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H&r Block Online Taxes

H&r block online taxes 4. H&r block online taxes   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. H&r block online taxes However, the information shown on the filled-in forms is not from any actual person or scenario. H&r block online taxes Example 1—Mortgage loan modification. H&r block online taxes    In 2007, Nancy Oak bought a main home for $435,000. H&r block online taxes Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. H&r block online taxes The loan was secured by the home. H&r block online taxes The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. H&r block online taxes In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. H&r block online taxes    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. H&r block online taxes The FMV of Nancy's home at the time of the refinancing was $500,000. H&r block online taxes Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. H&r block online taxes After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. H&r block online taxes   In 2013, Nancy was unable to make her mortgage loan payments. H&r block online taxes On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. H&r block online taxes Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. H&r block online taxes   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. H&r block online taxes Identifiable event code "F" appears in box 6. H&r block online taxes This box shows the reason the creditor has filed Form 1099-C. H&r block online taxes To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. H&r block online taxes Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. H&r block online taxes   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. H&r block online taxes Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. H&r block online taxes Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. H&r block online taxes Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). H&r block online taxes   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. H&r block online taxes Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). H&r block online taxes Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. H&r block online taxes You can see Nancy's Form 1099-C and a portion of her Form 1040 below. H&r block online taxes Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. H&r block online taxes Please click the link to view the image. H&r block online taxes Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. H&r block online taxes Please click the link to view the image. H&r block online taxes Form 1040, U. H&r block online taxes S. H&r block online taxes Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. H&r block online taxes Please click the link to view the image. H&r block online taxes Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. H&r block online taxes    In 2005, John and Mary Elm bought a main home for $335,000. H&r block online taxes John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. H&r block online taxes The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. H&r block online taxes   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. H&r block online taxes Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. H&r block online taxes   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. H&r block online taxes Identifiable event code "D" appears in box 6. H&r block online taxes This box shows the reason the creditor has filed Form 1099-C. H&r block online taxes In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. H&r block online taxes In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. H&r block online taxes Their sample Form 1099-C is shown on this page. H&r block online taxes   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). H&r block online taxes However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. H&r block online taxes   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). H&r block online taxes Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. H&r block online taxes Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. H&r block online taxes As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. H&r block online taxes Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. H&r block online taxes Thus, John and Mary leave line 10b of Form 982 blank. H&r block online taxes   John and Mary must also determine whether they have a gain or loss from the foreclosure. H&r block online taxes John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. H&r block online taxes Because this loss relates to their home, it is a nondeductible loss. H&r block online taxes   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. H&r block online taxes John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. H&r block online taxes Please click the link to view the image. H&r block online taxes Form 1099-C, Cancellation of Debt Table 1-1. H&r block online taxes Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. H&r block online taxes Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). H&r block online taxes Otherwise, go to Part 2. H&r block online taxes 1. H&r block online taxes Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. H&r block online taxes 00 2. H&r block online taxes Enter the fair market value of the transferred property $290,000. H&r block online taxes 00 3. H&r block online taxes Ordinary income from the cancellation of debt upon foreclosure or repossession. H&r block online taxes * Subtract line 2 from line 1. H&r block online taxes If less than zero, enter zero. H&r block online taxes Next, go to Part 2 $ 25,000. H&r block online taxes 00 Part 2. H&r block online taxes Gain or loss from foreclosure or repossession. H&r block online taxes   4. H&r block online taxes Enter the smaller of line 1 or line 2. H&r block online taxes If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. H&r block online taxes 00 5. H&r block online taxes Enter any proceeds you received from the foreclosure sale   6. H&r block online taxes Add line 4 and line 5 $290,000. H&r block online taxes 00 7. H&r block online taxes Enter the adjusted basis of the transferred property $335,000. H&r block online taxes 00 8. H&r block online taxes Gain or loss from foreclosure or repossession. H&r block online taxes Subtract line 7 from line 6 ($ 45,000. H&r block online taxes 00) * The income may not be taxable. H&r block online taxes See chapter 1 for more details. H&r block online taxes Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. H&r block online taxes Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. H&r block online taxes Credit card debt $ 5,500 2. H&r block online taxes Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. H&r block online taxes Car and other vehicle loans $ 4. H&r block online taxes Medical bills owed $ 5. H&r block online taxes Student loans $ 6. H&r block online taxes Accrued or past-due mortgage interest $ 7. H&r block online taxes Accrued or past-due real estate taxes $ 8. H&r block online taxes Accrued or past-due utilities (water, gas, electric) $ 9. H&r block online taxes Accrued or past-due child care costs $ 10. H&r block online taxes Federal or state income taxes remaining due (for prior tax years) $ 11. H&r block online taxes Judgments $ 12. H&r block online taxes Business debts (including those owed as a sole proprietor or partner) $ 13. H&r block online taxes Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. H&r block online taxes Other liabilities (debts) not included above $ 15. H&r block online taxes Total liabilities immediately before the cancellation. H&r block online taxes Add lines 1 through 14. H&r block online taxes $ 320,500 Part II. H&r block online taxes Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. H&r block online taxes Cash and bank account balances $ 6,000 17. H&r block online taxes Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. H&r block online taxes Cars and other vehicles $ 19. H&r block online taxes Computers $ 20. H&r block online taxes Household goods and furnishings (for example, appliances, electronics, furniture, etc. H&r block online taxes ) $ 21. H&r block online taxes Tools $ 22. H&r block online taxes Jewelry $ 23. H&r block online taxes Clothing $ 24. H&r block online taxes Books $ 25. H&r block online taxes Stocks and bonds $ 26. H&r block online taxes Investments in coins, stamps, paintings, or other collectibles $ 27. H&r block online taxes Firearms, sports, photographic, and other hobby equipment $ 28. H&r block online taxes Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. H&r block online taxes Interest in a pension plan $ 30. H&r block online taxes Interest in education accounts $ 31. H&r block online taxes Cash value of life insurance $ 32. H&r block online taxes Security deposits with landlords, utilities, and others $ 33. H&r block online taxes Interests in partnerships $ 34. H&r block online taxes Value of investment in a business $ 35. H&r block online taxes Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. H&r block online taxes Other assets not included above $ 37. H&r block online taxes FMV of total assets immediately before the cancellation. H&r block online taxes Add lines 16 through 36. H&r block online taxes $ 309,000 Part III. H&r block online taxes Insolvency 38. H&r block online taxes Amount of Insolvency. H&r block online taxes Subtract line 37 from line 15. H&r block online taxes If zero or less, you are not insolvent. H&r block online taxes $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. H&r block online taxes Please click the link to view the image. H&r block online taxes Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. H&r block online taxes    