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Free turbotax 2011 download 7. Free turbotax 2011 download   Coverdell Education Savings Account (ESA) Table of Contents Introduction What Is a Coverdell ESAQualified Education Expenses ContributionsContribution Limits Additional Tax on Excess Contributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Transfer Because of Divorce DistributionsTax-Free Distributions Taxable Distributions When Assets Must Be Distributed Introduction If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. Free turbotax 2011 download For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. Free turbotax 2011 download There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. Free turbotax 2011 download However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. Free turbotax 2011 download See Contributions , later. Free turbotax 2011 download This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. Free turbotax 2011 download What is the tax benefit of the Coverdell ESA. Free turbotax 2011 download   Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. Free turbotax 2011 download   If, for a year, distributions from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the distributions. Free turbotax 2011 download See Tax-Free Distributions , later. Free turbotax 2011 download    Table 7-1 summarizes the main features of the Coverdell ESA. Free turbotax 2011 download Table 7-1. Free turbotax 2011 download Coverdell ESA at a Glance Do not rely on this table alone. Free turbotax 2011 download It provides only general highlights. Free turbotax 2011 download See the text for definitions of terms in bold type and for more complete explanations. Free turbotax 2011 download Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. Free turbotax 2011 download Where can it be established? It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. Free turbotax 2011 download Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. Free turbotax 2011 download Who can contribute to a Coverdell ESA? Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return). Free turbotax 2011 download Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. Free turbotax 2011 download What Is a Coverdell ESA A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. Free turbotax 2011 download When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. Free turbotax 2011 download To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. Free turbotax 2011 download The document creating and governing the account must be in writing and must satisfy the following requirements. Free turbotax 2011 download The trustee or custodian must be a bank or an entity approved by the IRS. Free turbotax 2011 download The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. Free turbotax 2011 download The contribution is in cash. Free turbotax 2011 download The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Free turbotax 2011 download The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. Free turbotax 2011 download Money in the account cannot be invested in life insurance contracts. Free turbotax 2011 download Money in the account cannot be combined with other property except in a common trust fund or common investment fund. Free turbotax 2011 download The balance in the account generally must be distributed within 30 days after the earlier of the following events. Free turbotax 2011 download The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. Free turbotax 2011 download The beneficiary's death. Free turbotax 2011 download Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. Free turbotax 2011 download For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Free turbotax 2011 download Designated beneficiary. Free turbotax 2011 download   This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. Free turbotax 2011 download Contributions to a qualified tuition program (QTP). Free turbotax 2011 download   A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. Free turbotax 2011 download In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. Free turbotax 2011 download See chapter 8, Qualified Tuition Program . Free turbotax 2011 download Eligible Educational Institution For purposes of Coverdell ESAs, an eligible educational institution can be either an eligible postsecondary school or an eligible elementary or secondary school. Free turbotax 2011 download Eligible postsecondary school. Free turbotax 2011 download   This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Free turbotax 2011 download S. Free turbotax 2011 download Department of Education. Free turbotax 2011 download It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free turbotax 2011 download The educational institution should be able to tell you if it is an eligible educational institution. Free turbotax 2011 download   Certain educational institutions located outside the United States also participate in the U. Free turbotax 2011 download S. Free turbotax 2011 download Department of Education's Federal Student Aid (FSA) programs. Free turbotax 2011 download Eligible elementary or secondary school. Free turbotax 2011 download   This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Free turbotax 2011 download Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. Free turbotax 2011 download As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. Free turbotax 2011 download The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. Free turbotax 2011 download Tuition and fees. Free turbotax 2011 download Books, supplies, and equipment. Free turbotax 2011 download Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school. Free turbotax 2011 download Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). Free turbotax 2011 download The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Free turbotax 2011 download The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Free turbotax 2011 download The actual amount charged if the student is residing in housing owned or operated by the school. Free turbotax 2011 download Half-time student. 