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Free tax preparation services Publication 939 - Main Content Table of Contents General Information Taxation of Periodic PaymentsInvestment in the Contract Expected Return Computation Under the General Rule How To Use Actuarial TablesUnisex Annuity Tables Special Elections Worksheets for Determining Taxable Annuity Actuarial Tables Requesting a Ruling on Taxation of Annuity How To Get Tax HelpLow Income Taxpayer Clinics General Information Some of the terms used in this publication are defined in the following paragraphs. Free tax preparation services A pension is generally a series of payments made to you after you retire from work. Free tax preparation services Pension payments are made regularly and are for past services with an employer. Free tax preparation services An annuity is a series of payments under a contract. Free tax preparation services You can buy the contract alone or you can buy it with the help of your employer. Free tax preparation services Annuity payments are made regularly for more than one full year. Free tax preparation services Note. Free tax preparation services Distributions from pensions and annuities follow the same rules as outlined in this publication unless otherwise noted. Free tax preparation services Types of pensions and annuities. Free tax preparation services   Particular types of pensions and annuities include: Fixed period annuities. Free tax preparation services You receive definite amounts at regular intervals for a definite length of time. Free tax preparation services Annuities for a single life. Free tax preparation services You receive definite amounts at regular intervals for life. Free tax preparation services The payments end at death. Free tax preparation services Joint and survivor annuities. Free tax preparation services The first annuitant receives a definite amount at regular intervals for life. Free tax preparation services After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Free tax preparation services The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Free tax preparation services Variable annuities. Free tax preparation services You receive payments that may vary in amount for a definite length of time or for life. Free tax preparation services The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds or cost-of-living indexes. Free tax preparation services Disability pensions. Free tax preparation services You are under minimum retirement age and receive payments because you retired on disability. Free tax preparation services If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled discussed in Publication 524. Free tax preparation services If your annuity starting date is after November 18, 1996, the General Rule cannot be used for the following qualified plans. Free tax preparation services A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries. Free tax preparation services This plan must meet Internal Revenue Code requirements. Free tax preparation services It qualifies for special tax benefits, including tax deferral for employer contributions and rollover distributions. Free tax preparation services However, you must use the General Rule if you were 75 or over and the annuity payments are guaranteed for more than 5 years. Free tax preparation services A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Free tax preparation services A tax-sheltered annuity is a special annuity plan or contract purchased for an employee of a public school or tax-exempt organization. Free tax preparation services   The General Rule is used to figure the tax treatment of various types of pensions and annuities, including nonqualified employee plans. Free tax preparation services A nonqualified employee plan is an employer's plan that does not meet Internal Revenue Code requirements. Free tax preparation services It does not qualify for most of the tax benefits of a qualified plan. Free tax preparation services Annuity worksheets. Free tax preparation services   The worksheets found near the end of the text of this publication may be useful to you in figuring the taxable part of your annuity. Free tax preparation services Request for a ruling. Free tax preparation services   If you are unable to determine the income tax treatment of your pension or annuity, you may ask the Internal Revenue Service to figure the taxable part of your annuity payments. Free tax preparation services This is treated as a request for a ruling. Free tax preparation services See Requesting a Ruling on Taxation of Annuity near the end of this publication. Free tax preparation services Withholding tax and estimated tax. Free tax preparation services   Your pension or annuity is subject to federal income tax withholding unless you choose not to have tax withheld. Free tax preparation services If you choose not to have tax withheld from your pension or annuity, or if you do not have enough income tax withheld, you may have to make estimated tax payments. Free tax preparation services Taxation of Periodic Payments This section explains how the periodic payments you receive under a pension or annuity plan are taxed under the General Rule. Free tax preparation services Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Free tax preparation services These payments are also known as amounts received as an annuity. Free tax preparation services If you receive an amount from your plan that is a nonperiodic payment (amount not received as an annuity), see Taxation of Nonperiodic Payments in Publication 575. Free tax preparation services In general, you can recover your net cost of the pension or annuity tax free over the period you are to receive the payments. Free tax preparation services The amount of each payment that is more than the part that represents your net cost is taxable. Free tax preparation services Under the General Rule, the part of each annuity payment that represents your net cost is in the same proportion that your investment in the contract is to your expected return. Free tax preparation services These terms are explained in the following discussions. Free tax preparation services Investment in the Contract In figuring how much of your pension or annuity is taxable under the General Rule, you must figure your investment in the contract. Free tax preparation services First, find your net cost of the contract as of the annuity starting date (defined later). Free tax preparation services To find this amount, you must first figure the total premiums, contributions, or other amounts paid. Free tax preparation services This includes the amounts your employer contributed if you were required to include these amounts in income. Free tax preparation services It also includes amounts you actually contributed (except amounts for health and accident benefits and deductible voluntary employee contributions). Free tax preparation services From this total cost you subtract: Any refunded premiums, rebates, dividends, or unrepaid loans (any of which were not included in your income) that you received by the later of the annuity starting date or the date on which you received your first payment. Free tax preparation services Any additional premiums paid for double indemnity or disability benefits. Free tax preparation services Any other tax-free amounts you received under the contract or plan before the later of the dates in (1). Free tax preparation services The annuity starting date   is the later of the first day of the first period for which you receive payment under the contract or the date on which the obligation under the contract becomes fixed. Free tax preparation services Example. Free tax preparation services On January 1 you completed all your payments required under an annuity contract providing for monthly payments starting on August 1, for the period beginning July 1. Free tax preparation services The annuity starting date is July 1. Free tax preparation services This is the date you use in figuring your investment in the contract and your expected return (discussed later). Free tax preparation services Adjustments If any of the following items apply, adjust (add or subtract) your total cost to find your net cost. Free tax preparation services Foreign employment. Free tax preparation services   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Free tax preparation services The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (without regard to the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer on your behalf if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) if the contributions would be excludible from your gross income had they been paid directly to you. Free tax preparation services Foreign employment contributions while a nonresident alien. Free tax preparation services   In determining your cost, special rules apply if you are a U. Free tax preparation services S. Free tax preparation services citizen or resident alien who received distributions from a plan to which contributions were made while you were a nonresident alien. Free tax preparation services Your contributions and your employer's contributions are not included in your cost if the contributions: Were made based on compensation which was for services performed outside the United States which you were a nonresident alien, and Were not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if they had been paid as cash compensation when the services were performed. Free tax preparation services Death benefit exclusion. Free tax preparation services   If you are the beneficiary of a deceased employee (or former employee), who died before August 21, 1996, you may qualify for a death benefit exclusion of up to $5,000. Free tax preparation services The beneficiary of a deceased employee who died after August 20, 1996, will not qualify for the death benefit exclusion. Free tax preparation services How to adjust your total cost. Free tax preparation services   If you are eligible, treat the amount of any allowable death benefit exclusion as additional cost paid by the employee. Free tax preparation services Add it to the cost or unrecovered cost of the annuity at the annuity starting date. Free tax preparation services See Example 3 under Computation Under General Rule for an illustration of the adjustment to the cost of the contract. Free tax preparation services Net cost. Free tax preparation services   Your total cost plus certain adjustments and minus other amounts already recovered before the annuity starting date is your net cost. Free tax preparation services This is the unrecovered investment in the contract as of the annuity starting date. Free tax preparation services If your annuity starting date is after 1986, this is the maximum amount that you may recover tax free under the contract. Free tax preparation services Refund feature. Free tax preparation services   Adjustment for the value of the refund feature is only applicable when you report your pension or annuity under the General Rule. Free tax preparation services Your annuity contract has a refund feature if: The expected return ( discussed later) of an annuity depends entirely or partly on the life of one or more individuals, The contract provides that payments will be made to a beneficiary or the estate of an annuitant on or after the death of the annuitant if a stated amount or a stated number of payments has not been paid to the annuitant or annuitants before death, and The payments are a refund of the amount you paid for the annuity contract. Free tax preparation services   If your annuity has a refund feature, you must reduce your net cost of the contract by the value of the refund feature (figured using Table III or VII at the end of this publication, also see How To Use Actuarial Tables , later) to find the investment in the contract. Free tax preparation services Zero value of refund feature. Free tax preparation services   For a joint and survivor annuity, the value of the refund feature is zero if: Both annuitants are age 74 or younger, The payments are guaranteed for