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. H&r block online taxes Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. H&r block online taxes Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. H&r block online taxes   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. H&r block online taxes The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. H&r block online taxes On December 26, 2013, the lender canceled the remaining debt. H&r block online taxes Kathy and Frank have no tax attributes other than basis of personal-use property. H&r block online taxes   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). H&r block online taxes Identifiable event code "D" appears in box 6. H&r block online taxes This box shows the reason the creditor has filed Form 1099-C. H&r block online taxes Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. H&r block online taxes Kathy and Frank are filing a joint return for 2013. H&r block online taxes   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. H&r block online taxes Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). H&r block online taxes Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. H&r block online taxes Because this loss relates to their home, it is a nondeductible loss. H&r block online taxes   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. H&r block online taxes Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. H&r block online taxes Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. H&r block online taxes The household furnishings originally cost $30,000. H&r block online taxes The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. H&r block online taxes Kathy and Frank had no adjustments to the cost basis of the car. H&r block online taxes Kathy and Frank had no other assets or liabilities at the time of the cancellation. H&r block online taxes Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). H&r block online taxes   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. H&r block online taxes Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). H&r block online taxes Kathy and Frank had no other assets or liabilities at that time. H&r block online taxes Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. H&r block online taxes   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. H&r block online taxes The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. H&r block online taxes The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. H&r block online taxes Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. H&r block online taxes Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). H&r block online taxes This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. H&r block online taxes   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. H&r block online taxes Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. H&r block online taxes Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. H&r block online taxes Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). H&r block online taxes   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. H&r block online taxes Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. H&r block online taxes Thus, Kathy and Frank leave line 10b of Form 982 blank. H&r block online taxes However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. H&r block online taxes As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. H&r block online taxes Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). H&r block online taxes Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. H&r block online taxes Kathy and Frank reduce the basis in the car by $14,956. H&r block online taxes 52 ($43,000 x $16,000/$46,000). H&r block online taxes And they reduce the basis in the household furnishings by $28,043. H&r block online taxes 48 ($43,000 x $30,000/$46,000). H&r block online taxes   Following are Kathy and Frank's sample forms and worksheets. H&r block online taxes Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. H&r block online taxes Please click the link to view the image. H&r block online taxes Form 1099-C, Cancellation of Debt Table 1-1. H&r block online taxes Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. H&r block online taxes Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). H&r block online taxes Otherwise, go to Part 2. H&r block online taxes 1. H&r block online taxes Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. H&r block online taxes 00 2. H&r block online taxes Enter the fair market value of the transferred property $1,750,000. H&r block online taxes 00 3. H&r block online taxes Ordinary income from the cancellation of debt upon foreclosure or repossession. H&r block online taxes * Subtract line 2 from line 1. H&r block online taxes If less than zero, enter zero. H&r block online taxes Next, go to Part 2 $0. H&r block online taxes 00 Part 2. H&r block online taxes Gain or loss from foreclosure or repossession. H&r block online taxes   4. H&r block online taxes Enter the smaller of line 1 or line 2. H&r block online taxes If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. H&r block online taxes $1,750,000. H&r block online taxes 00 5. H&r block online taxes Enter any proceeds you received from the foreclosure sale   6. H&r block online taxes Add line 4 and line 5 $1,750,000. H&r block online taxes 00 7. H&r block online taxes Enter the adjusted basis of the transferred property $3,000,000. H&r block online taxes 00 8. H&r block online taxes Gain or loss from foreclosure or repossession. H&r block online taxes Subtract line 7 from line 6 ($1,250,000. H&r block online taxes 00) * The income may not be taxable. H&r block online taxes See chapter 1 for more details. H&r block online taxes    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. H&r block online taxes Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. H&r block online taxes Credit card debt $ 18,000 2. H&r block online taxes Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. H&r block online taxes Car and other vehicle loans $ 4. H&r block online taxes Medical bills owed $ 5. H&r block online taxes Student loans $ 6. H&r block online taxes Accrued or past-due mortgage interest $ 7. H&r block online taxes Accrued or past-due real estate taxes $ 8. H&r block online taxes Accrued or past-due utilities (water, gas, electric) $ 9. H&r block online taxes Accrued or past-due child care costs $ 10. H&r block online taxes Federal or state income taxes remaining due (for prior tax years) $ 11. H&r block online taxes Judgments $ 12. H&r block online taxes Business debts (including those owed as a sole proprietor or partner) $ 13. H&r block online taxes Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. H&r block online taxes Other liabilities (debts) not included above $ 15. H&r block online taxes Total liabilities immediately before the cancellation. H&r block online taxes Add lines 1 through 14. H&r block online taxes $ 768,000 Part II. H&r block online taxes Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. H&r block online taxes Cash and bank account balances $ 15,000 17. H&r block online taxes Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. H&r block online taxes Cars and other vehicles $ 10,000 19. H&r block online taxes Computers $ 20. H&r block online taxes Household goods and furnishings (for example, appliances, electronics, furniture, etc. H&r block online taxes ) $ 17,000 21. H&r block online taxes Tools $ 22. H&r block online taxes Jewelry $ 23. H&r block online taxes Clothing $ 24. H&r block online taxes Books $ 25. H&r block online taxes Stocks and bonds $ 26. H&r block online taxes Investments in coins, stamps, paintings, or other collectibles $ 27. H&r block online taxes Firearms, sports, photographic, and other hobby equipment $ 28. H&r block online taxes Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. H&r block online taxes Interest in a pension plan $ 30. H&r block online taxes Interest in education accounts $ 31. H&r block online taxes Cash value of life insurance $ 32. H&r block online taxes Security deposits with landlords, utilities, and others $ 33. H&r block online taxes Interests in partnerships $ 34. H&r block online taxes Value of investment in a business $ 35. H&r block online taxes Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. H&r block online taxes Other assets not included above $ 37. H&r block online taxes FMV of total assets immediately before the cancellation. H&r block online taxes Add lines 16 through 36. H&r block online taxes $ 42,000 Part III. H&r block online taxes Insolvency 38. H&r block online taxes Amount of Insolvency. H&r block online taxes Subtract line 37 from line 15. H&r block online taxes If zero or less, you are not insolvent. H&r block online taxes $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. H&r block online taxes Please click the link to view the image. H&r block online taxes Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications
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The H&r Block Online Taxes

