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Free State Tax Preparation

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Free State Tax Preparation

Free state tax preparation Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Free state tax preparation Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Free state tax preparation Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Free state tax preparation Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Free state tax preparation It is intended only as a guide. Free state tax preparation Look in this publication for more complete information. Free state tax preparation   Appendix A. Free state tax preparation Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Free state tax preparation Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Free state tax preparation Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Free state tax preparation Sean enrolled as a full-time graduate student in August 2013 at California State College. Free state tax preparation He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Free state tax preparation His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Free state tax preparation Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Free state tax preparation In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Free state tax preparation California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Free state tax preparation California State College reports amounts billed in 2013 instead of amounts paid during 2013. Free state tax preparation In completing Form 8863, the Joneses use the amounts they paid. Free state tax preparation Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Free state tax preparation Dave and Valerie figure their education credits by completing Form 8863. Free state tax preparation They begin Form 8863 on page 2 before completing Part I on page 1. Free state tax preparation Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Free state tax preparation The Joneses decide to complete Part III for Carey first, as shown later. Free state tax preparation They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Free state tax preparation The Joneses complete a separate Part III for their son Sean. Free state tax preparation They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Free state tax preparation They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Free state tax preparation Once they have completed Part III for each student, they figure their credits. Free state tax preparation The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Free state tax preparation They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Free state tax preparation The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Free state tax preparation They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Free state tax preparation They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Free state tax preparation The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Free state tax preparation The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Free state tax preparation They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Free state tax preparation This image is too large to be displayed in the current screen. Free state tax preparation Please click the link to view the image. Free state tax preparation Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Free state tax preparation Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Free state tax preparation Less adjustments:     a. Free state tax preparation Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Free state tax preparation Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Free state tax preparation Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Free state tax preparation Total adjustments (add lines 2a, 2b, and 2c) 0 4. Free state tax preparation Adjusted qualified education expenses. Free state tax preparation Subtract line 3 from line 1. Free state tax preparation If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Free state tax preparation Please click the link to view the image. Free state tax preparation Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Free state tax preparation Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Free state tax preparation Less adjustments:     a. Free state tax preparation Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Free state tax preparation Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Free state tax preparation Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Free state tax preparation Total adjustments (add lines 2a, 2b, and 2c) 0 4. Free state tax preparation Adjusted qualified education expenses. Free state tax preparation Subtract line 3 from line 1. Free state tax preparation If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Free state tax preparation Enter the amount from Form 8863, line 18 1. Free state tax preparation 1,190 2. Free state tax preparation Enter the amount from Form 8863, line 9 2. Free state tax preparation 1,500 3. Free state tax preparation Add lines 1 and 2 3. Free state tax preparation 2,690 4. Free state tax preparation Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Free state tax preparation 1,000 5. Free state tax preparation Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Free state tax preparation 0 6. Free state tax preparation Subtract line 5 from line 4 6. Free state tax preparation 1,000 7. Free state tax preparation   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Free state tax preparation 1,000 This image is too large to be displayed in the current screen. Free state tax preparation Please click the link to view the image. Free state tax preparation Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Free