less than 2½ years, and The survivor's annuity is at least 50% of the first annuitant's annuity. Free tax preparation services   For a single-life annuity without survivor benefit, the value of the refund feature is zero if: The payments are guaranteed for less than 2½ years, and The annuitant is: Age 57 or younger (if using the new (unisex) annuity tables), Age 42 or younger (if male and using the old annuity tables), or Age 47 or younger (if female and using the old annuity tables). Free tax preparation services   If you do not meet these requirements, you will have to figure the value of the refund feature, as explained in the following discussion. Free tax preparation services Examples. Free tax preparation services The first example shows how to figure the value of the refund feature when there is only one beneficiary. Free tax preparation services Example 2 shows how to figure the value of the refund feature when the contract provides, in addition to a whole life annuity, one or more temporary life annuities for the lives of children. Free tax preparation services In both examples, the taxpayer elects to use Tables V through VIII. Free tax preparation services If you need the value of the refund feature for a joint and survivor annuity, write to the Internal Revenue Service as explained under Requesting a Ruling on Taxation of Annuity near the end of this publication. Free tax preparation services Example 1. Free tax preparation services At age 65, Barbara bought for $21,053 an annuity with a refund feature. Free tax preparation services She will get $100 a month for life. Free tax preparation services Barbara's contract provides that if she does not live long enough to recover the full $21,053, similar payments will be made to her surviving beneficiary until a total of $21,053 has been paid under the contract. Free tax preparation services In this case, the contract cost and the total guaranteed return are the same ($21,053). Free tax preparation services Barbara's investment in the contract is figured as follows: Net cost $21,053 Amount to be received annually $1,200   Number of years for which payment is guaranteed ($21,053 divided by $1,200) 17. Free tax preparation services 54   Rounded to nearest whole number of years 18   Percentage from Actuarial Table VII for age 65 with 18 years of guaranteed payments 15%   Value of the refund feature (rounded to the nearest dollar)—15% of $21,053 3,158 Investment in the contract, adjusted for value of refund feature $17,895       If the total guaranteed return were less than the $21,053 net cost of the contract, Barbara would apply the appropriate percentage from the tables to the lesser amount. Free tax preparation services For example, if the contract guaranteed the $100 monthly payments for 17 years to Barbara's estate or beneficiary if she were to die before receiving all the payments for that period, the total guaranteed return would be $20,400 ($100 × 12 × 17 years). Free tax preparation services In this case, the value of the refund feature would be $2,856 (14% of $20,400) and Barbara's investment in the contract would be $18,197 ($21,053 minus $2,856) instead of $17,895. Free tax preparation services Example 2. Free tax preparation services John died while still employed. Free tax preparation services His widow, Eleanor, age 48, receives $171 a month for the rest of her life. Free tax preparation services John's son, Elmer, age 9, receives $50 a month until he reaches age 18. Free tax preparation services John's contributions to the retirement fund totaled $7,559. Free tax preparation services 45, with interest on those contributions of $1,602. Free tax preparation services 53. Free tax preparation services The guarantee or total refund feature of the contract is $9,161. Free tax preparation services 98 ($7,559. Free tax preparation services 45 plus $1,602. Free tax preparation services 53). Free tax preparation services The adjustment in the investment in the contract is figured as follows: A) Expected return:*       1) Widow's expected return:         Annual annuity ($171 × 12) $2,052       Multiplied by factor from Table V         (nearest age 48) 34. Free tax preparation services 9 $71,614. Free tax preparation services 80   2) Child's expected return:         Annual annuity ($50 × 12) $600       Multiplied by factor from         Table VIII (nearest age 9         for term of 9 years) 9. Free tax preparation services 0 5,400. Free tax preparation services 00   3) Total expected return   $77,014. Free tax preparation services 80 B) Adjustment for refund feature:       1) Contributions (net cost) $7,559. Free tax preparation services 45   2) Guaranteed amount (contributions of $7,559. Free tax preparation services 45 plus interest of $1,602. Free tax preparation services 53) $9,161. Free tax preparation services 98   3) Minus: Expected return under child's (temporary life) annuity (A(2)) 5,400. Free tax preparation services 00   4) Net guaranteed amount $3,761. Free tax preparation services 98   5) Multiple from Table VII (nearest age 48 for 2 years duration (recovery of $3,761. Free tax preparation services 98 at $171 a month to nearest whole year)) 0%   6) Adjustment required for value of refund feature rounded to the nearest whole dollar  (0% × $3,761. Free tax preparation services 98, the smaller of B(3) or B(6)) 0 *Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Free tax preparation services See the discussion of expected return, later in this publication. Free tax preparation services Free IRS help. Free tax preparation services   If you need to request assistance to figure the value of the refund feature, see Requesting a Ruling on Taxation of Annuity near the end of this publication. Free tax preparation services Expected Return Your expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Free tax preparation services The following discussions explain how to figure the expected return with each type of annuity. Free tax preparation services A person's age, for purposes of figuring the expected return, is the age at the birthday nearest to the annuity starting date. Free tax preparation services Fixed period annuity. Free tax preparation services   If you will get annuity payments for a fixed number of years, without regard to your life expectancy, you must figure your expected return based on that fixed number of years. Free tax preparation services It is the total amount you will get beginning at the annuity starting date. Free tax preparation services You will receive specific periodic payments for a definite period of time, such as a fixed number of months (but not less than 13). Free tax preparation services To figure your expected return, multiply the fixed number of months for which payments are to be made by the amount of the payment specified for each period. Free tax preparation services Single life annuity. Free tax preparation services   If you are to get annuity payments for the rest of your life, find your expected return as follows. Free tax preparation services You must multiply the amount of the annual payment by a multiple based on your life expectancy as of the annuity starting date. Free tax preparation services These multiples are set out in actuarial Tables I and V near the end of this publication (see How To Use Actuarial Tables , later). Free tax preparation services   You may need to adjust these multiples if the payments are made quarterly, semiannually, or annually. Free tax preparation services See Adjustments to Tables I, II, V, VI, and VIA following Table I. Free tax preparation services Example. Free tax preparation services Henry bought an annuity contract that will give him an annuity of $500 a month for his life. Free tax preparation services If at the annuity starting date Henry's nearest birthday is 66, the expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table V, age 66 × 19. Free tax preparation services 2 Expected return $115,200 If the payments were to be made to Henry quarterly and the first payment was made one full month after the annuity starting date, Henry would adjust the 19. Free tax preparation services 2 multiple by +. Free tax preparation services 1. Free tax preparation services His expected return would then be $115,800 ($6,000 × 19. Free tax preparation services 3). Free tax preparation services Annuity for shorter of life or specified period. Free tax preparation services   With this type of annuity, you are to get annuity payments either for the rest of your life or until the end of a specified period, whichever period is shorter. Free tax preparation services To figure your expected return, multiply the amount of your annual payment by a multiple in Table IV or VIII for temporary life annuities. Free tax preparation services Find the proper multiple based on your sex (if using Table IV), your age at the annuity starting date, and the nearest whole number of years in the specified period. Free tax preparation services Example. Free tax preparation services Harriet purchased an annuity this year that will pay her $200 each month for five years or until she dies, whichever period is shorter. Free tax preparation services She was age 65 at her birthday nearest the annuity starting date. Free tax preparation services She figures the expected return as follows: Annual payment ($200 × 12 months) $2,400 Multiple shown in Table VIII, age 65, 5-year term × 4. Free tax preparation services 9 Expected return $11,760 She uses Table VIII (not Table IV) because all her contributions were made after June 30, 1986. Free tax preparation services See Special Elections, later. Free tax preparation services Joint and survivor annuities. Free tax preparation services   If you have an annuity that pays you a periodic income for life and after your death provides an identical lifetime periodic income to your spouse (or some other person), you figure the expected return based on your combined life expectancies. Free tax preparation services To figure the expected return, multiply the annual payment by a multiple in Table II or VI based on your joint life expectancies. Free tax preparation services If your payments are made quarterly, semiannually, or annually, you may need to adjust these multiples. Free tax preparation services See Adjustments to Tables I, II, V, VI, and VIA following Table I near the end of this publication. Free tax preparation services Example. Free tax preparation services John bought a joint and survivor annuity providing payments of $500 a month for his life, and, after his death, $500 a month for the remainder of his wife's life. Free tax preparation services At John's annuity starting date, his age at his nearest birthday is 70 and his wife's at her nearest birthday is 67. Free tax preparation services The expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table VI, ages 67 and 70 × 22. Free tax preparation services 0 Expected return $132,000 Different payments to survivor. Free tax preparation services   If your contract provides that payments to a survivor annuitant will be different from the amount you receive, you must use a computation which accounts for both the joint lives of the annuitants and the life of the survivor. Free tax preparation services Example 1. Free tax preparation services Gerald bought a contract providing for payments to him of $500 a month for life and, after his death, payments to his wife, Mary, of $350 a month for life. Free tax preparation services If, at the annuity starting date, Gerald's nearest birthday is 70 and Mary's is 67, the expected return under the contract is figured as follows: Combined multiple for Gerald and Mary, ages 70 and 67 (from Table VI)   22. Free tax preparation services 0 Multiple for Gerald, age 70 (from Table V)   16. Free tax preparation services 0 Difference: Multiple applicable to Mary   6. Free tax preparation services 0 Gerald's annual payment ($500 × 12) $6,000   Gerald's multiple 16. Free tax preparation services 0   Gerald's expected return   $96,000 Mary's annual payment ($350 × 12) $4,200   Mary's multiple 6. Free