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Free turbotax 2011 download Academic tutoring. Free turbotax 2011 download Special needs services for a special needs beneficiary. Free turbotax 2011 download The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. Free turbotax 2011 download Room and board. Free turbotax 2011 download Uniforms. Free turbotax 2011 download Transportation. Free turbotax 2011 download Supplementary items and services (including extended day programs). Free turbotax 2011 download The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in elementary or secondary school. Free turbotax 2011 download (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. Free turbotax 2011 download ) Contributions Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits ) for the year is less than $110,000. Free turbotax 2011 download For individuals filing joint returns, that amount is $220,000. Free turbotax 2011 download Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. Free turbotax 2011 download There is no requirement that an organization's income be below a certain level. Free turbotax 2011 download Contributions must meet all of the following requirements. Free turbotax 2011 download They must be in cash. Free turbotax 2011 download They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Free turbotax 2011 download They must be made by the due date of the contributor's tax return (not including extensions). Free turbotax 2011 download Contributions can be made to one or several Coverdell ESAs for the same designated beneficiary provided that the total contributions are not more than the contribution limits (defined later) for a year. Free turbotax 2011 download Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. Free turbotax 2011 download Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. Free turbotax 2011 download When contributions considered made. Free turbotax 2011 download   Contributions made to a Coverdell ESA for the preceding tax year are considered to have been made on the last day of the preceding year. Free turbotax 2011 download They must be made by the due date (not including extensions) for filing your return for the preceding year. Free turbotax 2011 download   For example, if you make a contribution to a Coverdell ESA in February 2014, and you designate it as a contribution for 2013, you are considered to have made that contribution on December 31, 2013. Free turbotax 2011 download Contribution Limits There are two yearly limits: One on the total amount that can be contributed for each designated beneficiary in any year, and One on the amount that any individual can contribute for any one designated beneficiary for a year. Free turbotax 2011 download Limit for each designated beneficiary. Free turbotax 2011 download   For 2013, the total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000. Free turbotax 2011 download This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. Free turbotax 2011 download Rollovers are discussed under Rollovers and Other Transfers , later. Free turbotax 2011 download Example. Free turbotax 2011 download When Maria Luna was born in 2012, three separate Coverdell ESAs were set up for her, one by her parents, one by her grandfather, and one by her aunt. Free turbotax 2011 download In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. Free turbotax 2011 download For example, if her grandfather contributed $2,000 to one of her Coverdell ESAs, no one else could contribute to any of her three accounts. Free turbotax 2011 download Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. Free turbotax 2011 download These contributions could be put into any of Maria's Coverdell ESA accounts. Free turbotax 2011 download Limit for each contributor. Free turbotax 2011 download   Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. Free turbotax 2011 download This is the most you can contribute for the benefit of any one beneficiary for the year, regardless of the number of Coverdell ESAs set up for the beneficiary. Free turbotax 2011 download Example. Free turbotax 2011 download The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. Free turbotax 2011 download If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. Free turbotax 2011 download Reduced limit. Free turbotax 2011 download   Your contribution limit may be reduced. Free turbotax 2011 download If your MAGI (defined on this page) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit , later). Free turbotax 2011 download If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA. Free turbotax 2011 download Table 7-2. Free turbotax 2011 download Coverdell ESA Contributions at a Glance Do not rely on this table alone. Free turbotax 2011 download It provides only general highlights. Free turbotax 2011 download See the text for more complete explanations. Free turbotax 2011 download Question Answer Are contributions deductible? No. Free turbotax 2011 download What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. 