state tax preparation Please click the link to view the image. Free state tax preparation Carey Jones page 2 This image is too large to be displayed in the current screen. Free state tax preparation Please click the link to view the image. Free state tax preparation Filled-in Form 8863 Jones page 2 Appendix B. Free state tax preparation Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Free state tax preparation See the text for definitions and details. Free state tax preparation Do not rely on this chart alone. Free state tax preparation    Caution:You generally cannot claim more than one benefit for the same education expense. Free state tax preparation   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Free state tax preparation    40% of the credit may be refundable (limited to $1,000 per student). Free state tax preparation Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Free state tax preparation , that must be paid to the educational institution, etc. Free state tax preparation , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Free state tax preparation   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Free state tax preparation Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Free state tax preparation For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Free state tax preparation For each term listed below that has more than one definition, the definition for each education benefit is listed. Free state tax preparation Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Free state tax preparation If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Free state tax preparation Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Free state tax preparation They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Free state tax preparation For information on a specific benefit, see the appropriate chapter in this publication. Free state tax preparation Candidate for a degree:   A student who meets either of the following requirements. Free state tax preparation Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Free state tax preparation Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Free state tax preparation Eligible educational institution:    American opportunity credit. Free state tax preparation Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free state tax preparation It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free state tax preparation Coverdell education savings account (ESA). Free state tax preparation Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free state tax preparation It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free state tax preparation Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Free state tax preparation Education savings bond program. Free state tax preparation Same as American opportunity credit in this category. Free state tax preparation IRA, early distributions from. Free state tax preparation Same as American opportunity credit in this category. Free state tax preparation Lifetime learning credit. Free state tax preparation Same as American opportunity credit in this category. Free state tax preparation Qualified tuition program (QTP). Free state tax preparation Same as American opportunity credit in this category. Free state tax preparation Scholarships and fellowships. Free state tax preparation An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free state tax preparation Student loan, cancellation of. Free state tax preparation Same as Scholarships and fellowships in this category. Free state tax preparation Student loan interest deduction. Free state tax preparation Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free state tax preparation It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free state tax preparation Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Free state tax preparation Tuition and fees deduction. Free state tax preparation Same as American opportunity credit in this category. Free state tax preparation Eligible student:    American opportunity credit. Free state tax preparation A student who meets all of the following requirements for the tax year for which the credit is being determined. Free state tax preparation Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Free state tax preparation Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Free state tax preparation For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Free state tax preparation Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Free state tax preparation Lifetime learning credit. Free state tax preparation A student who is enrolled in one or more courses at an eligible educational institution. Free state tax preparation Student loan interest deduction. Free state tax preparation A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Free state tax preparation Tuition and fees deduction. Free state tax preparation A student who is enrolled in one or more courses at an eligible educational institution. Free state tax preparation Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Free state tax preparation Modified adjusted gross income (MAGI):    American opportunity credit. Free state tax preparation Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free state tax preparation Coverdell education savings account (ESA). Free state tax preparation Same as American opportunity credit in this category. Free state tax preparation Education savings bond program. Free state tax preparation Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Free state tax preparation Lifetime learning credit. Free state tax preparation Same as American opportunity credit in this category. Free state tax preparation Student loan interest deduction. Free state tax