tax preparation services 0   Mary's expected return   25,200 Total expected return under the contract   $121,200 Example 2. Free tax preparation services Your husband died while still employed. Free tax preparation services Under the terms of his employer's retirement plan, you are entitled to get an immediate annuity of $400 a month for the rest of your life or until you remarry. Free tax preparation services Your daughters, Marie and Jean, are each entitled to immediate temporary life annuities of $150 a month until they reach age 18. Free tax preparation services You were 50 years old at the annuity starting date. Free tax preparation services Marie was 16 and Jean was 14. Free tax preparation services Using the multiples shown in Tables V and VIII at the end of this publication, the total expected return on the annuity starting date is $169,680, figured as follows: Widow, age 50 (multiple from Table V—33. Free tax preparation services 1 × $4,800 annual payment) $158,880 Marie, age 16 for 2 years duration (multiple from Table VIII—2. Free tax preparation services 0 × $1,800 annual payment) 3,600 Jean, age 14 for 4 years duration (multiple from Table VIII—4. Free tax preparation services 0 × $1,800 annual payment) 7,200 Total expected return $169,680 No computation of expected return is made based on your husband's age at the date of death because he died before the annuity starting date. Free tax preparation services Computation Under the General Rule Note. Free tax preparation services Variable annuities use a different computation for determining the exclusion amounts. Free tax preparation services See Variable annuities later. Free tax preparation services Under the General Rule, you figure the taxable part of your annuity by using the following steps: Step 1. Free tax preparation services   Figure the amount of your investment in the contract, including any adjustments for the refund feature and the death benefit exclusion, if applicable. Free tax preparation services See Death benefit exclusion , earlier. Free tax preparation services Step 2. Free tax preparation services   Figure your expected return. Free tax preparation services Step 3. Free tax preparation services   Divide Step 1 by Step 2 and round to three decimal places. Free tax preparation services This will give you the exclusion percentage. Free tax preparation services Step 4. Free tax preparation services   Multiply the exclusion percentage by the first regular periodic payment. Free tax preparation services The result is the tax-free part of each pension or annuity payment. Free tax preparation services   The tax-free part remains the same even if the total payment increases due to variation in the annuity amount such as cost of living increases, or you outlive the life expectancy factor used. Free tax preparation services However, if your annuity starting date is after 1986, the total amount of annuity income that is tax free over the years cannot exceed your net cost. Free tax preparation services   Each annuitant applies the same exclusion percentage to his or her initial payment called for in the contract. Free tax preparation services Step 5. Free tax preparation services   Multiply the tax-free part of each payment (step 4) by the number of payments received during the year. Free tax preparation services This will give you the tax-free part of the total payment for the year. Free tax preparation services    In the first year of your annuity, your first payment or part of your first payment may be for a fraction of the payment period. Free tax preparation services This fractional amount is multiplied by your exclusion percentage to get the tax-free part. Free tax preparation services Step 6. Free tax preparation services   Subtract the tax-free part from the total payment you received. Free tax preparation services The rest is the taxable part of your pension or annuity. Free tax preparation services Example 1. Free tax preparation services You purchased an annuity with an investment in the contract of $10,800. Free tax preparation services Under its terms, the annuity will pay you $100 a month for life. Free tax preparation services The multiple for your age (age 65) is 20. Free tax preparation services 0 as shown in Table V. Free tax preparation services Your expected return is $24,000 (20 × 12 × $100). Free tax preparation services Your cost of $10,800, divided by your expected return of $24,000, equals 45. Free tax preparation services 0%. Free tax preparation services This is the percentage you will not have to include in income. Free tax preparation services Each year, until your net cost is recovered, $540 (45% of $1,200) will be tax free and you will include $660 ($1,200 − $540) in your income. Free tax preparation services If you had received only six payments of $100 ($600) during the year, your exclusion would have been $270 (45% of $100 × 6 payments). Free tax preparation services Example 2. Free tax preparation services Gerald bought a joint and survivor annuity. Free tax preparation services Gerald's investment in the contract is $62,712 and the expected return is $121,200. Free tax preparation services The exclusion percentage is 51. Free tax preparation services 7% ($62,712 ÷ $121,200). Free tax preparation services Gerald will receive $500 a month ($6,000 a year). Free tax preparation services Each year, until his net cost is recovered, $3,102 (51. Free tax preparation services 7% of his total payments received of $6,000) will be tax free and $2,898 ($6,000 − $3,102) will be included in his income. Free tax preparation services If Gerald dies, his wife will receive $350 a month ($4,200 a year). Free tax preparation services If Gerald had not recovered all of his net cost before his death, his wife will use the same exclusion percentage (51. Free tax preparation services 7%). Free tax preparation services Each year, until the entire net cost is recovered, his wife will receive $2,171. Free tax preparation services 40 (51. Free tax preparation services 7% of her payments received of $4,200) tax free. Free tax preparation services She will include $2,028. Free tax preparation services 60 ($4,200 − $2,171. Free tax preparation services 40) in her income tax return. Free tax preparation services Example 3. Free tax preparation services Using the same facts as Example 2 under Different payments to survivor, you are to receive an annual annuity of $4,800 until you die or remarry. Free tax preparation services Your two daughters each receive annual annuities of $1,800 until they reach age 18. Free tax preparation services Your husband contributed $25,576 to the plan. Free tax preparation services You are eligible for the $5,000 death benefit exclusion because your husband died before August 21, 1996. Free tax preparation services Adjusted Investment in the Contract Contributions $25,576 Plus: Death benefit exclusion 5,000 Adjusted investment in the contract $30,576 The total expected return, as previously figured (in Example 2 under Different payments to survivor), is $169,680. Free tax preparation services The exclusion percentage of 18. Free tax preparation services 0% ($30,576 ÷ $169,680) applies to the annuity payments you and each of your daughters receive. Free tax preparation services Each full year $864 (18. Free tax preparation services 0% × $4,800) will be tax free to you, and you must include $3,936 in your income tax return. Free tax preparation services Each year, until age 18, $324 (18. Free tax preparation services 0% × $1,800) of each of your daughters' payments will be tax free and each must include the balance, $1,476, as income on her own income tax return. Free tax preparation services Part-year payments. Free tax preparation services   If you receive payments for only part of a year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments received during the year. Free tax preparation services   If you receive amounts during the year that represent 12 payments, one for each month in that year, and an amount that represents payments for months in a prior year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments the amounts received represent. Free tax preparation services For instance, if you received amounts during the year that represent the 12 payments for that year plus an amount that represents three payments for a prior year, multiply that amount by the 15 (12 + 3) payments received that the year. Free tax preparation services   If you received a fractional payment, follow Step 5, discussed earlier. Free tax preparation services This gives you the tax-free part of your total payment. Free tax preparation services Example. Free tax preparation services On September 28, Mary bought an annuity contract for $22,050 that will give her $125 a month for life, beginning October 30. Free tax preparation services The applicable multiple from Table V is 23. Free tax preparation services 3 (age 61). Free tax preparation services Her expected return is $34,950 ($125 × 12 × 23. Free tax preparation services 3). Free tax preparation services Mary's investment in the contract of $22,050, divided by her expected return of $34,950, equals 63. Free tax preparation services 1%. Free tax preparation services Each payment received will consist of 63. Free tax preparation services 1% return of cost and 36. Free tax preparation services 9% taxable income, until her net cost of the contract is fully recovered. Free tax preparation services During the first year, Mary received three payments of $125, or $375, of which $236. Free tax preparation services 63 (63. Free tax preparation services 1% × $375) is a return of cost. Free tax preparation services The remaining $138. Free tax preparation services 37 is included in income. Free tax preparation services Increase in annuity payments. Free tax preparation services   The tax-free amount remains the same as the amount figured at the annuity starting date, even if the payment increases. Free tax preparation services All increases in the installment payments are fully taxable. Free tax preparation services   However, if your annuity payments are scheduled to increase at a definite date in the future you must figure the expected return for that annuity using the method described in section 1. Free tax preparation services 72-5(a)(5) of the regulations. Free tax preparation services Example. Free tax preparation services Joe's wife died while she was still employed and, as her beneficiary, he began receiving an annuity of $147 per month. Free tax preparation services In figuring the taxable part, Joe elects to use Tables V through VIII. Free tax preparation services The cost of the contract was $7,938, consisting of the sum of his wife's net contributions, adjusted for any refund feature. Free tax preparation services His expected return as of the annuity starting date is $35,280 (age 65, multiple of 20. Free tax preparation services 0 × $1,764 annual payment). Free tax preparation services The exclusion percentage is $7,938 ÷ $35,280, or 22. Free tax preparation services 5%. Free tax preparation services During the year he received 11 monthly payments of $147, or $1,617. Free tax preparation services Of this amount, 22. Free tax preparation services 5% × $147 × 11 ($363. Free tax preparation services 83) is tax free as a return of cost and the balance of $1,253. Free tax preparation services 17 is taxable. Free tax preparation services Later, because of a cost-of-living increase, his annuity payment was increased to $166 per month, or $1,992 a year (12 × $166). Free tax preparation services The tax-free part is still only 22. Free tax preparation services 5% of the annuity payments as of the annuity starting date (22. Free tax preparation services 5% × $147 × 12 = $396. Free tax preparation services 90 for a full year). Free tax preparation services The increase of $228 ($1,992 − $1,764 (12 × $147)) is fully taxable. Free tax preparation services Variable annuities. Free tax preparation services   For variable annuity payments, figure the amount of each payment that is tax free by