H&r block online taxes Publication 929 - Main Content Table of Contents Part 1. H&r block online taxes Rules for All Dependents Filing RequirementsEarned Income Only Unearned Income Only Both Earned and Unearned Income Other Filing Requirements Should a Return Be Filed Even If Not Required? Responsibility for Child's ReturnThird party designee. H&r block online taxes Designated as representative. H&r block online taxes IRS notice. H&r block online taxes Standard DeductionStandard Deduction of Zero Dependent's Own Exemption Withholding From WagesExceptions. H&r block online taxes Part 2. H&r block online taxes Tax on Unearned Income of Certain ChildrenWhich Parent's Return To Use Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, Lines A–C) Step 1. H&r block online taxes Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. H&r block online taxes Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. H&r block online taxes Figuring the Child's Tax (Form 8615, Part III) Alternative Minimum Tax Illustrated Example Part 1. H&r block online taxes Rules for All Dependents This part of the publication discusses the filing requirements for dependents, who is responsible for a child's return, how to figure a dependent's standard deduction and exemption (if any), and whether a dependent can claim exemption from federal income tax withholding. H&r block online taxes Filing Requirements Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind. H&r block online taxes A dependent may have to file a return even if his or her income is less than the amount that would normally require a return. H&r block online taxes See Other Filing Requirements, later. H&r block online taxes The following sections apply to dependents with: Earned income only, Unearned income only, and Both earned and unearned income. H&r block online taxes  To find out whether a dependent must file, read the section that applies, or use Table 1. H&r block online taxes Earned Income Only A dependent whose gross income is only earned income must file a return if the gross income is more than the amount listed in the following table. H&r block online taxes Marital Status Amount Single   Under 65 and not blind $6,100 Either 65 or older or blind $7,600 65 or older and blind $9,100 Married*   Under 65 and not blind $6,100 Either 65 or older or blind $7,300 65 or older and blind $8,500 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). H&r block online taxes Example. H&r block online taxes William is 16. H&r block online taxes His mother claims an exemption for him on her income tax return. H&r block online taxes He worked part time on weekends during the school year and full time during the summer. H&r block online taxes He earned $7,000 in wages. H&r block online taxes He did not have any unearned income. H&r block online taxes He must file a tax return because he has earned income only and his gross income is more than $6,100. H&r block online taxes If he is blind, he does not have to file a return because his gross income is not more than $7,600. H&r block online taxes Unearned Income Only A dependent whose gross income is only unearned income must file a return if the gross income is more than the amount listed in the following table. H&r block online taxes Marital Status Amount Single   Under 65 and not blind $1,000 Either 65 or older or blind $2,500 65 or older and blind $4,000 Married*   Under 65 and not blind $1,000 Either 65 or older or blind $2,200 65 or older and blind $3,400 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). H&r block online taxes Example. H&r block online taxes Sarah is 18 and single. H&r block online taxes Her parents can claim an exemption for her on their income tax return. H&r block online taxes She received $1,970 of taxable interest and dividend income. H&r block online taxes She did not work during the year. H&r block online taxes She must file a tax return because she has unearned income only and her gross income is more than $1,000. H&r block online taxes If she is blind, she does not have to file a return because she has unearned income only and her gross income is not more than $2,500. H&r block online taxes Election to report child's unearned income on parent's return. H&r block online taxes   A parent of a child under age 19 (or under age 24 if a full-time student) may be able to elect to include the child's interest and dividend income on the parent's return. H&r block online taxes See Parent's Election To Report Child's Interest and Dividends in Part 2. H&r block online taxes If the parent makes this election, the child does not have to file a return. H&r block online taxes Both Earned and Unearned Income A dependent who has both earned and unearned income generally must file a return if the dependent's gross income is more than line 5 of the following worksheet. H&r block online taxes Filing Requirement Worksheet for Most Dependents 1. H&r block online taxes Enter dependent's earned income plus $350     2. H&r block online taxes Minimum amount   $1,000 3. H&r block online taxes Compare lines 1 and 2. H&r block online taxes Enter the larger amount     4. H&r block online taxes Maximum amount   6,100 5. H&r block online taxes Compare lines 3 and 4. H&r block online taxes Enter the smaller amount     6. H&r block online taxes Enter the dependent's gross income. H&r block online taxes If line 6 is more than line 5, the dependent must file an income tax return. H&r block online taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. H&r block online taxes       Table 1. H&r block online taxes 2013 Filing Requirements for Dependents If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return. H&r block online taxes   See the definitions of “dependent,”“earned income,”“unearned income,” and “gross income” in the Glossary. H&r block online taxes   Single dependents—Were you either age 65 or older or blind?     No. H&r block online taxes You must file a return if any of the following apply. H&r block online taxes       Your unearned income was over $1,000. H&r block online taxes Your earned income was over $6,100. H&r block online taxes Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. H&r block online taxes         Yes. H&r block online taxes You must file a return if any of the following apply. H&r block online taxes     Your unearned income was over $2,500 ($4,000 if 65 or older and blind), Your earned income was over $7,600 ($9,100 if 65 or older and blind), Your gross income was more than the larger of—       $2,500 ($4,000 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,850 ($3,350 if 65 or older and blind). H&r block online taxes       Married dependents—Were you either age 65 or older or blind?     No. H&r block online taxes You must file a return if any of the following apply. H&r block online taxes       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. H&r block online taxes Your unearned income was over $1,000. H&r block online taxes Your earned income was over $6,100. H&r block online taxes Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. H&r block online taxes       Yes. H&r block online taxes You must file a return if any of the following apply. H&r block online taxes       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. H&r block online taxes Your unearned income was over $2,200 ($3,400 if 65 or older and blind), Your earned income was over $7,300 ($8,500 if 65 or older and blind), Your gross income was more than the larger of—       $2,200 ($3,400 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,550 ($2,750 if 65 or older and blind). H&r block online taxes       Example 1. H&r block online taxes Joe is 20, single, not blind, and a full-time college student. H&r block online taxes He does not provide more than half of his own support, and his parents claim an exemption for him on their income tax return. H&r block online taxes He received $200 taxable interest income and earned $2,750 from a part-time job. H&r block online taxes He does not have to file a tax return because his gross income of $2,950 ($200 interest plus $2,750 in wages) is not more than $3,100, the amount on line 5 of his filled-in Filing Requirement Worksheet for Most Dependents (shown next). H&r block online taxes Filled-in Example 1 Filing Requirement Worksheet  for Most Dependents 1. H&r block online taxes Enter dependent's earned income plus $350   $ 3,100 2. H&r block online taxes Minimum amount   1,000 3. H&r block online taxes Compare lines 1 and 2. H&r block online taxes Enter the larger amount   3,100 4. H&r block online taxes Maximum amount   6,100 5. H&r block online taxes Compare lines 3 and 4. H&r block online taxes Enter the smaller amount   3,100 6. H&r block online taxes Enter the dependent's gross income. H&r block online taxes If line 6 is more than line 5, the dependent must file an income tax return. H&r block online taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. H&r block online taxes   $ 2,950   Example 2. H&r block online taxes The facts are the same as in Example 1 except that Joe had $600 taxable interest income. H&r block online taxes He must file a tax return because his gross income of $3,350 ($600 interest plus $2,750 wages) is more than $3,100, the amount on line 5 of his filled-in worksheet (shown next). H&r block online taxes Filled-in Example 2 Filing Requirement Worksheet for Most Dependents 1. H&r block online taxes Enter dependent's earned income plus $350   $ 3,100 2. H&r block online taxes Minimum amount   1,000 3. H&r block online taxes Compare lines 1 and 2. H&r block online taxes Enter the larger amount   3,100 4. H&r block online taxes Maximum amount   6,100 5. H&r block online taxes Compare lines 3 and 4. H&r block online taxes Enter the smaller amount   3,100 6. H&r block online taxes Enter the dependent's gross income. H&r block online taxes If line 6 is more than line 5, the dependent must file an income tax return. H&r block online taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. H&r block online taxes   $ 3,350   Age 65 or older or blind. H&r block online taxes A dependent who is age 65 or older or blind must file a return if his or her gross income is more than line 7 of the following worksheet. H&r block online taxes Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. H&r block online taxes Enter dependent's earned income plus $350     2. H&r block online taxes Minimum amount   $1,000 3. H&r block online taxes Compare lines 1 and 2. H&r block online taxes Enter the larger amount     4. H&r block