preparation Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free state tax preparation Tuition and fees deduction. Free state tax preparation Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free state tax preparation Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Free state tax preparation Qualified education expenses:   See pertinent chapter for specific items. Free state tax preparation    American opportunity credit. Free state tax preparation Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Free state tax preparation Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Free state tax preparation Does not include expenses for room and board. Free state tax preparation Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Free state tax preparation Coverdell education savings account (ESA). Free state tax preparation Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Free state tax preparation Many specialized expenses included for K–12. Free state tax preparation Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Free state tax preparation Education savings bond program. Free state tax preparation Tuition and fees required to enroll at or attend an eligible educational institution. Free state tax preparation Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Free state tax preparation Does not include expenses for room and board. Free state tax preparation Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free state tax preparation IRA, early distributions from. Free state tax preparation Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Free state tax preparation Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Free state tax preparation Lifetime learning credit. Free state tax preparation Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Free state tax preparation Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Free state tax preparation Does not include expenses for room and board. Free state tax preparation Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Free state tax preparation Qualified tuition program (QTP). Free state tax preparation Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Free state tax preparation Includes expenses for special needs services and computer access. Free state tax preparation Scholarships and fellowships. Free state tax preparation Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Free state tax preparation Course-related items must be required of all students in the course of instruction. Free state tax preparation Student loan interest deduction. Free state tax preparation Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Free state tax preparation Tuition and fees deduction. Free state tax preparation Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Free state tax preparation Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Free state tax preparation Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Free state tax preparation To include as tax on your current year's return an amount allowed as a credit in a prior year. Free state tax preparation Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Free state tax preparation Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Free state tax preparation Prev  Up  Next   Home   More Online Publications
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The Free State Tax Preparation

Free state tax preparation Publication 597 - Main Content Table of Contents Application of Treaty Personal Services Pensions, Annuities, Social Security, and AlimonyRoth IRAs. Free state tax preparation Tax-deferred plans. Free state tax preparation Investment Income From Canadian Sources Other Income Charitable ContributionsQualified charities. Free state tax preparation Income Tax Credits Competent Authority Assistance How To Get Tax HelpText of Treaty U. Free state tax preparation S. Free state tax preparation Taxation Canadian Taxation Application of Treaty The benefits of the income tax treaty are generally provided on the basis of residence for income tax purposes. Free state tax preparation That is, a person who is recognized as a resident of the United States who has income from Canada, will often pay less income tax to Canada on that income than if no treaty was in effect. Free state tax preparation Article IV provides definitions of residents of Canada and the United States, and provides specific criteria for applying the treaty in cases where a taxpayer is considered by both countries to be a resident. Free state tax preparation Saving clause. Free state tax preparation   In most instances, a treaty does not affect the right of a country to tax its own residents (including those who are U. Free state tax preparation S. Free state tax preparation citizens) or of the United States to tax its residents or citizens (including U. Free state tax preparation S. Free state tax preparation citizens who are residents of the foreign country). Free state tax preparation This provision is known as the “saving clause. Free state tax preparation ”   For example, an individual who is a U. Free state tax preparation S. Free state tax preparation citizen and a resident of Canada may have dividend income from a U. Free state tax preparation S. Free state tax preparation corporation. Free state tax preparation The treaty provides a maximum rate of 15% on dividends received by a resident of Canada from sources in the United States. Free state tax preparation Even though a resident of Canada, the individual is a U. Free state tax preparation S. Free state tax preparation citizen and the saving clause overrides the treaty article that limits the U. Free state tax preparation S. Free state tax preparation tax to 15%. Free state tax preparation    Exceptions to the saving clause can be found in Article XXIX, paragraph 3. Free state tax