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Free turbotax 2011 download MAGI when using Form 1040A. Free turbotax 2011 download   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Free turbotax 2011 download MAGI when using Form 1040. Free turbotax 2011 download   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free turbotax 2011 download MAGI when using Form 1040NR. Free turbotax 2011 download   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. Free turbotax 2011 download MAGI when using Form 1040NR-EZ. Free turbotax 2011 download   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. Free turbotax 2011 download   If you have any of these adjustments, you can use Worksheet 7-1. Free turbotax 2011 download MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. Free turbotax 2011 download Worksheet 7-1. Free turbotax 2011 download MAGI for a Coverdell ESA 1. Free turbotax 2011 download Enter your adjusted gross income  (Form 1040, line 38)   1. Free turbotax 2011 download   2. Free turbotax 2011 download Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Free turbotax 2011 download       3. Free turbotax 2011 download Enter your foreign housing deduction (Form 2555, line 50)   3. Free turbotax 2011 download         4. Free turbotax 2011 download Enter the amount of income from Puerto Rico you are excluding   4. Free turbotax 2011 download       5. Free turbotax 2011 download Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Free turbotax 2011 download       6. Free turbotax 2011 download Add lines 2, 3, 4, and 5   6. Free turbotax 2011 download   7. Free turbotax 2011 download Add lines 1 and 6. Free turbotax 2011 download This is your  modified adjusted gross income   7. Free turbotax 2011 download   Figuring the limit. Free turbotax 2011 download    To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. Free turbotax 2011 download The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). Free turbotax 2011 download The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). Free turbotax 2011 download Subtract the result from $2,000. Free turbotax 2011 download This is the amount you can contribute for each beneficiary. Free turbotax 2011 download You can use Worksheet 7-2. Free turbotax 2011 download Coverdell ESA Contribution Limit to figure the limit on contributions. Free turbotax 2011 download    Worksheet 7-2. Free turbotax 2011 download Coverdell ESA Contribution Limit 1. Free turbotax 2011 download Maximum contribution   1. Free turbotax 2011 download $2,000 2. Free turbotax 2011 download Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Free turbotax 2011 download   3. Free turbotax 2011 download Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Free turbotax 2011 download   4. Free turbotax 2011 download Subtract line 3 from line 2. Free turbotax 2011 download If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Free turbotax 2011 download   5. Free turbotax 2011 download Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Free turbotax 2011 download     Note. Free turbotax 2011 download If the amount on line 4 is greater than or equal to the amount on line 5, stop here. Free turbotax 2011 download You are not allowed to contribute to a Coverdell ESA for 2013. Free turbotax 2011 download       6. Free turbotax 2011 download Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Free turbotax 2011 download . Free turbotax 2011 download 7. Free turbotax 2011 download Multiply line 1 by line 6   7. Free turbotax 2011 download   8. Free turbotax 2011 download Subtract line 7 from line 1   8. Free turbotax 2011 download   Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Free turbotax 2011 download Example. Free turbotax 2011 download Paul, who is single, had a MAGI of $96,500 for 2013. Free turbotax 2011 download Paul can contribute up to $1,800 in 2013 for each beneficiary, as shown in the illustrated Worksheet 7-2, Coverdell ESA Contribution Limit–Illustrated. Free turbotax 2011 download Worksheet 7-2. Free turbotax 2011 download Coverdell ESA Contribution Limit—Illustrated 1. Free turbotax 2011 download Maximum contribution   1. Free turbotax 2011 download $2,000 2. Free turbotax 2011 download Enter your modified adjusted gross  income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Free turbotax 2011 download 96,500 3. Free turbotax 2011 download Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Free turbotax 2011 download 95,000 4. Free turbotax 2011 download Subtract line 3 from line 2. Free turbotax 2011 download If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Free turbotax 2011 download 1,500 5. Free turbotax 2011 download Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Free turbotax 2011 download 15,000   Note. Free turbotax 2011 download If the amount on line 4 is greater than or equal to the amount on line 5,  stop here. Free turbotax 2011 download You are not allowed to  contribute to a Coverdell ESA for 2013. Free turbotax 2011 download       6. Free turbotax 2011 download Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Free turbotax 2011 download . Free turbotax 2011 download 100 7. Free turbotax 2011 download Multiply line 1 by line 6   7. Free turbotax 2011 download 200 8. Free turbotax 2011 download Subtract line 7 from line 1   8. Free turbotax 2011 download 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Free turbotax 2011 download Additional Tax on Excess Contributions The beneficiary must pay a 6% excise tax each year on excess contributions that are in a Coverdell ESA at the end of the year. 