online taxes Maximum amount   6,100 5. H&r block online taxes Compare lines 3 and 4. H&r block online taxes Enter the smaller amount     6. H&r block online taxes Enter the amount from the following table that applies to the dependent       Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. H&r block online taxes Add lines 5 and 6. H&r block online taxes Enter the total     8. H&r block online taxes Enter the dependent's gross income. H&r block online taxes If line 8 is more than line 7, the dependent must file an income tax return. H&r block online taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more     Example 3. H&r block online taxes The facts are the same as in Example 2 except that Joe is also blind. H&r block online taxes He does not have to file a return because his gross income of $3,350 is not more than $4,600, the amount on line 7 of his filled-in Filing Requirement Worksheet for Dependents Who Are Age 65 or Older or Blind (shown next). H&r block online taxes   Filled-in Example 3 Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. H&r block online taxes Enter dependent's earned income plus $350   $3,100 2. H&r block online taxes Minimum amount   1,000 3. H&r block online taxes Compare lines 1 and 2. H&r block online taxes Enter the larger amount   3,100 4. H&r block online taxes Maximum amount   6,100 5. H&r block online taxes Compare lines 3 and 4. H&r block online taxes Enter the smaller amount   3,100 6. H&r block online taxes Enter the amount from the following table that applies to the dependent   1,500   Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. H&r block online taxes Add lines 5 and 6. H&r block online taxes Enter the total   4,600 8. H&r block online taxes Enter the dependent's gross income. H&r block online taxes If line 8 is more than line 7, the dependent must file an income tax return. H&r block online taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more   $3,350 Other Filing Requirements Some dependents may have to file a tax return even if their income is less than the amount that would normally require them to file a return. H&r block online taxes A dependent must file a tax return if he or she owes any other taxes, such as: Social security and Medicare taxes on tips not reported to his or her employer or on wages received from an employer who did not withhold these taxes, Uncollected social security and Medicare or railroad retirement taxes on tips reported to his or her employer or on group-term life insurance, Alternative minimum tax, Additional tax on a health savings account from Form 8889, Part III, Recapture taxes, such as the tax from recapture of an education credit, or Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. H&r block online taxes But if the dependent is filing a return only because of this tax, the dependent can file Form 5329 by itself. H&r block online taxes A dependent must also file a tax return if he or she: Had wages of $108. H&r block online taxes 28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes, or Had net earnings from self-employment of at least $400. H&r block online taxes Spouse itemizes. H&r block online taxes   A dependent must file a return if the dependent's spouse itemizes deductions on a separate return and the dependent has $5 or more of gross income (earned and/or unearned). H&r block online taxes Should a Return Be Filed Even If Not Required? Even if a dependent does not meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies. H&r block online taxes Income tax was withheld from his or her income. H&r block online taxes He or she qualifies for the earned income credit, additional child tax credit, health coverage tax credit, or refundable American opportunity education credit. H&r block online taxes See the tax return instructions to find out who qualifies for these credits. H&r block online taxes  By filing a return, the dependent can get a refund. H&r block online taxes Responsibility for Child's Return Generally, a child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. H&r block online taxes If a child cannot file his or her own return for any reason, such as age, the child's parent, guardian, or other legally responsible person must file it for the child. H&r block online taxes Signing the child's return. H&r block online taxes   If the child cannot sign his or her return, a parent or guardian must sign the child's name followed by the words “By (signature), parent (or guardian) for minor child. H&r block online taxes ” Authority of parent or guardian. H&r block online taxes   A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return. H&r block online taxes   In general, a parent or guardian who does not sign the child's return can only provide information concerning the child's return and pay the child's tax. H&r block online taxes That parent or guardian is not entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return. H&r block online taxes Third party designee. H&r block online taxes   A child's parent or guardian who does not sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. H&r block online taxes The child or the person signing the return on the child's behalf must check the “Yes” box in the “Third Party Designee” area of the return and name the parent or guardian as the designee. H&r block online taxes   If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. H&r block online taxes This designation does not authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. H&r block online taxes See the return instructions for more information. H&r block online taxes Designated as representative. H&r block online taxes   A parent or guardian who does not sign the child's return may be designated as the child's representative by the child or the person signing the return on the child's behalf. H&r block online taxes Form 2848, Power of Attorney and Declaration of Representative, is used to designate a child's representative. H&r block online taxes See Publication 947, Practice Before the IRS and Power of Attorney, for more information. H&r block online taxes   If designated, a parent or guardian can receive information about the child's return but cannot legally bind the child to a tax liability unless authorized to do so by the law of the state in which the child lives. H&r block online taxes IRS notice. H&r block online taxes   If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. H&r block online taxes The notice will show who to contact. H&r block online taxes The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority. H&r block online taxes Child's earnings. H&r block online taxes   For federal income tax purposes, amounts a child earns by performing services are included in the gross income of the child and not the gross income of the parent. H&r block online taxes This is true even if, under state law, the parent has the right to the earnings and may actually have received them. H&r block online taxes If the child does not pay the tax due on this income, the parent may be liable for the tax. H&r block online taxes Child's expenses. H&r block online taxes   Deductions for payments that are made out of a child's earnings are the child's, even if the payments are made by the parent. H&r block online taxes Example. H&r block online taxes You made payments on your child's behalf that are deductible as a business expense and a charitable contribution. H&r block online taxes You made the payments out of your child's earnings. H&r block online taxes These items can be deducted only on the child's return. H&r block online taxes Standard Deduction The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of: $1,000, or The individual's earned income plus $350, but not more than the regular standard deduction (generally $6,100). H&r block online taxes However, the standard deduction may be higher for a dependent who: Is 65 or older, or Is blind. H&r block online taxes Certain dependents cannot claim any standard deduction. H&r block online taxes See Standard Deduction of Zero , later. H&r block online taxes Worksheet 1. H&r block online taxes   Use Worksheet 1 to figure the dependent's standard deduction. H&r block online taxes Worksheet 1. H&r block online taxes Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse, if filing jointly) as a dependent. H&r block online taxes If you were 65 or older and/or blind, check the correct number of boxes below. H&r block online taxes Put the total number of boxes checked in box c and go to line 1. H&r block online taxes a. H&r block online taxes You 65 or older   Blind   b. H&r block online taxes Your spouse, if claiming  spouse's exemption 65 or older   Blind   c. H&r block online taxes Total boxes checked         1. H&r block online taxes Enter your earned income (defined below) plus $350. H&r block online taxes If none, enter -0-. H&r block online taxes 1. H&r block online taxes     2. H&r block online taxes Minimum amount. H&r block online taxes   2. H&r block online taxes $1,000   3. H&r block online taxes Compare lines 1 and 2. H&r block online taxes Enter the larger of the two amounts here. H&r block online taxes 3. H&r block online taxes     4. H&r block online taxes Enter on line 4 the amount shown below for your filing status. H&r block online taxes       Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 4. H&r block online taxes     5. H&r block online taxes Standard deduction. H&r block online taxes         a. H&r block online taxes Compare lines 3 and 4. H&r block online taxes Enter the smaller amount here. H&r block online taxes If under 65 and not blind, stop here. H&r block online taxes This is your standard deduction. H&r block online taxes Otherwise, go on to line 5b. H&r block online taxes 5a. H&r block online taxes     b. H&r block online taxes If 65 or older or