preparation Treaty-based position. Free state tax preparation   If you take the position that any U. Free state tax preparation S. Free state tax preparation tax is overruled or otherwise reduced by a U. Free state tax preparation S. Free state tax preparation treaty (a treaty-based position), you generally must disclose that position on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and attach it to your return. Free state tax preparation Personal Services A U. Free state tax preparation S. Free state tax preparation citizen or resident who is temporarily present in Canada during the tax year is exempt from Canadian income taxes on pay for services performed, or remittances received from the United States, if the citizen or resident qualifies under one of the treaty exemption provisions set out below. Free state tax preparation Income from employment (Article XV). Free state tax preparation   Income U. Free state tax preparation S. Free state tax preparation residents receive for the performance of dependent personal services in Canada (except as public entertainers) is exempt from Canadian tax if it is not more than $10,000 in Canadian currency for the year. Free state tax preparation If it is more than $10,000 for the year, it is exempt only if: The residents are present in Canada for no more than 183 days in any 12-month period beginning or ending in the year concerned, and The income is not paid by, or on behalf of, a Canadian resident and is not borne by a permanent establishment in Canada. Free state tax preparation    Whether there is a permanent establishment in Canada is determined by the rules set forth in Article V. Free state tax preparation Example. Free state tax preparation You are a U. Free state tax preparation S. Free state tax preparation resident employed under an 8-month contract with a Canadian firm to install equipment in their Montreal plant. Free state tax preparation During the calendar year you were physically present in Canada for 179 days and were paid $16,500 (Canadian) for your services. Free state tax preparation Although you were in Canada for not more than 183 days during the year, your income is not exempt from Canadian income tax because it was paid by a Canadian resident and was more than $10,000 (Canadian) for the year. Free state tax preparation Pay received by a U. Free state tax preparation S. Free state tax preparation resident for work regularly done in more than one country as an employee on a ship, aircraft, motor vehicle, or train operated by a U. Free state tax preparation S. Free state tax preparation resident is exempt from Canadian tax. Free state tax preparation Income from self-employment (Article VII). Free state tax preparation   Income from services performed (other than those performed as an employee) are taxed in Canada if they are attributable to a permanent establishment in Canada. Free state tax preparation This income is treated as business profits, and deductions similar to those allowed under U. Free state tax preparation S. Free state tax preparation law are allowable. Free state tax preparation   If you carry on (or have carried on) business in both Canada and the United States, the business profits are attributable to each country based on the profits that the permanent establishment might be expected to make if it were a distinct and separate person engaged in the same or similar activities. Free state tax preparation The business profits attributable to the permanent establishment include only those profits derived from assets used, risks assumed, and activities performed by the permanent establishment. Free state tax preparation   You may be considered to have a permanent establishment if you meet certain conditions. Free state tax preparation For more information, see Article V (Permanent Establishment) and Article VII (Business Profits). Free state tax preparation Public entertainers (Article XVI). Free state tax preparation   The provisions under income from employment or income from self-employment do not apply to public entertainers (such as theater, motion picture, radio, or television artistes, musicians, or athletes) from the United States who receive more than $15,000 in gross receipts in Canadian currency, including reimbursed expenses, from their entertainment activities in Canada during the calendar year. Free state tax preparation However, this provision for public entertainers does not apply (and the other provisions will apply) to athletes participating in team sports in leagues with regularly scheduled games in both the United States and Canada. Free state tax preparation Compensation paid by the U. Free state tax preparation S. Free state tax preparation Government (Article XIX). Free state tax preparation   Wages, salaries, and similar income (other than pensions) paid to a U. Free state tax preparation S. Free state tax preparation citizen by the United States or any of its agencies, instrumentalities, or political subdivisions for discharging governmental functions are exempt from Canadian income tax. Free state tax preparation   The exemption does not apply to pay for services performed in connection with any trade or business carried on for profit by the United States, or any of its agencies, instrumentalities, or political subdivisions. Free state tax preparation Students and apprentices (Article XX). Free state tax preparation   A full-time student, apprentice, or business trainee who is in Canada to study or acquire business experience is exempt from Canadian income tax on remittances received from any source outside Canada for maintenance, education, or training. Free state tax preparation The recipient must be or must have been a U. Free state tax preparation S. Free state tax preparation resident immediately