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Free turbotax 2011 download (1)   $500 excess contributions made in 2013     + (2)   $300 excess contributions in ESA at end of 2012     − (2a)   $250 distribution during 2013         $550 excess at end of 2013   × 6%=$33           If Greta limits 2014 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2013), she will not owe any additional tax in 2014 for excess contributions. Free turbotax 2011 download Figuring and reporting the additional tax. Free turbotax 2011 download   You figure this excise tax in Part V of Form 5329. Free turbotax 2011 download Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). Free turbotax 2011 download Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. Free turbotax 2011 download The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. 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Free turbotax 2011 download Such payments are made to an eligible survivor upon the death of a member of the armed forces. Free turbotax 2011 download The contribution to a Coverdell ESA from survivor benefits received cannot be made later than 1 year after the date on which you receive the gratuity or SGLI payment. Free turbotax 2011 download   This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . Free turbotax 2011 download The amount you roll over cannot exceed the total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell ESAs. Free turbotax 2011 download   The amount contributed from the survivor benefits is treated as part of your basis (cost) in the Coverdell ESA, and will not be taxed when distributed. Free turbotax 2011 download See Distributions , later. Free turbotax 2011 download The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. Free turbotax 2011 download Changing the Designated Beneficiary The designated beneficiary can be changed. Free turbotax 2011 download See Members of the beneficiary's family , earlier. Free turbotax 2011 download There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary. Free turbotax 2011 download Example. Free turbotax 2011 download Assume the same situation for Aaron as in the last example (see Rollovers , earlier). Free turbotax 2011 download Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister. 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Free turbotax 2011 download Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (defined later) that the beneficiary has in the same tax year. Free turbotax 2011 download See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. Free turbotax 2011 download Table 7-3. Free turbotax 2011 download Coverdell ESA Distributions at a Glance Do not rely on this table alone. Free turbotax 2011 download It provides only general highlights. Free turbotax 2011 download See the text for definitions of terms in bold type and for more complete explanations. Free turbotax 2011 download Question Answer Is a distribution from a Coverdell ESA to pay for a designated beneficiary's qualified education expenses tax free? Generally, yes, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses. Free turbotax 2011 download After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. Free turbotax 2011 download Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. Free turbotax 2011 download Also, certain transfers to members of the beneficiary's family are permitted. Free turbotax 2011 download Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. Free turbotax 2011 download Adjusted qualified education expenses. Free turbotax 2011 download   To determine if total distributions for the year are more than the amount of qualified education expenses, reduce total qualified education expenses by any tax-free educational assistance. Free turbotax 2011 download Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Free turbotax 2011 download The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. Free turbotax 2011 download Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. Free turbotax 2011 download Do not report tax-free distributions (including qualifying rollovers) on your tax return. Free turbotax 2011 download Taxable Distributions A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the year. Free turbotax 2011 download Excess distribution. Free turbotax 2011 download   This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. Free turbotax 2011 download Earnings and basis. Free turbotax 2011 download   You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. Free turbotax 2011 download The amount of your gross distribution will be shown in box 1. Free turbotax 2011 download