   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. File taxes online free Example. File taxes online free You bought series EE bonds entirely with your own funds. File taxes online free You did not choose to report the accrued interest each year. File taxes online free Later, you transfer the bonds to your former spouse under a divorce agreement. File taxes online free You must include the deferred accrued interest, from the date of the original issue of the bonds to the date of transfer, in your income in the year of transfer. File taxes online free Your former spouse includes in income the interest on the bonds from the date of transfer to the date of redemption. File taxes online free Table 1-2. File taxes online free Who Pays the Tax on U. File taxes online free S. File taxes online free Savings Bond Interest IF . File taxes online free . File taxes online free . File taxes online free THEN the interest must be reported by . File taxes online free . File taxes online free . File taxes online free you buy a bond in your name and the name of another person as co-owners, using only your own funds you. File taxes online free you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. File taxes online free you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. File taxes online free you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. File taxes online free If you file separate returns, both you and your spouse generally report one-half of the interest. File taxes online free Purchased jointly. File taxes online free   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. File taxes online free The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. File taxes online free This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. File taxes online free   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. File taxes online free But the new co-owner will report only his or her share of the interest earned after the transfer. File taxes online free   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. File taxes online free Example 1. File taxes online free You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. File taxes online free The bond was issued to you and your spouse as co-owners. File taxes online free You both postpone reporting interest on the bond. File taxes online free You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. File taxes online free At that time neither you nor your spouse has to report the interest earned to the date of reissue. File taxes online free Example 2. File taxes online free You bought a $1,000 series EE savings bond entirely with your own funds. File taxes online free The bond was issued to you and your spouse as co-owners. File taxes online free You both postponed reporting interest on the bond. File taxes online free You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. File taxes online free You must report half the interest earned to the date of reissue. File taxes online free Transfer to a trust. File taxes online free   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. File taxes online free However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. File taxes online free You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. File taxes online free   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. File taxes online free See Savings bonds traded , later. File taxes online free Decedents. File taxes online free   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. File taxes online free Decedent who reported interest each year. File taxes online free   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. File taxes online free The person who acquires the bonds includes in income only interest earned after the date of death. File taxes online free Decedent who postponed reporting interest. File taxes online free   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways. File taxes online free The surviving spouse or personal representative (executor, administrator, etc. File taxes online free ) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. File taxes online free The person who acquires the bonds then includes in income only interest earned after the date of death. File taxes online free If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. File taxes online free All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. File taxes online free If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. File taxes online free In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate. File taxes online free For more information on income in respect of a decedent, see Publication 559, Survivors, Executors, and Administrators. File taxes online free Example 1. File taxes online free Your uncle, a cash method taxpayer, died and left you a $1,000 series EE bond. File taxes online free He had bought the bond for $500 and had not chosen to report the interest each year. File taxes online free At the date of death, interest of $200 had accrued on the bond, and its value of $700 was included in your uncle's estate. File taxes online free Your uncle's executor chose not to include the $200 accrued interest in your uncle's final income tax return. File taxes online free The $200 is income in respect of the decedent. File taxes online free You are a cash method taxpayer and do not choose to report the interest each year as it is earned. File taxes online free If you cash the bond when it reaches maturity value of $1,000, you report $500 interest income—the difference between maturity value of $1,000 and the original cost of $500. File taxes online free For that year, you can deduct (as a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit) any federal estate tax paid because the $200 interest was included in your uncle's estate. File taxes online free Example 2. File taxes online free If, in Example 1 , the executor had chosen to include the $200 accrued interest in your uncle's final return, you would report only $300 as interest when you cashed the bond at maturity. File taxes online free $300 is the interest earned after your uncle's death. File taxes online free Example 3. File taxes online free If, in Example 1 , you make or have made the choice to report the increase in redemption value as interest each year, you include in gross income for the year you acquire the bond all of the unreported increase in value of all series E, series EE, and series I bonds you hold, including the $200 on the bond you inherited from your uncle. File taxes online free Example 4. File taxes online free When your aunt died, she owned series HH bonds that she had acquired in a trade for series EE bonds. File taxes online free You were the beneficiary of these bonds. File taxes online free Your aunt used the cash method and did not choose to report the interest on the series EE bonds each year as it accrued. File taxes online free Your aunt's executor chose not to include any interest earned before your aunt's death on her final return. File taxes online free The income in respect of the decedent is the sum of the unreported interest on the series EE bonds and the interest, if any, payable on the series HH bonds but not received as of the date of your aunt's death. File taxes online free You must report any interest received during the year as income on your return. File taxes online free The part of the interest payable but not received before your aunt's death is income in respect of the decedent and may qualify for the estate tax deduction. File taxes online free For information on when to report the interest on the series EE bonds traded, see Savings bonds traded , later. File taxes online free Savings bonds distributed from a retirement or profit-sharing plan. File taxes