blind, multiply $1,500 ($1,200 if married) by the number in box c above. H&r block online taxes Enter the result here. H&r block online taxes 5b. H&r block online taxes     c. H&r block online taxes Add lines 5a and 5b. H&r block online taxes This is your standard deduction for 2013. H&r block online taxes 5c. H&r block online taxes     Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. H&r block online taxes It also includes any amount received as a scholarship that you must include in income. H&r block online taxes   Example 1. H&r block online taxes Michael is single, age 15, and not blind. H&r block online taxes His parents can claim him as a dependent on their tax return. H&r block online taxes He has taxable interest income of $800 and wages of $150. H&r block online taxes He enters $500 (his earned income plus $350) on line 1 of Worksheet 1. H&r block online taxes On line 3, he enters $1,000, the larger of $500 or $1,000. H&r block online taxes Michael enters $6,100 on line 4. H&r block online taxes On line 5a, he enters $1,000, the smaller of $1,000 or $6,100. H&r block online taxes His standard deduction is $1,000. H&r block online taxes Example 2. H&r block online taxes Judy, a full-time student, is single, age 22, and not blind. H&r block online taxes Her parents can claim her as a dependent on their tax return. H&r block online taxes She has dividend income of $275 and wages of $2,500. H&r block online taxes She enters $2,850 (her earned income plus $350) on line 1 of Worksheet 1. H&r block online taxes On line 3, she enters $2,850, the larger of $2,850 or $1,000. H&r block online taxes She enters $6,100 on line 4. H&r block online taxes On line 5a, she enters $2,850 (the smaller of $2,850 or $6,100) as her standard deduction. H&r block online taxes Example 3. H&r block online taxes Amy, who is single, is claimed as a dependent on her parents' tax return. H&r block online taxes She is 18 years old and blind. H&r block online taxes She has taxable interest income of $1,000 and wages of $2,000. H&r block online taxes She enters $2,350 (her earned income plus $350) on line 1 of Worksheet 1. H&r block online taxes She enters $2,350 (the larger of $2,350 or $1,000) on line 3, $6,100 on line 4, and $2,350 (the smaller of $2,350 or $6,100) on line 5a. H&r block online taxes Because Amy is blind, she checks the box for blindness and enters “1” in box c at the top of Worksheet 1. H&r block online taxes She enters $1,500 (the number in box c times $1,500) on line 5b. H&r block online taxes Her standard deduction on line 5c is $3,850 ($2,350 + $1,500). H&r block online taxes Standard Deduction of Zero The standard deduction for the following dependents is zero. H&r block online taxes A married dependent filing a separate return whose spouse itemizes deductions. H&r block online taxes A dependent who files a return for a period of less than 12 months due to a change in his or her annual accounting period. H&r block online taxes A nonresident or dual-status alien dependent, unless the dependent is married to a U. H&r block online taxes S. H&r block online taxes citizen or resident alien at the end of the year and chooses to be treated as a U. H&r block online taxes S. H&r block online taxes resident for the year. H&r block online taxes See Publication 519, U. H&r block online taxes S. H&r block online taxes Tax Guide for Aliens, for information on making this choice. H&r block online taxes Example. H&r block online taxes Jennifer, who is a dependent of her parents, is entitled to file a joint return with her husband. H&r block online taxes However, her husband elects to file a separate return and itemize his deductions. H&r block online taxes Because he itemizes, Jennifer's standard deduction on her return is zero. H&r block online taxes She can, however, itemize any of her allowable deductions. H&r block online taxes Dependent's Own Exemption A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption. H&r block online taxes This is true even if the other taxpayer does not actually claim the exemption. H&r block online taxes Example. H&r block online taxes James and Barbara can claim their child, Ben, as a dependent on their return. H&r block online taxes Ben is a college student who works during the summer and must file a tax return. H&r block online taxes Ben cannot claim his own exemption on his return. H&r block online taxes This is true even if James and Barbara do not claim him as a dependent on their return. H&r block online taxes Withholding From Wages Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. H&r block online taxes If the employee claims exemption from withholding on Form W-4, the employer will not withhold federal income tax. H&r block online taxes The exemption from withholding does not apply to social security and Medicare taxes. H&r block online taxes Conditions for exemption from withholding. H&r block online taxes   An employee can claim exemption from withholding for 2014 only if he or she meets both of the following conditions. H&r block online taxes For 2013, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability. H&r block online taxes For 2014, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability. H&r block online taxes Dependents. H&r block online taxes   An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true. H&r block online taxes The employee's gross income will be more than $1,000, the minimum standard deduction for 2014. H&r block online taxes The employee's unearned income will be more than $350. H&r block online taxes Exceptions. H&r block online taxes   An employee may be able to claim exemption from withholding even if the employee is a dependent, if the employee: Is age 65 or older, Is blind, or Will claim on his or her 2014 tax return: Adjustments to income, Tax credits, or Itemized deductions. H&r block online taxes The above exceptions do not apply to supplemental wages greater than $1,000,000. H&r block online taxes For more information, see Exemption From Withholding in chapter 1 of Publication 505. H&r block online taxes Example. H&r block online taxes Guy is 17 and a student. H&r block online taxes During the summer he works part time at a grocery store. H&r block online taxes He expects to earn about $1,200 this year. H&r block online taxes He also worked at the store last summer and received a refund of all his withheld income tax because he did not have a tax liability. H&r block online taxes The only other income he expects during the year is $375 interest on a savings account. H&r block online taxes He expects that his parents will be able to claim him as a dependent on their tax return. H&r block online taxes He is not blind and will not claim adjustments to income, itemized deductions, a higher standard deduction, or tax credits on his return. H&r block online taxes Guy cannot claim exemption from withholding when he fills out Form W-4 because his parents will be able to claim him as a dependent, his gross income will be more than $1,000 (the minimum standard deduction amount) and his unearned income will be more than $350. H&r block online taxes Claiming exemption from withholding. H&r block online taxes    To claim exemption from withholding, an employee must enter “Exempt” in the space provided on Form W-4, line 7. H&r block online taxes The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer. H&r block online taxes Renewing an exemption from withholding. H&r block online taxes   An exemption from withholding is good for only one year. H&r block online taxes An employee must file a new Form W-4 by February 15 each year to continue the exemption. H&r block online taxes Part 2. H&r block online taxes Tax on Unearned Income of Certain Children The two rules that follow may affect the tax on the unearned income of certain children. H&r block online taxes If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. H&r block online taxes (See Parent's Election To Report Child's Interest and Dividends , later. H&r block online taxes ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. H&r block online taxes (See Tax for Certain Children Who Have Unearned Income , later. H&r block online taxes ) For these rules, the term “child” includes a legally adopted child and a stepchild. H&r block online taxes These rules apply whether or not the child is a dependent. H&r block online taxes These rules do not apply if neither of the child's parents were living at the end of the year. H&r block online taxes Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. H&r block online taxes The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . H&r block online taxes Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. H&r block online taxes Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . H&r block online taxes Parents are married. H&r block online taxes   If the child's parents file separate returns, use the return of the parent with the greater taxable income. H&r block online taxes Parents not living together. H&r block online taxes   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. H&r block online taxes If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. H&r block online taxes   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Publication 501. H&r block online taxes Parents are divorced. H&r block online taxes   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. H&r block online taxes Custodial parent remarried. H&r block online taxes   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. H&r block online taxes Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. H&r block online taxes Do not use the return of the noncustodial parent. H&r block online taxes   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. H&r block online taxes If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. H&r