dividing your investment in the contract (adjusted for any refund feature) by the total number of periodic payments you expect to get under the contract. Free tax preparation services   If the annuity is for a definite period, you determine the total number of payments by multiplying the number of payments to be made each year by the number of years you will receive payments. Free tax preparation services If the annuity is for life, you determine the total number of payments by using a multiple from the appropriate actuarial table. Free tax preparation services Example. Free tax preparation services Frank purchased a variable annuity at age 65. Free tax preparation services The total cost of the contract was $12,000. Free tax preparation services The annuity starting date is January 1 of the year of purchase. Free tax preparation services His annuity will be paid, starting July 1, in variable annual installments for his life. Free tax preparation services The tax-free amount of each payment, until he has recovered his cost of his contract, is: Investment in the contract $12,000 Number of expected annual payments (multiple for age 65 from Table V) 20 Tax-free amount of each payment ($12,000 ÷ 20) $600 If Frank's first payment is $920, he includes only $320 ($920 − $600) in his gross income. Free tax preparation services   If the tax-free amount for a year is more than the payments you receive in that year, you may choose, when you receive the next payment, to refigure the tax-free part. Free tax preparation services Divide the amount of the periodic tax-free part that is more than the payment you received by the remaining number of payments you expect. Free tax preparation services The result is added to the previously figured periodic tax-free part. Free tax preparation services The sum is the amount of each future payment that will be tax free. Free tax preparation services Example. Free tax preparation services Using the facts of the previous example about Frank, assume that after Frank's $920 payment, he received $500 in the following year, and $1,200 in the year after that. Free tax preparation services Frank does not pay tax on the $500 (second year) payment because $600 of each annual pension payment is tax free. Free tax preparation services Since the $500 payment is less than the $600 annual tax-free amount, he may choose to refigure his tax-free part when he receives his $1,200 (third year) payment, as follows: Amount tax free in second year $600. Free tax preparation services 00 Amount received in second year 500. Free tax preparation services 00 Difference $100. Free tax preparation services 00 Number of remaining payments after the first 2 payments (age 67, from Table V) 18. Free tax preparation services 4 Amount to be added to previously determined annual tax-free part ($100 ÷ 18. Free tax preparation services 4) $5. Free tax preparation services 43 Revised annual tax-free part for third and later years ($600 + $5. Free tax preparation services 43) $605. Free tax preparation services 43 Amount taxable in third year ($1,200 − $605. Free tax preparation services 43) $594. Free tax preparation services 57 If you choose to refigure your tax-free amount,   you must file a statement with your income tax return stating that you are refiguring the tax-free amount in accordance with the rules of section 1. Free tax preparation services 72–4(d)(3) of the Income Tax Regulations. Free tax preparation services The statement must also show the following information: The annuity starting date and your age on that date. Free tax preparation services The first day of the first period for which you received an annuity payment in the current year. Free tax preparation services Your investment in the contract as originally figured. Free tax preparation services The total of all amounts received tax free under the annuity from the annuity starting date through the first day of the first period for which you received an annuity payment in the current tax year. Free tax preparation services Exclusion Limits Your annuity starting date determines the total amount of annuity income that you can exclude from income over the years. Free tax preparation services Exclusion limited to net cost. Free tax preparation services   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a return of your cost cannot exceed your net cost (figured without any reduction for a refund feature). Free tax preparation services This is the unrecovered investment in the contract as of the annuity starting date. Free tax preparation services   If your annuity starting date is after July 1, 1986, any unrecovered net cost at your (or last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Free tax preparation services This deduction is not subject to the 2%-of-adjusted-gross-income limit. Free tax preparation services Example 1. Free tax preparation services Your annuity starting date is after 1986. Free tax preparation services Your total cost is $12,500, and your net cost is $10,000, taking into account certain adjustments. Free tax preparation services There is no refund feature. Free tax preparation services Your monthly annuity payment is $833. Free tax preparation services 33. Free tax preparation services Your exclusion ratio is 12% and you exclude $100 a month. Free tax preparation services Your exclusion ends after 100 months, when you have excluded your net cost of $10,000. Free tax preparation services Thereafter, your annuity payments are fully taxable. Free tax preparation services Example 2. Free tax preparation services The facts are the same as in Example 1, except that there is a refund feature, and you die after 5 years with no surviving annuitant. Free tax preparation services The adjustment for the refund feature is $1,000, so the investment in the contract is $9,000. Free tax preparation services The exclusion ratio is 10. Free tax preparation services 8%, and your monthly exclusion is $90. Free tax preparation services After 5 years (60 months), you have recovered tax free only $5,400 ($90 x 60). Free tax preparation services An itemized deduction for the unrecovered net cost of $4,600 ($10,000 net cost minus $5,400) may be taken on your final income tax return. Free tax preparation services Your unrecovered investment is determined without regard to the refund feature adjustment, discussed earlier, under Adjustments. Free tax preparation services Exclusion not limited to net cost. Free tax preparation services   If your annuity starting date was before 1987, you could continue to take your monthly exclusion for as long as you receive your annuity. Free tax preparation services If you choose a joint and survivor annuity, your survivor continues to take the survivor's exclusion figured as of the annuity starting date. Free tax preparation services The total exclusion may be more than your investment in the contract. Free tax preparation services How To Use Actuarial Tables In figuring, under the General Rule, the taxable part of your annuity payments that you are to get for the rest of your life (rather than for a fixed number of years), you must use one or more of the actuarial tables in this publication. Free tax preparation services Unisex Annuity Tables Effective July 1, 1986, the Internal Revenue Service adopted new annuity Tables V through VIII, in which your sex is not considered when determining the applicable factor. Free tax preparation services These tables correspond to the old Tables I through IV. Free tax preparation services In general, Tables V through VIII must be used if you made contributions to the retirement plan after June 30, 1986. Free tax preparation services If you made no contributions to the plan after June 30, 1986, generally you must use only Tables I through IV. Free tax preparation services However, if you received an annuity payment after June 30, 1986, you may elect to use Tables V through VIII (see Annuity received after June 30, 1986, later). Free tax preparation services Special Elections Although you generally must use Tables V through VIII if you made contributions to the retirement plan after June 30, 1986, and Tables I through IV if you made no contributions after June 30, 1986, you can make the following special elections to select which tables to use. Free tax preparation services Contributions made both before July 1986 and after June 1986. Free tax preparation services   If you made contributions to the retirement plan both before July 1986 and after June 1986, you may elect to use Tables I through IV for the pre-July 1986 cost of the contract, and Tables V through VIII for the post-June 1986 cost. Free tax preparation services (See the examples below. Free tax preparation services )    Making the election. Free tax preparation services Attach this statement to your income tax return for the first year in which you receive an annuity:    “I elect to apply the provisions of paragraph (d) of section 1. Free tax preparation services 72–6 of the Income Tax Regulations. Free tax preparation services ”   The statement must also include your name, address, social security number, and the amount of the pre-July 1986 investment in the contract. Free tax preparation services   If your investment in the contract includes post-June 1986 contributions to the plan, and you do not make the election to use Tables I through IV and Tables V through VIII, then you can only use Tables V through VIII in figuring the taxable part of your annuity. Free tax preparation services You must also use Tables V through VIII if you are unable or do not wish to determine the portions of your contributions which were made before July 1, 1986, and after June 30, 1986. Free tax preparation services    Advantages of election. Free tax preparation services In general, a lesser amount of each annual annuity payment is taxable if you separately figure your exclusion ratio for pre-July 1986 and post-June 1986 contributions. Free tax preparation services    If you intend to make this election, save your records that substantiate your pre-July 1986 and post-June 1986 contributions. Free tax preparation services If the death benefit exclusion applies (see discussion, earlier), you do not have to apportion it between the pre-July 1986 and the post-June 1986 investment in the contract. Free tax preparation services   The following examples illustrate the separate computations required if you elect to use Tables I through IV for your pre-July 1986 investment in the contract and Tables V through VIII for your post-June 1986 investment in the contract. Free tax preparation services Example 1. Free tax preparation services Bill, who is single, contributed $42,000 to the retirement plan and will receive an annual annuity of $24,000 for life. Free tax preparation services Payment of the $42,000 contribution is guaranteed under a refund feature. Free tax preparation services Bill is 55 years old as of the annuity starting date. Free tax preparation services For figuring the taxable part of Bill's annuity, he chose to make separate computations for his pre-July 1986 investment in the contract of $41,300, and for his post-June 1986 investment in the contract of $700. Free tax preparation services       Pre- July 1986   Post- June 1986 A. Free tax preparation services Adjustment for refund feature         1) Net cost $41,300   $700   2) Annual annuity—$24,000  ($41,300/$42,000 × $24,000) $23,600       ($700/$42,000 × $24,000)     $400   3) Guarantee under contract $41,300   $700   4) No. Free tax preparation services of years payments  guaranteed (rounded), A(3) ÷ A(2) 2   2   5) Applicable percentage from  Tables III and VII 1%   0%   6) Adjustment for value of refund  feature, A(5) × smaller of A(1)  or A(3) $413   $0 B. Free tax preparation services Investment in the contract         1) Net cost $41,300   $700   2) Minus: Amount in A(6) 413   0   3) Investment in the contract $40,887   $700 C. Free tax preparation services Expected return         1) Annual annuity receivable $24,000   $24,000   2) Multiples from Tables I and V 21. Free tax preparation