before visiting Canada. Free state tax preparation   An apprentice or business trainee can claim this exemption only for a period of one year from the date the individual first arrived in Canada for the purpose of training. Free state tax preparation Pensions, Annuities, Social Security, and Alimony Under Article XVIII, pensions and annuities from Canadian sources paid to U. Free state tax preparation S. Free state tax preparation residents are subject to tax by Canada, but the tax is limited to 15% of the gross amount (if a periodic pension payment) or of the taxable amount (if an annuity). Free state tax preparation Canadian pensions and annuities paid to U. Free state tax preparation S. Free state tax preparation residents may be taxed by the United States, but the amount of any pension included in income for U. Free state tax preparation S. Free state tax preparation tax purposes may not be more than the amount that would be included in income in Canada if the recipient were a Canadian resident. Free state tax preparation Pensions. Free state tax preparation   A pension includes any payment under a pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances, and payments under a sickness, accident, or disability plan. Free state tax preparation It includes pensions paid by private employers and the government for services rendered. Free state tax preparation   Pensions also include payments from individual retirement arrangements (IRAs) in the United States, registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in Canada. Free state tax preparation   Pensions do not include social security benefits. Free state tax preparation Roth IRAs. Free state tax preparation   A distribution from a Roth IRA is exempt from Canadian tax to the extent it would be exempt from U. Free state tax preparation S. Free state tax preparation tax if paid to a U. Free state tax preparation S. Free state tax preparation resident. Free state tax preparation In addition, you may elect to defer any tax in Canada on income accrued within the Roth IRA but not distributed by the Roth IRA. Free state tax preparation However, you cannot defer tax on any accruals due to contributions made after you become a Canadian resident. Free state tax preparation Tax-deferred plans. Free state tax preparation   Generally, income that accrues in a Canadian RRSP or RRIF is subject to U. Free state tax preparation S. Free state tax preparation tax, even if it is not distributed. Free state tax preparation However, a U. Free state tax preparation S. Free state tax preparation citizen or resident can elect to defer U. Free state tax preparation S. Free state tax preparation tax on income from the plan until the income is distributed. Free state tax preparation Form 8891 is used to make the election. Free state tax preparation Annuities. Free state tax preparation    An annuity is a stated sum payable periodically at stated times, during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered). Free state tax preparation Annuities do not include: Non-periodic payments, or An annuity the cost of which was deductible for tax purposes. Free state tax preparation Special rules. Free state tax preparation    Special rules apply to pensions and annuities with respect to: Short-term assignments, Cross-border commuters, and Individuals who participate in a Canadian qualifying plan. Free state tax preparation Generally, distributions in such cases are deemed to be earned in the country in which the plan is established, without regard to where the services were rendered. Free state tax preparation Social security benefits. Free state tax preparation   U. Free state tax preparation S. Free state tax preparation social security benefits paid to a resident of Canada are taxed in Canada as if they were benefits under the Canada Pension Plan, except that 15% of the amount of the benefit is exempt from Canadian tax. Free state tax preparation Alimony. Free state tax preparation   Alimony and similar amounts (including child support payments) from Canadian sources paid to U. Free state tax preparation S. Free state tax preparation residents are exempt from Canadian tax. Free state tax preparation For purposes of U. Free state tax preparation S. Free state tax preparation tax, these amounts are excluded from income to the same extent they would be excluded from income in Canada if the recipient was a Canadian resident. Free state tax preparation Investment Income From Canadian Sources The treaty provides beneficial treatment for certain items of Canadian source income that result from an investment of capital. Free state tax preparation Dividends (Article X). Free state tax preparation   For Canadian source dividends received by U. Free state tax preparation S. Free state tax preparation residents, the Canadian income tax generally may not be more than 15%. Free state tax preparation   A 5% rate applies to intercorporate dividends paid from a subsidiary to a parent corporation owning at least 10% of the subsidiary's voting stock. Free state tax preparation However, a 10% rate applies if the payer of the dividend is a nonresident-owned Canadian investment corporation. Free state tax preparation   These rates do not apply if the owner of the dividends carries on, or has carried on, a business in Canada through a permanent establishment and the holding on which the income is paid is effectively connected with that permanent establishment. Free state tax preparation Interest (Article XI). Free state tax preparation   Generally, Canadian source interest received by U. Free state tax preparation S. Free state tax preparation residents is exempt from Canadian income tax. Free state tax preparation   The exemption does not apply if the owner of the interest carries on, or has