block online taxes Parents never married. H&r block online taxes   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. H&r block online taxes If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. H&r block online taxes Widowed parent remarried. H&r block online taxes   If a widow or widower remarries, the new spouse is treated as the child's other parent. H&r block online taxes The rules explained earlier under Custodial parent remarried apply. H&r block online taxes Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. H&r block online taxes If you do, your child will not have to file a return. H&r block online taxes You can make this election only if all the following conditions are met. H&r block online taxes Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. H&r block online taxes Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). H&r block online taxes The child's gross income was less than $10,000. H&r block online taxes The child is required to file a return unless you make this election. H&r block online taxes The child does not file a joint return for the year. H&r block online taxes No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. H&r block online taxes No federal income tax was withheld from your child's income under the backup withholding rules. H&r block online taxes You are the parent whose return must be used when applying the special tax rules for children. H&r block online taxes (See Which Parent's Return To Use , earlier. H&r block online taxes ) These conditions are also shown in Figure 1. H&r block online taxes Certain January 1 birthdays. H&r block online taxes   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. H&r block online taxes You cannot make this election for such a child unless the child was a full-time student. H&r block online taxes   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. H&r block online taxes You cannot make this election for such a child. H&r block online taxes How to make the election. H&r block online taxes    Make the election by attaching Form 8814 to your Form 1040 or Form 1040NR. H&r block online taxes (If you make this election, you cannot file Form 1040A or Form 1040EZ. H&r block online taxes ) Attach a separate Form 8814 for each child for whom you make the election. H&r block online taxes You can make the election for one or more children and not for others. H&r block online taxes Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. H&r block online taxes Rate may be higher. H&r block online taxes   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. H&r block online taxes This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. H&r block online taxes However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. H&r block online taxes Deductions you cannot take. H&r block online taxes   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. H&r block online taxes The additional standard deduction if the child is blind. H&r block online taxes The deduction for a penalty on an early withdrawal of your child's savings. H&r block online taxes Itemized deductions (such as your child's investment expenses or charitable contributions). H&r block online taxes Figure 1. H&r block online taxes Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. H&r block online taxes Figure 1. H&r block online taxes Can You Include Your Child's Income On Your Tax Return? Deductible investment interest. H&r block online taxes   If you use Form 8814, your child's unearned income is considered your unearned income. H&r block online taxes To figure the limit on your deductible investment interest, add the child's unearned income to yours. H&r block online taxes However, if your child received qualified dividends, capital gain distributions, or Alaska Permanent Fund dividends, see chapter 3 of Publication 550 for information about how to figure the limit. H&r block online taxes Alternative minimum tax. H&r block online taxes    If your child received tax-exempt interest (or exempt-interest dividends paid by a regulated investment company) from certain private activity bonds, you must determine if that interest is a tax preference item for alternative minimum tax (AMT) purposes. H&r block online taxes If it is, you must include it with your own tax preference items when figuring your AMT. H&r block online taxes See Form 6251, Alternative Minimum Tax—Individuals, and its instructions for details. H&r block online taxes Reduced deductions or credits. H&r block online taxes   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the following. H&r block online taxes Deduction for contributions to a traditional individual retirement arrangement (IRA). H&r block online taxes Deduction for student loan interest. H&r block online taxes Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. H&r block online taxes Credit for child and dependent care expenses. H&r block online taxes Child tax credit. H&r block online taxes Education tax credits. H&r block online taxes Earned income credit. H&r block online taxes Penalty for underpayment of estimated tax. H&r block online taxes   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. H&r block online taxes If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. H&r block online taxes Get Publication 505 for more information. H&r block online taxes Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. H&r block online taxes Only the amount over $2,000 is added to your income. H&r block online taxes The amount over $2,000 is shown on Form 8814, line 6. H&r block online taxes Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. H&r block online taxes Include the amount from Form 8814, line 12, on Form 1040 or Form 1040NR, line 21. H&r block online taxes If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040 or Form 1040NR, line 21. H&r block online taxes On the dotted line next to line 21, enter “Form 8814” and the total of the Form 8814, line 12 amounts. H&r block online taxes Note. H&r block online taxes The tax on the first $2,000 is figured on Form 8814, Part II. H&r block online taxes See Figuring Additional Tax , later. H&r block online taxes Qualified dividends. H&r block online taxes   Enter on Form 8814, line 2a, any ordinary dividends your child received. H&r block online taxes This amount may include qualified dividends. H&r block online taxes Qualified dividends are those dividends reported on Form 1040, line 9b, or Form 1040NR, line 10b, and are eligible for lower tax rates that apply to a net capital gain. H&r block online taxes For detailed information about qualified dividends, see Publication 550. H&r block online taxes   If your child received qualified dividends, the amount of these dividends that is added to your income must be reported on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. H&r block online taxes You do not include these dividends on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. H&r block online taxes   Enter the child's qualified dividends on Form 8814, line 2b. H&r block online taxes But do not include this amount on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. H&r block online taxes Instead, include the amount from Form 8814, line 9, on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. H&r block online taxes (The amount on Form 8814, line 9, may be less than the amount on Form 8814, line 2b, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts. H&r block online taxes ) Capital gain distributions. H&r block online taxes   Enter on Form 8814, line 3, any capital gain distributions your child received. H&r block online taxes The amount of these distributions that is added to your income must be reported on Schedule D (Form 1040), line 13, or, if you are not required to file Schedule D, on Form 1040, line 13, or Form 1040NR, line 14. H&r block online taxes You do not include it on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. H&r block online taxes   Include the amount from Form 8814, line 10, on Schedule D, line 13; Form 1040, line 13; or Form 1040NR, line 14, whichever applies. H&r block online taxes (The amount on Form 8814, line 10, may be less than the amount on Form 8814, line 3, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts. H&r block online taxes ) Collectibles (28% rate) gain. H&r block online taxes    If any of the child's capital gain distributions are reported on Form 1099-DIV as collectibles (28% rate) gain, you must determine how much to also include on line 4 of the 28% Rate Gain Worksheet, in the instructions for Schedule D, line 18. H&r block online taxes Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. H&r block online taxes The numerator is the part of the child's total capital gain distribution that is collectibles (28% rate) gain. H&r block online taxes The denominator is the child's total capital gain distribution. H&r block online taxes Enter the result on line 4 of the 28% Rate Gain Worksheet. H&r block online taxes Unrecaptured section 1250 gain. H&r block online taxes   If any of the child's capital gain distributions are reported on Form 1099-DIV as unrecaptured section 1250 gain, you must determine how much to include on line 11 of the Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D, line 19. H&r block online taxes Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. H&r block online taxes The numerator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. H&r block online taxes The denominator is the child's total capital gain distribution. H&r block online taxes Enter the result on the Unrecaptured Section 1250 Gain Worksheet, line 11. H&r block online taxes Section 1202 gain. H&r block online taxes   If any of the child's capital gain distributions are reported as section 1202 gain (gain on qualified small business