For 2013, instead of dividing the gross distribution between your earnings (box 2) and your basis (already-taxed amount) (box 3), the payer or trustee may report the fair market value (account balance) of the Coverdell ESA as of December 31, 2013. Free turbotax 2011 download This will be shown in the blank box below boxes 5 and 6. Free turbotax 2011 download   The amount contributed from survivor benefits (see Military death gratuity , earlier) is treated as part of your basis and will not be taxed when distributed. Free turbotax 2011 download Figuring the Taxable Portion of a Distribution The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. Free turbotax 2011 download Figure the taxable portion for 2013 as shown in the following steps. Free turbotax 2011 download Multiply the total amount distributed by a fraction. Free turbotax 2011 download The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the value (balance) of the account at the end of 2013 plus the amount distributed during 2013. Free turbotax 2011 download Subtract the amount figured in (1) from the total amount distributed during 2013. Free turbotax 2011 download The result is the amount of earnings included in the distribution(s). Free turbotax 2011 download Multiply the amount of earnings figured in (2) by a fraction. Free turbotax 2011 download The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. Free turbotax 2011 download Subtract the amount figured in (3) from the amount figured in (2). Free turbotax 2011 download The result is the amount the beneficiary must include in income. Free turbotax 2011 download The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. Free turbotax 2011 download Example. Free turbotax 2011 download You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. Free turbotax 2011 download There were no contributions in 2013. Free turbotax 2011 download This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. Free turbotax 2011 download The value (balance) of your account on December 31, 2013, was $950. Free turbotax 2011 download You had $700 of adjusted qualified education expenses (AQEE) for the year. Free turbotax 2011 download Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. Free turbotax 2011 download   1. Free turbotax 2011 download $850 (distribution) × $1,500 basis + $0 contributions  $950 value + $850 distribution       =$708 (basis portion of distribution)     2. Free turbotax 2011 download $850 (distribution)−$708 (basis portion of distribution)     =$142 (earnings included in distribution)   3. Free turbotax 2011 download $142 (earnings) × $700 AQEE  $850 distribution           =$117 (tax-free earnings)     4. Free turbotax 2011 download $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings)                 You must include $25 in income as distributed earnings not used for qualified education expenses. Free turbotax 2011 download Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. Free turbotax 2011 download Worksheet 7-3, Coverdell ESA–Taxable Distributions and Basis , at the end of this chapter, can help you figure your adjusted qualified education expenses, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s). Free turbotax 2011 download Coordination With American Opportunity and Lifetime Learning Credits The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. Free turbotax 2011 download This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. Free turbotax 2011 download Example. Free turbotax 2011 download Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. Free turbotax 2011 download He paid his college expenses from the following sources. Free turbotax 2011 download     Partial tuition scholarship (tax free) $1,500     Coverdell ESA distribution 1,000     Gift from parents 2,100     Earnings from part-time job 1,200           Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. Free turbotax 2011 download Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. Free turbotax 2011 download Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. Free turbotax 2011 download     Total qualified higher education expenses $5,800     Minus: Tax-free educational assistance −1,500     Minus: Expenses taken into account in  figuring American opportunity credit − 4,000     Equals: Adjusted qualified higher education  expenses (AQHEE) $ 300           Since the adjusted qualified higher education expenses ($300) are less than the Coverdell ESA distribution ($1,000), part of the distribution will be taxable. Free turbotax 2011 download The balance in Derek's account was $1,800 on December 31, 2013. Free turbotax 2011 download Prior to 2013, $2,100 had been contributed to this account. Free turbotax 2011 download Contributions for 2013 totaled $400. Free turbotax 2011 download Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. Free turbotax 2011 download   1. Free turbotax 2011 download $1,000 (distribution) × $2,100 basis + $400 contributions  $1,800 value + $1,000 distribution           =$893 (basis portion of distribution)     2. Free turbotax 2011 download $1,000 (distribution)−$893 (basis portion of distribution)     = $107 (earnings included in distribution)   3. Free turbotax 2011 download $107 (earnings) × $300 AQHEE  $1,000 distribution       =$32 (tax-free earnings)     4. Free turbotax 2011 download $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings)                 Derek must include $75 in income (Form 1040, line 21). Free turbotax 2011 download This is the amount of distributed earnings not used for adjusted qualified higher education expenses. Free turbotax 2011 download Coordination With Qualified Tuition Program (QTP) Distributions If a designated beneficiary receives distributions from both a Coverdell ESA and a QTP in the same year, and the total distribution is more than the beneficiary's adjusted qualified higher education expenses, those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the QTP before figuring how much of each distribution is taxable. Free turbotax 2011 download The following two examples illustrate possible allocations. Free turbotax 2011 download Example 1. Free turbotax 2011 download In 2013, Beatrice graduated from high school and began her first semester of college. Free turbotax 2011 download That year, she had $1,000 of qualified elementary and secondary education expenses (QESEE) for high school and $3,000 of qualified higher education expenses (QHEE) for college. Free turbotax 2011 download To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. Free turbotax 2011 download No one claimed Beatrice as a dependent, nor was she eligible for an education credit. Free turbotax 2011 download She did not receive any tax-free educational assistance in 2013. Free turbotax 2011 download Beatrice must allocate her total qualified education expenses between the two distributions. Free turbotax 2011 download Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution toward her $1,000 of qualified education expenses for high school. Free turbotax 2011 download The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. Free turbotax 2011 download Next, Beatrice matches her $4,200 QTP distribution to her $3,000 of QHEE, and finds she has an excess QTP distribution of $1,200 ($4,200 QTP − $3,000 QHEE). Free turbotax 2011 download She cannot use the extra $200 of high school expenses (from (1) above) against the QTP distribution because those expenses do not qualify a QTP for tax-free treatment. Free turbotax 2011 download Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. Free turbotax 2011 download (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. Free turbotax 2011 download ) Example 2. Free turbotax 2011 download Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. Free turbotax 2011 download In this case, she allocates her qualified education expenses as follows. Free turbotax 2011 download Using the same reasoning as in Example 1, Beatrice matches $1,000 of her Coverdell ESA distribution to her $1,000 of QESEE—she has $800 of her distribution remaining. Free turbotax 2011 download Because higher education expenses can also qualify a Coverdell ESA distribution for tax-free treatment, Beatrice allocates her $3,000 of QHEE between the remaining $800 Coverdell ESA and the $3,200 QTP distributions ($4,000 total). Free turbotax 2011 download   $3,000 QHEE × $800 ESA distribution  $4,000 total distribution = $600 QHEE (ESA)     $3,000 QHEE × $3,200 QTP distribution  $4,000 total distribution = $2,400 QHEE (QTP)   Beatrice then figures the taxable part of her: Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + $600 QHEE). Free turbotax 2011 download See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. Free turbotax 2011 download   QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). Free turbotax 2011 download The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. Free turbotax 2011 download However, you do not have to allocate your expenses in the same way. Free turbotax 2011 download You can use any reasonable method. Free turbotax 2011 download Losses on Coverdell ESA Investments If you have a loss on your investment in a Coverdell ESA, you may be able to deduct the loss on your income tax return. Free turbotax 2011 download You can deduct the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Free turbotax 2011 download Your basis is the total amount of contributions to that Coverdell ESA. Free turbotax 2011 download You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Free turbotax 2011 download If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. Free turbotax 2011 download ) from all such accounts in order to determine your taxable earnings for the year. Free turbotax 2011 download By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. Free turbotax 2011 download For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. Free turbotax 2011 download Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Free turbotax 2011 download Exceptions. Free turbotax 2011 download   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Free turbotax 2011 download Made because the designated beneficiary is disabled. Free turbotax 2011 download A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Free turbotax 2011 download A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Free turbotax 2011 download Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Free turbotax 2011 download Made on account of the attendance of the designated beneficiary at a U. Free turbotax 2011 download S. Free turbotax 2011 download military academy (such as the USMA at West Point). Free turbotax 2011 download