online free   If you acquire a U. File taxes online free S. File taxes online free savings bond in a taxable distribution from a retirement or profit-sharing plan, your income for the year of distribution includes the bond's redemption value (its cost plus the interest accrued before the distribution). File taxes online free When you redeem the bond (whether in the year of distribution or later), your interest income includes only the interest accrued after the bond was distributed. File taxes online free To figure the interest reported as a taxable distribution and your interest income when you redeem the bond, see Worksheet for savings bonds distributed from a retirement or profit-sharing plan under How To Report Interest Income, later. File taxes online free Savings bonds traded. File taxes online free   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. File taxes online free (You cannot trade series I bonds for series HH bonds. File taxes online free After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. File taxes online free ) Any cash you received is income up to the amount of the interest earned on the bonds traded. File taxes online free When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. File taxes online free Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. File taxes online free Example. File taxes online free You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. File taxes online free You reported the $223 as taxable income on your tax return. File taxes online free At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. File taxes online free You hold the series HH bonds until maturity, when you receive $2,500. File taxes online free You must report $300 as interest income in the year of maturity. File taxes online free This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). File taxes online free (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. File taxes online free ) Choice to report interest in year of trade. File taxes online free   You could have chosen to treat all of the previously unreported accrued interest on series EE or series E bonds traded for series HH bonds as income in the year of the trade. File taxes online free If you made this choice, it is treated as a change from method 1. File taxes online free See Change from method 1 under Series EE and series I bonds, earlier. File taxes online free Form 1099-INT for U. File taxes online free S. File taxes online free savings bond interest. File taxes online free   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. File taxes online free Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. File taxes online free However, your Form 1099-INT may show more interest than you have to include on your income tax return. File taxes online free For example, this may happen if any of the following are true. File taxes online free You chose to report the increase in the redemption value of the bond each year. File taxes online free The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. File taxes online free You received the bond from a decedent. File taxes online free The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. File taxes online free Ownership of the bond was transferred. File taxes online free The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. File taxes online free You were named as a co-owner, and the other co-owner contributed funds to buy the bond. File taxes online free The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. File taxes online free (See Co-owners , earlier in this section, for more information about the reporting requirements. File taxes online free ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. File taxes online free The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. File taxes online free (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. File taxes online free , for the year of distribution. File taxes online free )   For more information on including the correct amount of interest on your return, see U. File taxes online free S. File taxes online free savings bond interest previously reported or Nominee distributions under How To Report Interest Income, later. File taxes online free    Interest on U. File taxes online free S. File taxes online free savings bonds is exempt from state and local taxes. File taxes online free The Form 1099-INT you receive will indicate the amount that is for U. File taxes online free S. File taxes online free savings bonds interest in box 3. File taxes online free Do not include this income on your state or local income tax return. File taxes online free Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. File taxes online free S. File taxes online free savings bonds during the year if you pay qualified higher educational expenses during the same year. File taxes online free This exclusion is known as the Education Savings Bond Program. File taxes online free You do not qualify for this exclusion if your filing status is married filing separately. File taxes online free Form 8815. File taxes online free   Use Form 8815 to figure your exclusion. File taxes online free Attach the form to your Form 1040 or Form 1040A. File taxes online free Qualified U. File taxes online free S. File taxes online free savings bonds. File taxes online free   A qualified U. File taxes online free S. File taxes online free savings bond is a series EE bond issued after 1989 or a series I bond. File taxes online free The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). File taxes online free You must be at least 24 years old before the bond's issue date. File taxes online free For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. File taxes online free    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. File taxes online free Beneficiary. File taxes online free   You can designate any individual (including a child) as a beneficiary of the bond. File taxes online free Verification by IRS. File taxes online free   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of Treasury. File taxes online free Qualified expenses. File taxes online free   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. File taxes online free   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. File taxes online free For information about these programs, see Publication 970, Tax Benefits for Education. File taxes online free   Qualified 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. File taxes online free Eligible educational institutions. File taxes online free   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the Department of Education. File taxes online free Reduction for certain benefits. File taxes online free   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. File taxes online free Tax-free part of scholarships and fellowships. File taxes online free Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. File taxes online free Expenses used to figure the tax-free portion of distributions from a qualified tuition program. File taxes online free Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. File taxes online free Any expense used in figuring the American Opportunity and lifetime learning credits. File taxes online free For information about these benefits, see Publication 970. File taxes online free Amount excludable. File taxes online free   If the total proceeds (interest and principal) from the qualified U. File taxes online free S. File taxes online free savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. File taxes online free If the proceeds are more than the expenses, you may be able to exclude only part of the interest. File taxes online free   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. File taxes online free The numer