stock) on Form 1099-DIV, part or all of that gain may be eligible for the section 1202 exclusion. H&r block online taxes (For information about the exclusion, see chapter 4 of Publication 550. H&r block online taxes ) To figure that part, multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. H&r block online taxes The numerator is the part of the child's total capital gain distribution that is section 1202 gain. H&r block online taxes The denominator is the child's total capital gain distribution. H&r block online taxes Your section 1202 exclusion is generally 50% of the result, but may be subject to a limit. H&r block online taxes In some cases, the exclusion is more than 50%. H&r block online taxes See the instructions for Schedule D for details and information on how to report the exclusion amount. H&r block online taxes Example. H&r block online taxes Fred is 6 years old. H&r block online taxes In 2013, he received dividend income of $2,100, which included $1,575 of ordinary dividends and a $525 capital gain distribution from a mutual fund. H&r block online taxes (None of the distributions were reported on Form 1099-DIV as unrecaptured section 1250 gain, section 1202 gain, or collectibles (28% rate) gain. H&r block online taxes ) All of the ordinary dividends are qualified dividends. H&r block online taxes He has no other income and is not subject to backup withholding. H&r block online taxes No estimated tax payments were made under his name and social security number. H&r block online taxes Fred's parents elect to include Fred's income on their tax return instead of filing a return for him. H&r block online taxes They figure the amount to report on Form 1040, lines 9a and 9b, the amount to report on their Schedule D, line 13, and the amount to report on Form 1040, line 21, as follows. H&r block online taxes They leave lines 1a and 1b of Form 8814 blank because Fred does not have any interest income. H&r block online taxes They enter his ordinary dividends of $1,575 on lines 2a and 2b because all of Fred's ordinary dividends are qualified dividends. H&r block online taxes They enter the amount of Fred's capital gain distributions, $525, on line 3. H&r block online taxes Next, they add the amounts on lines 1a, 2a, and 3 and enter the result, $2,100, on line 4. H&r block online taxes They subtract the base amount on line 5, $2,000, from the amount on line 4, $2,100, and enter the result, $100, on line 6. H&r block online taxes This is the total amount from Form 8814 to be reported on their return. H&r block online taxes Next, they figure how much of this amount is qualified dividends and how much is capital gain distributions. H&r block online taxes They divide the amount on line 2b, $1,575, by the amount on line 4, $2,100. H&r block online taxes They enter the result, . H&r block online taxes 75, on line 7. H&r block online taxes They divide the amount on line 3, $525, by the amount on line 4, $2,100. H&r block online taxes They enter the result, . H&r block online taxes 25, on line 8. H&r block online taxes They multiply the amount on line 6, $100, by the decimal on line 7, . H&r block online taxes 75, and enter the result, $75, on line 9. H&r block online taxes They multiply the amount on line 6, $100, by the decimal on line 8, . H&r block online taxes 25, and enter the result, $25, on line 10. H&r block online taxes They include the amount from line 9, $75, on lines 9a and 9b of their Form 1040 and enter “Form 8814 – $75” on the dotted lines next to lines 9a and 9b. H&r block online taxes They include the amount from line 10, $25, on line 13 of their Schedule D (Form 1040) and enter “Form 8814 – $25” on the dotted line next to Schedule D, line 13. H&r block online taxes They enter $100 ($75 + $25) on line 11 and -0- ($100 – $100) on line 12. H&r block online taxes Because the amount on line 12 is -0-, they do not include any amount from Form 8814 on their Form 1040, line 21. H&r block online taxes Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. H&r block online taxes This tax is added to the tax figured on your income. H&r block online taxes This additional tax is the smaller of: 10% x (your child's gross income − $1,000), or $100. H&r block online taxes Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44, or Form 1040NR, line 42. H&r block online taxes Check box a on Form 1040, line 44, or Form 1040NR, line 42. H&r block online taxes Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. H&r block online taxes If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. H&r block online taxes Attach the completed form to the child's Form 1040, Form 1040A, or Form 1040NR. H&r block online taxes When Form 8615 must be filed. H&r block online taxes   Form 8615 must be filed for a child if all of the following statements are true. H&r block online taxes The child's unearned income was more than $2,000. H&r block online taxes The child is required to file a return for 2013. H&r block online taxes The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. H&r block online taxes At least one of the child's parents was alive at the end of 2013. H&r block online taxes The child does not file a joint return for 2013. H&r block online taxes These conditions are also shown in Figure 2. H&r block online taxes Certain January 1 birthdays. H&r block online taxes   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. H&r block online taxes IF a child was born on. H&r block online taxes . H&r block online taxes . H&r block online taxes THEN, at the end of 2013, the child is considered to be. H&r block online taxes . H&r block online taxes . H&r block online taxes January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. H&r block online taxes The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. H&r block online taxes  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. H&r block online taxes  ***Do not use Form 8615 for this child. H&r block online taxes Figure 2. H&r block online taxes Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. H&r block online taxes Figure 2. H&r block online taxes Do You Have To Use Form 8615 To Figure Your Child's Tax? Providing Parental Information (Form 8615, Lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. H&r block online taxes (If the parents filed a joint return, enter the name and social security number listed first on the joint return. H&r block online taxes ) On line C, check the box for the parent's filing status. H&r block online taxes See Which Parent's Return To Use, earlier, for information on which parent's return information must be used on Form 8615. H&r block online taxes Parent with different tax year. H&r block online taxes   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. H&r block online taxes Example. H&r block online taxes Kimberly must use her mother's tax and taxable income to complete her Form 8615 for calendar year 2013 (January 1 – December 31). H&r block online taxes Kimberly's mother files her tax return on a fiscal year basis (July 1 – June 30). H&r block online taxes Kimberly must use the information on her mother's return for the tax year ending June 30, 2013, to complete her 2013 Form 8615. H&r block online taxes Parent's return information not known timely. H&r block online taxes   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. H&r block online taxes   You can use any reasonable estimate. H&r block online taxes This includes using information from last year's return. H&r block online taxes If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. H&r block online taxes   When you get the correct information, file an amended return on Form 1040X, Amended U. H&r block online taxes S. H&r block online taxes Individual Income Tax Return. H&r block online taxes Extension of time to file. H&r block online taxes   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. H&r block online taxes S. H&r block online taxes Individual Income Tax Return. H&r block online taxes See the instructions for Form 4868 for details. H&r block online taxes    An extension of time to file is not an extension of time to pay. H&r block online taxes You must make an accurate estimate of the tax for 2013. H&r block online taxes If you do not pay the full amount due by the regular due date, the child will owe interest and may also be charged penalties. H&r block online taxes See Form 4868 and its instructions. H&r block online taxes Parent's return information not available. H&r block online taxes   If a child cannot get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS). H&r block online taxes How to request. H&r block online taxes   After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. H&r block online taxes (The IRS cannot process a request received before the end of the tax year. H&r block online taxes )    You should also consider getting an extension of time to file the child's return, because there may be a delay in getting the requested information. H&r block online taxes   The request must contain all of the following. H&r block online taxes A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent. H&r block online taxes Proof of the child's age (for example, a copy of the child's birth certificate). H&r block online taxes Evidence the child has more than $2,000 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year). H&r block online taxes The name, address, social security number (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615. H&r block online taxes    A child's legal representative making the request should include a copy of his or her Power of Attorney, such as Form 2848, or proof of legal guardianship. H&r block online taxes Step 1. H&r block online taxes Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. H&r block online taxes To do that, use Form 