carried on, a business in Canada through a permanent establishment and the debt on which the income is paid is effectively connected with that permanent establishment. Free state tax preparation Gains from the sale of property (Article XIII). Free state tax preparation   Generally, gains from the sale of personal property by a U. Free state tax preparation S. Free state tax preparation resident having no permanent establishment in Canada are exempt from Canadian income tax. Free state tax preparation However, the exemption from Canadian tax does not apply to gains realized by U. Free state tax preparation S. Free state tax preparation residents on Canadian real property, and on personal property belonging to a permanent establishment in Canada. Free state tax preparation   If the property subject to Canadian tax is a capital asset and was owned by the U. Free state tax preparation S. Free state tax preparation resident on September 26, 1980, not as part of the business property of a permanent establishment in Canada, generally the taxable gain is limited to the appreciation after 1984. Free state tax preparation Royalties (Article XII). Free state tax preparation   The following are exempt from Canadian tax: Copyright royalties and other like payments for the production or reproduction of any literary, dramatic, musical, or artistic work (other than payments for motion pictures and works on film, videotape, or other means of reproduction for use in connection with television, which may be taxed at 10%), Payments for the use of, or the right to use, computer software, Payments for the use of, or the right to use, any patent or any information concerning industrial, commercial, or scientific experience (but not within a rental or franchise agreement), and Payments for broadcasting as agreed to in an exchange of notes between the countries. Free state tax preparation   This rate or exemption does not apply if the owner of the royalties carries on, or has carried on, a business in Canada through a permanent establishment and the right or property on which the income is paid is effectively connected with that permanent establishment. Free state tax preparation   This exemption (or lower rate) does not apply to royalties to explore for or to exploit mineral deposits, timber, and other natural resources. Free state tax preparation Other Income Generally, Canadian source income that is not specifically mentioned in the treaty, may be taxed by Canada. Free state tax preparation Gambling losses. Free state tax preparation   Canadian residents may deduct gambling losses in the U. Free state tax preparation S. Free state tax preparation against gambling winnings in the U. Free state tax preparation S. Free state tax preparation in the same manner as a U. Free state tax preparation S. Free state tax preparation resident. Free state tax preparation Charitable Contributions United States income tax return. Free state tax preparation   Under Article XXI, you may deduct contributions to certain qualified Canadian charitable organizations on your United States income tax return. Free state tax preparation Besides being subject to the overall limits applicable to all your charitable contributions under U. Free state tax preparation S. Free state tax preparation tax law, your charitable contributions to Canadian organizations (other than contributions to a college or university at which you or a member of your family is or was enrolled) are subject to the U. Free state tax preparation S. Free state tax preparation percentage limits on charitable contributions, applied to your Canadian source income. Free state tax preparation If your return does not include gross income from Canadian sources, charitable contributions to Canadian organizations are generally not deductible. Free state tax preparation Example. Free state tax preparation You are a U. Free state tax preparation S. Free state tax preparation citizen living in Canada. Free state tax preparation You have both U. Free state tax preparation S. Free state tax preparation and Canadian source income. Free state tax preparation During your tax year, you contribute to Canadian organizations that would qualify as charitable organizations under U. Free state tax preparation S. Free state tax preparation tax law if they were U. Free state tax preparation S. Free state tax preparation organizations. Free state tax preparation To figure the maximum amount of the contribution to Canadian organizations that you can deduct on your U. Free state tax preparation S. Free state tax preparation income tax return, multiply your adjusted gross income from Canadian sources by the percentage limit that applies to contributions under U. Free state tax preparation S. Free state tax preparation income tax law. Free state tax preparation Then include this amount on your return along with all your domestic charitable contributions, subject to the appropriate percentage limit required for contributions under U. Free state tax preparation S. Free state tax preparation income tax law. Free state tax preparation The appropriate percentage limit for U. Free state tax preparation S. Free state tax preparation tax purposes is applied to your total adjusted gross income from all sources. Free state tax preparation Qualified charities. Free state tax preparation   These Canadian organizations must meet the qualifications that a U. Free state tax preparation S. Free state tax preparation charitable organization must meet under U. Free state tax preparation S. Free state tax preparation tax law. Free state tax preparation Usually an organization will notify you if it qualifies. Free state tax preparation For further information on charitable contributions and the U. Free state tax preparation S. Free state