This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Free turbotax 2011 download S. Free turbotax 2011 download Code) attributable to such attendance. Free turbotax 2011 download Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier). Free turbotax 2011 download Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). Free turbotax 2011 download The distributed earnings must be included in gross income for the year in which the excess contribution was made. Free turbotax 2011 download Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Free turbotax 2011 download Figuring the additional tax. Free turbotax 2011 download    Use Part II of Form 5329, to figure any additional tax. Free turbotax 2011 download Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Free turbotax 2011 download When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. Free turbotax 2011 download The designated beneficiary reaches age 30. Free turbotax 2011 download In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. Free turbotax 2011 download However, this rule does not apply if the beneficiary is a special needs beneficiary. Free turbotax 2011 download The designated beneficiary dies before reaching age 30. Free turbotax 2011 download In this case, the remaining assets must generally be distributed within 30 days after the date of death. Free turbotax 2011 download Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. Free turbotax 2011 download (“Family member” was defined earlier under Rollovers . Free turbotax 2011 download ) This means the spouse or other family member can treat the Coverdell ESA as his or her own and does not need to withdraw the assets until he or she reaches age 30. Free turbotax 2011 download This age limitation does not apply if the new beneficiary is a special needs beneficiary. Free turbotax 2011 download There are no tax consequences as a result of the transfer. Free turbotax 2011 download How To Figure the Taxable Earnings When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. Free turbotax 2011 download You determine these earnings as shown in the following two steps. Free turbotax 2011 download Multiply the amount distributed by a fraction. Free turbotax 2011 download The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the balance in the account at the end of 2013 plus the amount distributed during 2013. Free turbotax 2011 download Subtract the amount figured in (1) from the total amount distributed during 2013. Free turbotax 2011 download The result is the amount of earnings included in the distribution. Free turbotax 2011 download For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. Free turbotax 2011 download The beneficiary or other person receiving the distribution must report this amount on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line. Free turbotax 2011 download Worksheet 7-3 Instructions. Free turbotax 2011 download Coverdell ESA—Taxable Distributions and Basis Line G. Free turbotax 2011 download Enter the total distributions received from all Coverdell ESAs during 2013. Free turbotax 2011 download Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). Free turbotax 2011 download Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made. Free turbotax 2011 download Line 2. Free turbotax 2011 download Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2012, is the total of:   •All contributions to this Coverdell ESA before 2013 •Minus the tax-free portion of any distributions from this Coverdell ESA before 2013. Free turbotax 2011 download   If your last distribution from this Coverdell ESA was before 2013, you must start with the basis in your account as of the end of the last year in which you took a distribution. Free turbotax 2011 download For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. Free turbotax 2011 download For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. Free turbotax 2011 download You can determine your basis in this Coverdell ESA as of December 31, 2012, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2013. Free turbotax 2011 download Line 4. Free turbotax 2011 download Enter the total distributions received from this Coverdell ESA in 2013. Free turbotax 2011 download Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). Free turbotax 2011 download   Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions. Free turbotax 2011 download Line 7. Free turbotax 2011 download Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers contributed to the account after 2012, but before the end of the 60-day rollover period. Free turbotax 2011 download A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. Free turbotax 2011 download   A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. Free turbotax 2011 download An outstanding rollover is any amount withdrawn within 60 days before the end of 2013 (November 2 through December 31) that was rolled over after December 31, 2013, but within the 60-day rollover period. Free turbotax 2011 download Worksheet 7-3. Free turbotax 2011 download Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. Free turbotax 2011 download • • • Complete Part I, lines A through H, on only one worksheet. Free turbotax 2011 download  Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. Free turbotax 2011 download  Complete Part III, the Summary (line 16), on