services 7   28. Free tax preparation services 6   3) Expected return, C(1) × C(2) $520,800   $686,400 D. Free tax preparation services Tax-free part of annuity         1) Exclusion ratio as decimal,  B(3) ÷ C(3) . Free tax preparation services 079   . Free tax preparation services 001   2) Tax-free part, C(1) × D(1) $1,896   $24 The tax-free part of Bill's total annuity is $1,920 ($1,896 plus $24). Free tax preparation services The taxable part of his annuity is $22,080 ($24,000 minus $1,920). Free tax preparation services If the annuity starting date is after 1986, the exclusion over the years cannot exceed the net cost (figured without any reduction for a refund feature). Free tax preparation services Example 2. Free tax preparation services Al is age 62 at his nearest birthday to the annuity starting date. Free tax preparation services Al's wife is age 60 at her nearest birthday to the annuity starting date. Free tax preparation services The joint and survivor annuity pays $1,000 per month to Al for life, and $500 per month to Al's surviving wife after his death. Free tax preparation services The pre-July 1986 investment in the contract is $53,100 and the post-June 1986 investment in the contract is $7,000. Free tax preparation services Al makes the election described in Example 1 . Free tax preparation services For purposes of this example, assume the refund feature adjustment is zero. Free tax preparation services If an adjustment is required, IRS will figure the amount. Free tax preparation services See Requesting a Ruling on Taxation of Annuity near the end of this publication. Free tax preparation services       Pre-  July 1986   Post-  June 1986 A. Free tax preparation services Adjustment for refund feature         1) Net cost $53,100   $7,000   2) Annual annuity—$12,000  ($53,100/$60,100 × $12,000) $10,602       ($7,000/$60,100 × $12,000)     $1,398   3) Guaranteed under the contract $53,100   $7,000   4) Number of years guaranteed,  rounded, A(3) ÷ A(2) 5   5   5) Applicable percentages 0%   0%   6) Refund feature adjustment, A(5) × smaller of A(1) or A(3) 0   0 B. Free tax preparation services Investment in the contract         1) Net cost $53,100   $7,000   2) Refund feature adjustment 0   0   3) Investment in the contract adjusted for refund feature $53,100   $7,000 C. Free tax preparation services Expected return         1) Multiple for both annuitants from Tables II and VI 25. Free tax preparation services 4   28. Free tax preparation services 8   2) Multiple for first annuitant from Tables I and V 16. Free tax preparation services 9   22. Free tax preparation services 5   3) Multiple applicable to surviving annuitant, subtract C(2) from C(1) 8. Free tax preparation services 5   6. Free tax preparation services 3   4) Annual annuity to surviving annuitant $6,000   $6,000   5) Portion of expected return for surviving annuitant, C(4) × C(3) $51,000   $37,800   6) Annual annuity to first annuitant $12,000   $12,000   7) Plus: Portion of expected return for first annuitant, C(6) × C(2) $202,800   $270,000   8) Expected return for both annuitants, C(5) + C(7) $253,800   $307,800 D. Free tax preparation services Tax-free part of annuity         1) Exclusion ratio as a decimal, B(3) ÷ C(8) . Free tax preparation services 209   . Free tax preparation services 023   2) Retiree's tax-free part of annuity, C(6) × D(1) $2,508   $276   3) Survivor's tax-free part of annuity, C(4) × D(1) $1,254   $138 The tax-free part of Al's total annuity is $2,784 ($2,508 + $276). Free tax preparation services The taxable part of his annuity is $9,216 ($12,000 − $2,784). Free tax preparation services The exclusion over the years cannot exceed the net cost of the contract (figured without any reduction for a refund feature) if the annuity starting date is after 1986. Free tax preparation services After Al's death, his widow will apply the same exclusion percentages (20. Free tax preparation services 9% and 2. Free tax preparation services 3%) to her annual annuity of $6,000 to figure the tax-free part of her annuity. Free tax preparation services Annuity received after June 30, 1986. Free tax preparation services   If you receive an annuity payment after June 30, 1986, (regardless of your annuity starting date), you may elect to treat the entire cost of the contract as post-June 1986 cost (even if you made no post-June 1986 contributions to the plan) and use Tables V through VIII. Free tax preparation services Once made, you cannot revoke the election, which will apply to all payments during the year and in any later year. Free tax preparation services    Make the election by attaching the following statement to your income tax return. Free tax preparation services    “I elect, under section 1. Free tax preparation services 72–9 of the Income Tax Regulations, to treat my entire cost of the contract as a post-June 1986 cost of the plan. Free tax preparation services ”   The statement must also include your name, address, and social security number. Free tax preparation services   You should also indicate you are making this election if you are unable or do not wish to determine the parts of your contributions which were made before July 1, 1986, and after June 30, 1986. Free tax preparation services Disqualifying form of payment or settlement. Free tax preparation services   If your annuity starting date is after June 30, 1986, and the contract provides for a disqualifying form of payment or settlement, such as an option to receive a lump sum in full discharge of the obligation under the contract, the entire investment in the contract is treated as post-June 1986 investment in the contract. Free tax preparation services See regulations section 1. Free tax preparation services 72–6(d)(3) for additional examples of disqualifying forms of payment or settlement. Free tax preparation services You can find the Income Tax Regulations in many libraries and at Internal Revenue Service Offices. Free tax preparation services Worksheets for Determining Taxable Annuity Worksheets I and II. Free tax preparation services   Worksheets I and II follow for determining your taxable annuity under Regulations Section 1. Free tax preparation services 72–6(d)(6) Election. Free tax preparation services Worksheet I For Determining Taxable Annuity Under Regulations Section 1. Free tax preparation services 72-6(d)(6) Election For Single Annuitant With No Survivor Annuity               Pre-July 1986   Post-June 1986 A. Free tax preparation services   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Free tax preparation services )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)   Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages* from Tables III and VII                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Free tax preparation services If not, the IRS will calculate the refund feature percentage. Free tax preparation services             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Free tax preparation services   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund feature:                   B(1) minus B(2)                             C. Free tax preparation services   Expected Return             1)   Annual Annuity:                   12 times monthly annuity**             2)   Expected return multiples from Tables I and V             3)     Expected return:                   C(1) times C(2)                             D. Free tax preparation services   Tax-Free Part of Annuity             1)     Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(3)             2)     Tax-free part of annuity:                   C(1) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Free tax preparation services     Worksheet II For Determining Taxable Annuity Under Regulations Section 1. Free tax preparation services 72-6(d)(6) Election For Joint and Survivor Annuity               Pre-July 1986   Post-June 1986 A. Free tax preparation services   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Free tax preparation services )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)     Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages*                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Free tax preparation services If not, the IRS will calculate the refund feature percentage. Free tax preparation services             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Free tax preparation services   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund future:                   B(1) minus B(2)                             C. Free tax preparation services   Expected Return             1)   Multiples for both annuitants, Tables II and VI             2)   Multiple for retiree. Free tax preparation services Tables I and VI             3)   Multiple for survivor:                   C(1) minus C(2)             4)   Annual annuity to survivor:                   12 times potential monthly rate for survivor**             5)   Expected return for survivor:                   C(3) times C(4)             6)   Annual annuity to retiree:                   12 times monthly rate for retiree**             7)   Expected return for retiree:                   C(2) times C(6)             8)   Total expected return:                   C(5) plus C(7)                             D. Free tax preparation services   Tax-Free Part of Annuity             1)   Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(8)             2)   Retiree's tax-free part of annuity:                   C(6) times D(1)             3)   Survivor's tax-free part of annuity, if surviving after death of retiree:                   C(4) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Free tax preparation services   Actuarial Tables Please click here for the text description of the image. Free tax preparation services Actuarial Tables Please click here for the text description of the image. Free tax preparation services Actuarial Tables Please click here for the text description of the image. Free tax preparation services Actuarial tables Please click here for the text description of the image. 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Free tax preparation services   Under the law in effect at the time this publication went to print, the IRS must charge a user fee for all ruling requests. Free tax preparation services You should call the IRS for the proper fee. Free tax preparation services A request solely for the value of the refund feature is not treated as a ruling request and requires no fee. Free tax preparation services Send your request to:     Internal Revenue Service  Attention: EP Letter Rulings P. Free tax preparation services O. Free tax preparation services Box 27063 McPherson Station Washington, DC 20038 The user fee is allowed as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit. Free tax preparation services When to make the request. Free tax preparation services   Please note that requests sent between February 1 and April 15 may experience some delay. Free tax preparation services We process requests in the order received, and we will reply to your request as soon as we can process it. Free tax preparation services If you do not receive your ruling by the required filing date, you may use Form 4868, Application for Automatic Extension of Time To File U. Free tax preparation services S. Free tax preparation services Individual Income Tax Return, to get an extension of time to file. Free tax preparation services Information you must furnish. Free tax preparation services   You must furnish the information listed below so the IRS can comply with your request. Free tax preparation services Failure to furnish the information will result in a delay in processing your request. Free tax preparation services Please send only copies of the following documents, as the IRS retains all material sent for its records: A letter explaining the question(s) you wish to have resolved or the information you need from the ruling. 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Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions

The following questions and answers provide information to individuals of the same sex and opposite sex who are in registered domestic partnerships, civil unions or other similar formal relationships that are not marriages under state law. These individuals are not considered as married or spouses for federal tax purposes. For convenience, these individuals are referred to as “registered domestic partners” in these questions and answers. Questions and answers 9 through 27 concern registered domestic partners who reside in community property states and who are subject to their state’s community property laws. These questions and answers have been updated since the Supreme Court issued its decision in United States v. Windsor. As a result of the Court’s decision, the Service has ruled that same-sex couples who are married under state law are married for federal tax purposes. See Revenue Ruling 2013-17 in 2013‑38 IRB 201.

Q1. Can registered domestic partners file federal tax returns using a married filing jointly or married filing separately status?

A1. No. Registered domestic partners may not file a federal return using a married filing separately or jointly filing status. Registered domestic partners are not married under state law. Therefore, these taxpayers are not married for federal tax purposes.

Q2. Can a taxpayer use the head-of-household filing status if the taxpayer’s only dependent is his or her registered domestic partner?

A2. No. A taxpayer cannot file as head of household if the taxpayer’s only dependent is his or her registered domestic partner. A taxpayer’s registered domestic partner is not one of the specified related individuals in section 152(c) or (d) that qualifies the taxpayer to file as head of household, even if the registered domestic partner is the taxpayer’s dependent.

Q3. If registered domestic partners have a child, which parent may claim the child as a dependent?

A3. If a child is a qualifying child under section 152(c) of both parents who are registered domestic partners, either parent, but not both, may claim a dependency deduction for the qualifying child. If both parents claim a dependency deduction for the child on their income tax returns, the IRS will treat the child as the qualifying child of the parent with whom the child resides for the longer period of time during the taxable year. If the child resides with each parent for the same amount of time during the taxable year, the IRS will treat the child as the qualifying child of the parent with the higher adjusted gross income.

Q4. Can a registered domestic partner itemize deductions if his or her partner claims a standard deduction? 

A4. Yes. A registered domestic partner may itemize or claim the standard deduction regardless of whether his or her partner itemizes or claims the standard deduction. Although the law prohibits a taxpayer from itemizing deductions if the taxpayer’s spouse claims the standard deduction (section 63(c)(6)(A)), this provision does not apply to registered domestic partners, because registered domestic partners are not spouses for federal tax purposes.

Q5. If registered domestic partners adopt a child together, can one or both of the registered domestic partners qualify for the adoption credit?

A5. Yes. Each registered domestic partner may qualify to claim the adoption credit for the amount of the qualified adoption expenses paid for the adoption. The partners may not both claim a credit for the same qualified adoption expenses, and the sum of the credit taken by each registered domestic partner may not exceed the total amount paid. The adoption credit is limited to $12,970 per child in 2013. Thus, if both registered domestic partners paid qualified adoption expenses to adopt the same child, and the total of those expenses exceeds $12,970, the maximum credit available for the adoption is $12,970. The registered domestic partners may allocate this maximum between them in any way they agree, and the amount of credit claimed by one registered domestic partner can exceed the adoption expenses paid by that person, as long as the total credit claimed by both registered domestic partners does not exceed the total amount paid by them. The same rules generally apply in the case of a special needs adoption. 

Q6. If a taxpayer adopts the child of his or her registered domestic partner as a second parent or co-parent, may the taxpayer (“adopting parent”) claim the adoption credit for the qualifying adoption expenses he or she pays to adopt the child?

A6. Yes. The adopting parent may be eligible to claim an adoption credit. A taxpayer may not claim an adoption credit for the expenses of adopting the child of the taxpayer’s spouse (section 23) .  However, this limitation does not apply to adoptions by registered domestic partners because registered domestic partners are not spouses for federal tax purposes.

Q7. Do provisions of the federal tax law such as section 66 (treatment of community income) and section 469(i)(5) ($25,000 offset for passive activity losses for rental real estate activities) that apply to married taxpayers apply to registered domestic partners?

A7. No. Like other provisions of the federal tax law that apply only to married taxpayers, section 66 and section 469(i)(5) do not apply to registered domestic partners because registered domestic partners are not married for federal tax purposes.

Q8. Is a registered domestic partner the stepparent of his or her partner’s child?

A8. If a registered domestic partner is the stepparent of his or her partner’s child under state law, the registered domestic partner is the stepparent of the child for federal income tax purposes.


Publication 555, Community Property, provides general information for taxpayers, including registered domestic partners, who reside in community property states. The following questions and answers provide additional information to registered domestic partners (including same-sex and opposite-sex registered domestic partners) who reside in community property states and are subject to community property laws.

Q9. How do registered domestic partners determine their gross income?

A9. Registered domestic partners must each report half the combined community income earned by the partners.  In addition to half of the community income, a partner who has income that is not community income must report that separate income. 

Q10.  Can a registered domestic partner qualify to file his or her tax return using head-of-household filing status?

A10. Generally, to qualify as a head-of-household, a taxpayer must provide more than half the cost of maintaining his or her household during the taxable year, and that household must be the principal place of abode of the taxpayer’s dependent for more than half of the taxable year (section 2(b)). If registered domestic partners pay all of the costs of maintaining the household from community funds, each partner is considered to have incurred half the cost and neither can qualify as head of household. Even if one of the partners pays more than half by contributing separate funds, that partner cannot file as head of household if the only dependent is his or her registered domestic partner. A taxpayer’s registered domestic partner is not one of the specified related individuals in section 152(c) or (d) that qualifies the taxpayer to file as head of household, even if the partner is the taxpayer’s dependent.    

Q11. Can a registered domestic partner be a dependent of his or her partner for purposes of the dependency deduction under section 151?

A11. A registered domestic partner can be a dependent of his or her partner if the requirements of sections 151 and 152 are met. However, it is unlikely that registered domestic partners will satisfy the gross income requirement of section 152(d)(1)(B) and the support requirement of section 152(d)(1)(C). To satisfy the gross income requirement, the gross income of the individual claimed as a dependent must be less than the exemption amount ($3,900 for 2013). Because registered domestic partners each report half the combined community income earned by both partners, it is unlikely that a registered domestic partner will have gross income that is less than the exemption amount.   