tax preparation percentage limits, see Publication 526, Charitable Contributions. Free state tax preparation Canadian income tax return. Free state tax preparation   Under certain conditions, contributions to qualified U. Free state tax preparation S. Free state tax preparation charitable organizations may also be claimed on your Canadian income tax return if you are a Canadian resident. Free state tax preparation Income Tax Credits The treaty contains a credit provision (Article XXIV) for the elimination of double taxation. Free state tax preparation In general, the United States and Canada both allow a credit against their income tax for the income tax paid to the other country on income from sources in that other country. Free state tax preparation For detailed discussions of the U. Free state tax preparation S. Free state tax preparation income tax treatment of tax paid to foreign countries, see Publication 514, Foreign Tax Credit for Individuals. Free state tax preparation See paragraphs (4) and (5) of Article XXIV for certain provisions that affect the computation of the credit allowed by the United States for Canadian income taxes paid by U. Free state tax preparation S. Free state tax preparation citizens residing in Canada. Free state tax preparation Competent Authority Assistance Under Article XXVI, a U. Free state tax preparation S. Free state tax preparation citizen or resident may request assistance from the U. Free state tax preparation S. Free state tax preparation competent authority when the actions of Canada, the United States, or both, potentially result in double taxation or taxation contrary to the treaty. Free state tax preparation The U. Free state tax preparation S. Free state tax preparation competent authority may then consult with the Canadian competent authority to determine if the double taxation or denial of treaty benefits in question can be avoided. Free state tax preparation If the competent authorities are not able to reach agreement in a case, binding arbitration proceedings may apply. Free state tax preparation It is important that your request for competent authority assistance be made as soon as you have been notified by either Canada or the United States of proposed adjustments that would result in denial of treaty benefits or in double taxation. Free state tax preparation This is so that implementation of any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. Free state tax preparation For information that you should include with your request for competent authority assistance, see Revenue Procedure 2006-54, 2006-49 IRB 1035, available at www. Free state tax preparation irs. Free state tax preparation gov/irb/2006-49_IRB/ar13. Free state tax preparation html. Free state tax preparation The request should be addressed to:  Deputy Commissioner (International) Large Business and International Division Attn: Office of Tax Treaty  Internal Revenue Service 1111 Constitution Ave. Free state tax preparation , NW Routing: MA3-322A Washington, D. Free state tax preparation C. Free state tax preparation 20024 In addition to a timely request for assistance, you should take the following measures: File a timely protective claim for credit or refund of U. Free state tax preparation S. Free state tax preparation taxes on Form 1040X, Form 1120X, or amended Form 1041, whichever is appropriate. Free state tax preparation This will, among other things, give you the benefit of a foreign tax credit in case you do not qualify for the treaty benefit in question. Free state tax preparation For figuring this credit, attach either Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), or Form 1118, Foreign Tax Credit — Corporations, as appropriate. Free state tax preparation Attach your protective claim to your request for competent authority assistance. Free state tax preparation Take appropriate action under Canadian procedures to avoid the lapse or termination of your right of appeal under Canadian income tax law. Free state tax preparation How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS and the Canada Revenue Agency in several ways. Free state tax preparation Text of Treaty You can get the text of the U. Free state tax preparation S. Free state tax preparation —Canada income tax treaty from: Superintendent of Documents U. Free state tax preparation S. Free state tax preparation Government Printing Office P. Free state tax preparation O. Free state tax preparation Box 371954 Pittsburgh, PA 15250-7954 The treaty can also be found on the Internet at IRS. Free state tax preparation gov. Free state tax preparation U. Free state tax preparation S. Free state tax preparation Taxation During the filing season, the IRS conducts a taxpayer assistance program in Canada. Free state tax preparation To find out if IRS personnel will be in your area, you should contact the consular office at the nearest U. Free state tax preparation S. Free state tax preparation Embassy or consulate. Free state tax preparation Mail. Free state tax preparation For answers to technical or account questions, you can write to:   Internal Revenue Service International Section Philadelphia, PA 19255-0525 Phone. Free state tax preparation You can call the IRS for help at (267) 941-1000 (not a toll-free call). Free state tax preparation Canadian Taxation You can get information on Canadian taxation from the Canada Revenue Agency. Free state tax preparation The International Tax Services Office can be contacted on 1-800-267-5177 (from anywhere in Canada and the U. Free state tax preparation S. Free state tax preparation ) or on the Internet at www. Free state tax preparation cra-arc. Free state tax preparation gc. Free state tax preparation ca. Free state tax preparation Prev  Up  Next   Home   More Online Publications