only one worksheet. Free turbotax 2011 download Part I. Free turbotax 2011 download Qualified Education Expenses (Complete for total expenses)       A. Free turbotax 2011 download Enter your total qualified education expenses for 2013   A. Free turbotax 2011 download   B. Free turbotax 2011 download Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans' educational benefits, Pell grants, employer-provided educational assistance)   B. Free turbotax 2011 download         C. Free turbotax 2011 download Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). Free turbotax 2011 download Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR)   C. Free turbotax 2011 download         D. Free turbotax 2011 download Enter those qualified higher education expenses on which  an American opportunity or lifetime learning credit was based   D. Free turbotax 2011 download         E. Free turbotax 2011 download Add lines B, C, and D   D. Free turbotax 2011 download   F. Free turbotax 2011 download Subtract line E from line A. Free turbotax 2011 download This is your adjusted qualified education expense for 2013   E. Free turbotax 2011 download   G. Free turbotax 2011 download Enter your total distributions from all Coverdell ESAs during 2013. Free turbotax 2011 download Do not include rollovers  or the return of excess contributions (see instructions)   F. Free turbotax 2011 download   H. Free turbotax 2011 download Divide line F by line G. Free turbotax 2011 download Enter the result as a decimal (rounded to at least 3 places). Free turbotax 2011 download If the  result is 1. Free turbotax 2011 download 000 or more, enter 1. Free turbotax 2011 download 000   G. Free turbotax 2011 download . Free turbotax 2011 download Part II. Free turbotax 2011 download Taxable Distributions and Basis (Complete separately for each account) 1. Free turbotax 2011 download Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. Free turbotax 2011 download Do not include rollovers or the return of excess contributions   1. Free turbotax 2011 download   2. Free turbotax 2011 download Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions)   2. Free turbotax 2011 download   3. Free turbotax 2011 download Add lines 1 and 2   3. Free turbotax 2011 download   4. Free turbotax 2011 download Enter the total distributions from this Coverdell ESA during 2013. Free turbotax 2011 download Do not include rollovers  or the return of excess contributions (see instructions)   4. Free turbotax 2011 download   5. Free turbotax 2011 download Multiply line 4 by line H. Free turbotax 2011 download This is the amount of adjusted qualified  education expense attributable to this Coverdell ESA   5. Free turbotax 2011 download         6. Free turbotax 2011 download Subtract line 5 from line 4   6. Free turbotax 2011 download         7. Free turbotax 2011 download Enter the total value of this Coverdell ESA as of December 31, 2013,  plus any outstanding rollovers (see instructions)   7. Free turbotax 2011 download         8. Free turbotax 2011 download Add lines 4 and 7   8. Free turbotax 2011 download         9. Free turbotax 2011 download Divide line 3 by line 8. Free turbotax 2011 download Enter the result as a decimal (rounded to  at least 3 places). Free turbotax 2011 download If the result is 1. Free turbotax 2011 download 000 or more, enter 1. Free turbotax 2011 download 000   9. Free turbotax 2011 download . Free turbotax 2011 download       10. Free turbotax 2011 download Multiply line 4 by line 9. Free turbotax 2011 download This is the amount of basis allocated to your  distributions, and is tax free   10. Free turbotax 2011 download     Note. Free turbotax 2011 download If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. Free turbotax 2011 download       11. Free turbotax 2011 download Subtract line 10 from line 4   11. Free turbotax 2011 download   12. Free turbotax 2011 download Divide line 5 by line 4. Free turbotax 2011 download Enter the result as a decimal (rounded to  at least 3 places). Free turbotax 2011 download If the result is 1. Free turbotax 2011 download 000 or more, enter 1. Free turbotax 2011 download 000   12. Free turbotax 2011 download . Free turbotax 2011 download       13. Free turbotax 2011 download Multiply line 11 by line 12. Free turbotax 2011 download This is the amount of qualified education  expenses allocated to your distributions, and is tax free   13. Free turbotax 2011 download   14. Free turbotax 2011 download Subtract line 13 from line 11. Free turbotax 2011 download This is the portion of the distributions from this  Coverdell ESA in 2013 that you must include in income   14. Free turbotax 2011 download   15. Free turbotax 2011 download Subtract line 10 from line 3. Free turbotax 2011 download This is your basis in this Coverdell ESA as of December 31, 2013   15. Free turbotax 2011 download   Part III. Free turbotax 2011 download Summary (Complete only once)       16. Free turbotax 2011 download Taxable amount. Free turbotax 2011 download Add together all amounts on line 14 for all your Coverdell ESAs. Free turbotax 2011 download Enter here  and include on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line   16. Free turbotax 2011 download   Prev  Up  Next   Home   More Online Publications
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