To satisfy the support requirement, more than half of an individual’s support for the year must be provided by the person seeking the dependency deduction. If a registered domestic partner’s (Partner A’s) support comes entirely from community funds, that partner is considered to have provided half of his or her own support and cannot be claimed as a dependent by another. However, if the other registered domestic partner (Partner B) pays more than half of the support of Partner A by contributing separate funds, Partner A may be a dependent of Partner B for purposes of section 151, provided the other requirements of sections 151 and 152 are satisfied. 

Q12. Can a registered domestic partner be a dependent of his or her partner for purposes of the exclusion in section 105(b) for reimbursements of expenses for medical care?

A12. A registered domestic partner (Partner A) may be a dependent of his or her partner (Partner B) for purposes of the exclusion in section 105(b) only if the support requirement (discussed in Question 11, above) is satisfied. Unlike the requirements for section 152(d) (dependency deduction for a qualifying relative), section 105(b) does not require that Partner A's gross income be less than the exemption amount in order for Partner A to qualify as a dependent.                   

Q13. How should registered domestic partners report wages, other income items, and deductions on their federal income tax returns?

A13. Registered domestic partners should report wages, other income items, and deductions according to the instructions to Form 1040, U.S. Individual Income Tax Return, and related schedules, and Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States. Form 8958 is used to determine the allocation of tax amounts between registered domestic partners. Each partner must complete and attach Form 8958 to his or her Form 1040.

Q14. Should registered domestic partners report social security benefits as community income for federal tax purposes? 

A14. Generally, state law determines whether an item of income constitutes community income. Accordingly, if Social Security benefits are community income under state law, then they are also community income for federal income tax purposes. If Social Security benefits are not community income under state law, then they are not community income for federal income tax purposes. 

Q15. How should registered domestic partners report community income from a business on Schedule C, Profit or Loss From Business?

A15. Half of the income, deductions, and net earnings of a business operated by a registered domestic partner must be reported by each registered domestic partner on a Schedule C (or Schedule C-EZ). In addition, each registered domestic partner owes self-employment tax on half of the net earnings of the business. The self-employment tax rule under section 1402(a)(5) that overrides community income treatment and attributes the income, deductions, and net earnings to the spouse who carries on the trade or business does not apply to registered domestic partners.

Q16.  Are registered domestic partners each entitled to half of the credits for income tax withholding from the combined wages of the registered domestic partners?

A16. Yes. Because each registered domestic partner is taxed on half the combined community income earned by the partners, each is entitled to a credit for half of the income tax withheld on the combined wages.

Q17.  Are registered domestic partners each entitled to take credit for half of the total estimated tax payments paid by the partners?

A17. No. Unlike withholding credits, which are allowed to the person who is taxed on the income from which the tax is withheld, a registered domestic partner can take credit only for the estimated tax payments that he or she made.       

Q18. Are community property laws taken into account in determining earned income for purposes of the dependent care credit, the refundable portion of the child tax credit, the earned income credit, and the making work pay credit?   

A18. No. The federal tax laws governing these credits specifically provide that earned income is computed without regard to community property laws in determining the earned income amounts described in section 21(d) (dependent care credit), section 24(d) (the refundable portion of the child tax credit), section 32(a) (earned income credit), and section 36A(d) (making work pay credit).

Q19. Are community property laws taken into account in determining adjusted gross income (or modified adjusted gross income) for purposes of the dependent care credit, the child tax credit, the earned income credit, and the making work pay credit?

A19. Yes. Community property laws must be taken into account in determining the adjusted gross income (or modified adjusted gross income) amounts in section 21(a) (dependent care credit), section 24(b) (child tax credit), section 32(a) (earned income credit), and section 36A(b) (making work pay credit).

Q20. Are amounts a registered domestic partner receives for education expenses that cannot be excluded from the partner’s gross income (includible education benefits) considered to be community income? 

A20. Generally, state law determines whether an item of income constitutes community income. Accordingly, whether includible education benefits are community income for federal income tax purposes depends on whether they are community income under state law. If the includible education benefits are community income under state law, then they are community income for federal income tax purposes. If not community income under state law, they are not community income for federal income tax purposes. 

Q21. If only one registered domestic partner is a teacher and pays qualified out-of-pocket educator expenses from community funds, do the registered domestic partners split the educator expense deduction?

A21. No. Section 62(a)(2)(D) allows only eligible educators to take a deduction for qualified out-of-pocket educator expenses. If only one registered domestic partner is an eligible educator (the eligible partner), then only the eligible partner may claim a section 62(a)(2)(D) deduction. If the eligible partner uses community funds to pay educator expenses, the eligible partner may determine the deduction as if he or she made the entire expenditure. In that case, the eligible partner has received a gift from his or her partner equal to one-half of the expenditure.  

Q22. If a registered domestic partner incurs indebtedness for his or her qualified education expenses or the expenses of a dependent and pays interest on the indebtedness out of community funds, do the registered domestic partners split the interest deduction?

A22. No. To be a qualified education loan, the indebtedness must be incurred by a taxpayer to pay the qualified education expenses of the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer (section 221(d)(1)). Thus, only the partner who incurs debt to pay his or her own education expenses or the expenses of a dependent may deduct interest on a qualified education loan (the student partner). If the student partner uses community funds to pay the interest on the qualified education loan, the student partner may determine the deduction as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure. 

Q23.  If registered domestic partners pay the qualified educational expenses of one of the partners or a dependent of one of the partners with community funds, do the registered domestic partners split the section 25A credits (education credits)?

A23. No. Only the partner who pays his or her own education expenses or the expenses of his or her dependent is eligible for an education credit (the student partner). If the student partner uses community funds to pay the education expenses, the student partner may determine the credit as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure. Similarly, if the student partner is allowed a deduction under section 222 (deduction for qualified tuition and related expenses), and uses community funds to pay the education expenses, the student partner may determine the qualified tuition expense deduction as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure.     

Q24. Are community property laws taken into account in determining compensation for purposes of the IRA deduction?

A24. No. The federal tax laws governing the IRA deduction (section 219(f)(2)) specifically provide that the maximum IRA deduction (under section 219(b)) is computed separately for each individual, and that these IRA deduction rules are applied without regard to any community property laws. Thus, each individual determines whether he or she is eligible for an IRA deduction by computing his or her individual compensation (determined without application of community property laws). 

Q25. If a registered domestic partner is self-employed and pays health insurance premiums for both partners out of community property funds, are both partners allowed a deduction under section 162(l) (deduction for self-employed health insurance)?

A25. If one of the registered domestic partners is a self-employed individual treated as an employee within the meaning of section 401(c)(1)(the employee partner) and the other partner is not (the non-employee partner), the employee partner may be allowed a deduction under section 162(l) for the cost of the employee partner’s health insurance paid out of community funds. If the non-employee partner is also covered by the health insurance, the portion of the cost attributable to the non-employee partner’s coverage is not deductible by either the employee partner or the non-employee partner under section 162(l).  

Q26. If a registered domestic partner has a dependent and incurs employment-related expenses that are paid out of community funds, how does the registered domestic partner calculate the dependent care credit?  How about the child tax credit?

A26. If a registered domestic partner has a qualifying individual as defined in section 21(b)(1) and incurs employment-related expenses as defined in section 21(b)(2) for the care of the qualifying individual that are paid with community funds, the partner (employee partner) may determine the dependent care credit as if he or she made the entire expenditure. In that case, the employee partner has received a gift from his or her partner equal to one-half of the expenditure. In computing the dependent care credit, the following rules apply:

  • The employee partner must reduce the employment-related expenses by any amounts he or she excludes from income under section 129 (exclusion for employees for dependent care assistance furnished pursuant to a program described in section 129(d));
  • The earned income limitation described in section 21(d) is determined without regard to community property laws; and
  • The adjusted gross income of the employee partner is determined by taking into account community property laws.

A child tax credit is allowed for each qualifying child of a taxpayer for whom the taxpayer is allowed a personal exemption deduction. Thus, if a registered domestic partner has one or more dependents who is a qualifying child, the registered domestic partner may be allowed a child tax credit for each qualifying child. In determining the amount of the allowable credit, the modified adjusted gross income of the registered domestic partner with the qualifying child is determined by taking into account community property laws. Community property laws are ignored, however, in determining the refundable portion of the child tax credit.

Q27. Does Rev. Proc. 2002-69, 2002-2 C.B. 831, apply to registered domestic partners?

A27. No. Rev. Proc. 2002-69 allows spouses to classify certain entities solely owned by the spouses as community property, as either a disregarded entity or a partnership for federal tax purposes. Rev. Proc. 2002-69 applies only to spouses. Because registered domestic partners are not spouses for federal tax purposes, Rev. Proc. 2002-69 does not apply to registered domestic partners.

Related Item: Forms and Publications

Page Last Reviewed or Updated: 19-Sep-2013

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Free tax preparation services   You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. Free tax preparation services   You do not have to record amounts your employer pays directly for any ticket or other travel item. Free tax preparation services However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend. Free tax preparation services Timely-kept records. Free tax preparation services   You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. Free tax preparation services A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. Free tax preparation services   You do not need to write down the elements of every expense on the day of the expense. Free tax preparation services If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. Free tax preparation services   If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. Free tax preparation services This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. Free tax preparation services Proving business purpose. Free tax preparation services   You must generally provide a written statement of the business purpose of an expense. Free tax preparation services However, the degree of proof varies according to the circumstances in each case. Free tax preparation services If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. Free tax preparation services Example. Free tax preparation services If you are a sales representative who calls on customers on an established sales route, you do not have to give a written explanation of the business purpose for traveling that route. Free tax preparation services You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. Free tax preparation services You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. Free tax preparation services Confidential information. Free tax preparation services   You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. Free tax preparation services However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. Free tax preparation services What If I Have Incomplete Records? If you do not have complete records to prove an element of an expense, then you must prove the element with: Your own written or oral statement containing specific information about the element, and Other supporting evidence that is sufficient to establish the element. Free tax preparation services If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Free tax preparation services Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Free tax preparation services Documentary evidence can be receipts, paid bills, or similar evidence. Free tax preparation services If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. Free tax preparation services For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Free tax preparation services Invoices of deliveries establish when you used the car for business. Free tax preparation services Table 5-1. Free tax preparation services How To Prove Certain Business Expenses IF you have expenses for . Free tax preparation services . Free tax preparation services THEN you must keep records that show details of the following elements . Free tax preparation services . Free tax preparation services . Free tax preparation services   Amount Time Place or  Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. Free tax preparation services Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. Free tax preparation services Dates you left and returned for each trip and number of days spent on business. Free tax preparation services Destination or area of your travel (name of city, town, or other designation). Free tax preparation services Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Free tax preparation services    Relationship: N/A Entertainment Cost of each separate expense. Free tax preparation services Incidental expenses such as taxis, telephones, etc. Free tax preparation services , may be totaled on a daily basis. Free tax preparation services Date of entertainment. Free tax preparation services (Also see Business Purpose. Free tax preparation services ) Name and address or location of place of entertainment. Free tax preparation services Type of entertainment if not otherwise apparent. Free tax preparation services (Also see Business Purpose. Free tax preparation services ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Free tax preparation services  For entertainment, the nature of the business discussion or activity. Free tax preparation services If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. Free tax preparation services    Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. Free tax preparation services  For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. Free tax preparation services Gifts Cost of the gift. Free tax preparation services Date of the gift. Free tax preparation services Description of the gift. Free tax preparation services   Transportation Cost of each separate expense. Free tax preparation services For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. Free tax preparation services Date of the expense. Free tax preparation services For car expenses, the date of the use of the car. Free tax preparation services Your business destination. Free tax preparation services Purpose: Business purpose for the expense. Free tax preparation services    Relationship: N/A Sampling. Free tax preparation services   You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. Free tax preparation services You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. Free tax preparation services Example. Free tax preparation services You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. Free tax preparation services There is no other business use of the car, but you and your family use the car for personal purposes. Free tax preparation services You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Free tax preparation services Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Free tax preparation services Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year. Free tax preparation services Exceptional circumstances. Free tax preparation services   You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you cannot get a receipt. Free tax preparation services This applies if all the following are true. Free tax preparation services You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records . Free tax preparation services You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . Free tax preparation services You have presented other evidence for the element that is the best proof possible under the circumstances. Free tax preparation services Destroyed records. Free tax preparation services   If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Free tax preparation services Reasons beyond your control include fire, flood, and other casualties. Free tax preparation services    Table 5-2. Free tax preparation services Daily Business Mileage and Expense Log Name:       Odometer Readings Expenses Date Destination  (City, Town, or Area) Business Purpose Start Stop Miles  this trip Type  (Gas, oil, tolls, etc. Free tax preparation services ) Amount                                                                                                                   Weekly  Total             Total Year-to-Date             Separating and Combining Expenses This section explains when expenses must be kept separate and when expenses can be combined. Free tax preparation services Separating expenses. Free tax preparation services   Each separate payment is generally considered a separate expense. Free tax preparation services For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. Free tax preparation services You must record them separately in your records. Free tax preparation services Season or series tickets. Free tax preparation services   If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. Free tax preparation services To determine the cost of individual tickets, divide the total cost (but not more than face value) by the number of games or performances in the series. Free tax preparation services You must keep records to show whether you use each ticket as a gift or entertainment. Free tax preparation services Also, you must be able to prove the cost of nonluxury box seat tickets if you rent a skybox or other private luxury box for more than one event. Free tax preparation services See Entertainment tickets in chapter 2. Free tax preparation services Combining items. Free tax preparation services   You can make one daily entry in your record for reasonable categories of expenses. Free tax preparation services Examples are taxi fares, telephone calls, or other incidental travel costs. Free tax preparation services Meals should be in a separate category. Free tax preparation services You can include tips for meal-related services with the costs of the meals. Free tax preparation services   Expenses of a similar nature occurring during the course of a single event are considered a single expense. Free tax preparation services For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense. Free tax preparation services Car expenses. Free tax preparation services   You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. Free tax preparation services Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. Free tax preparation services Example. Free tax preparation services You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. Free tax preparation services You can account for these using a single record of miles driven. Free tax preparation services Gift expenses. Free tax preparation services   You do not always have to record the name of each recipient of a gift. Free tax preparation services A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. Free tax preparation services For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients. Free tax preparation services Allocating total cost. Free tax preparation services   If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. Free tax preparation services To do so, you must establish the number of persons who participated in the event. Free tax preparation services   An allocation would be needed, for example, if you did not have a business relationship with all of your guests. Free tax preparation services See Allocating between business and nonbusiness in chapter 2. Free tax preparation services If your return is examined. Free tax preparation services    If your return is examined, you may have to provide additional information to the IRS. Free tax preparation services This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed. Free tax preparation services    THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. Free tax preparation services Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. Free tax preparation services Travel Expenses: Airlines                                 Excess Baggage                                 Bus – Train                                 Cab and Limousine                                 Tips                                 Porter                                 2. Free tax preparation services Meals and Lodging:  Breakfast                                 Lunch                                 Dinner                                 Hotel and Motel  (Detail in Schedule B)                                 3. Free tax preparation services Entertainment  (Detail in Schedule C)                                 4. Free tax preparation services Other Expenses:  Postage                                 Telephone & Telegraph                                 Stationery & Printing                                 Stenographer                                 Sample Room                                 Advertising                                 Assistant(s)                                 Trade Shows                                 5. Free tax preparation services Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. Free tax preparation services ) (Detail mileage in Schedule A. Free tax preparation services ) Gas, oil, lube, wash                                 Repairs, parts                                 Tires, supplies                                 Parking fees, tolls                                 6. Free tax preparation services Other (Identify)                                 Total                                 Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. Free tax preparation services 00 or more. Free tax preparation services Schedule A – Car Mileage: End                 Start                 Total                 Business Mileage                 Schedule B – Lodging Hotel or Motel Name                 City                 Schedule C – Entertainment Date Item Place Amount Business Purpose Business Relationship                                             WEEKLY REIMBURSEMENTS:     Travel and transportation expenses     Other reimbursements     TOTAL   How Long To Keep Records and Receipts You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Free tax preparation services Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. Free tax preparation services A return filed early is considered filed on the due date. Free tax preparation services For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. Free tax preparation services You must keep records of the business use of your car for each year of the recovery period. Free tax preparation services See More-than-50%-use test in chapter 4 under Depreciation Deduction. Free tax preparation services Reimbursed for expenses. Free tax preparation services   Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep copies of this information. Free tax preparation services However, you may have to prove your expenses if any of the following conditions apply. Free tax preparation services You claim deductions for expenses that are more than reimbursements. Free tax preparation services Your expenses are reimbursed under a nonaccountable plan. Free tax preparation services Your employer does not use adequate accounting procedures to verify expense accounts. Free tax preparation services You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. Free tax preparation services Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. Free tax preparation services Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. Free tax preparation services Prev  Up  Next   Home   More Online Publications