8615, Part I. H&r block online taxes Line 1 (Unearned Income) If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. H&r block online taxes Adjusted gross income is shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. H&r block online taxes Form 1040EZ and Form 1040NR-EZ cannot be used if Form 8615 must be filed. H&r block online taxes If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. H&r block online taxes However, use the following worksheet if: the child has excluded any foreign earned income, deducted a loss from self-employment, or has a net operating loss from another year. H&r block online taxes Alternate Worksheet for Form 8615, Line 1 A. H&r block online taxes Enter the amount from the child's Form 1040, line 22, or Form 1040NR, line 23   B. H&r block online taxes Enter the total of any net loss  from self-employment, any net operating loss deduction, any foreign earned income exclusion, and any foreign housing exclusion from the child's Form 1040 or Form 1040NR. H&r block online taxes Enter this total as a positive number (greater than zero)   C. H&r block online taxes Add line A and line B and  enter the total   D. H&r block online taxes Enter the child's earned income plus any amount from the child's Form 1040, line 30, or the child's Form 1040NR, line 30     Generally, the child's earned income is the total of the amounts reported on Form 1040, lines 7, 12, and 18 (if line 12 or 18 is a loss, use zero) or Form 1040NR, lines 8, 13, and 19 (if line 13 or 19 is a loss, use zero)   E. H&r block online taxes Subtract line D from line C. H&r block online taxes Enter the result here and on Form 8615, line 1   Unearned income defined. H&r block online taxes   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually performed. H&r block online taxes It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, certain distributions from trusts, and unemployment compensation. H&r block online taxes Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). H&r block online taxes Nontaxable income. H&r block online taxes   For this purpose, unearned income includes only amounts the child must include in gross income. H&r block online taxes Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. H&r block online taxes Capital loss. H&r block online taxes   A child's capital losses are taken into account in figuring the child's unearned income. H&r block online taxes Capital losses are first applied against capital gains. H&r block online taxes If the capital losses are more than the capital gains, the difference (up to $3,000) is subtracted from the child's interest, dividends, and other unearned income. H&r block online taxes Any difference over $3,000 is carried to the next year. H&r block online taxes Income from property received as a gift. H&r block online taxes   A child's unearned income includes all income produced by property belonging to the child. H&r block online taxes This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. H&r block online taxes   A child's unearned income includes income produced by property given as a gift to the child. H&r block online taxes This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. H&r block online taxes Example. H&r block online taxes Amanda Black, age 13, received the following income. H&r block online taxes Dividends—$800 Wages—$2,100 Taxable interest—$1,200 Tax-exempt interest—$100 Capital gains—$300 Capital losses—($200) The dividends were qualified dividends on stock given to her by her grandparents. H&r block online taxes Amanda's unearned income is $2,100. H&r block online taxes This is the total of the dividends ($800), taxable interest ($1,200), and capital gains reduced by capital losses ($300 − $200 = $100). H&r block online taxes Her wages are earned (not unearned) income because they are received for work actually performed. H&r block online taxes Her tax-exempt interest is not included because it is nontaxable. H&r block online taxes Trust income. H&r block online taxes   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. H&r block online taxes   However, taxable distributions from a qualified disability trust are considered earned income for the purposes of completing Form 8615. H&r block online taxes See the Form 8615 instructions for details. H&r block online taxes Adjustment to income. H&r block online taxes   In figuring the amount to enter on line 1, the child's unearned income is reduced by any penalty on the early withdrawal of savings. H&r block online taxes Line 2 (Deductions) If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $2,000 on line 2. H&r block online taxes If the child itemizes deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29 (or Schedule A (Form 1040NR), line 15), that are directly connected with the production of the unearned income entered on line 1, or $2,000. H&r block online taxes Directly connected. H&r block online taxes   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. H&r block online taxes These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. H&r block online taxes    These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). H&r block online taxes Only the amount greater than 2% of the child's adjusted gross income can be deducted. H&r block online taxes See Publication 529, Miscellaneous Deductions, for more information. H&r block online taxes Example 1. H&r block online taxes Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with his unearned income. H&r block online taxes His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. H&r block online taxes Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly-connected itemized deductions of $300. H&r block online taxes Example 2. H&r block online taxes Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. H&r block online taxes She has no other income. H&r block online taxes She has itemized deductions of $1,050 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with the production of her unearned income. H&r block online taxes Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). H&r block online taxes The amount on line 2 is $2,050. H&r block online taxes This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. H&r block online taxes Line 3 Subtract line 2 from line 1 and enter the result on this line. H&r block online taxes If zero or less, do not complete the rest of the form. H&r block online taxes However, you must still attach Form 8615 to the child's tax return. H&r block online taxes Figure the tax on the child's taxable income in the normal manner. H&r block online taxes Line 4 (Child's Taxable Income) Enter on line 4 the child's taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. H&r block online taxes Child files Form 2555 or 2555-EZ. H&r block online taxes   If the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) is used to figure the child's tax. H&r block online taxes Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the child's taxable income on Form 8615, line 4. H&r block online taxes Line 5 (Net Unearned Income) A child's net unearned income cannot be more than his or her taxable income. H&r block online taxes Enter on Form 8615, line 5, the smaller of line 3 or line 4. H&r block online taxes This is the child's net unearned income. H&r block online taxes If zero or less, do not complete the rest of the form. H&r block online taxes However, you must still attach Form 8615 to the child's tax return. H&r block online taxes Figure the tax on the child's taxable income in the normal manner. H&r block online taxes Step 2. H&r block online taxes Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. H&r block online taxes The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. H&r block online taxes When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. H&r block online taxes For example, do not refigure the medical expense deduction. H&r block online taxes Figure the tentative tax on Form 8615, lines 6 through 13. H&r block online taxes Line 6 (Parent's Taxable Income) Enter on line 6 the amount from the parent's Form 1040, line 43; Form 1040A, line 27; Form 1040EZ, line 6; Form 1040NR, line 41; or Form 1040NR-EZ, line 14. H&r block online taxes If the parent's taxable income is zero or less, enter zero on line 6. H&r block online taxes Parent files Form 2555 or 2555-EZ. H&r block online taxes   If the parent files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet in the Form 1040 instructions is used to figure the parent's tax. H&r block online taxes Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the parent's taxable income, on line 6 of Form 8615. H&r block online taxes Line 7 (Net Unearned Income of Other Children) If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. H&r block online taxes Do not include the amount from line 5 of the Form 8615 being completed. H&r block online taxes (The term “other child” means any other child whose Form 8615 uses the tax information of the parent identified on Lines A and B of Form 8615. H&r block online taxes ) Example. H&r block online taxes Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. H&r block online taxes The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon—$800 Jerry—$600 Mike—$1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. H&r block online taxes Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). H&r block online taxes Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). H&r block online taxes Other children's information not available. H&r block online taxes   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. H&r block online taxes Estimates and extensions are discussed earlier under Providing Parental Information (Form 8615, Lines A–C) . H&r block online taxes Line 8 (Parent's Taxable Income Plus Children's Net Unearned Income) Enter on this line the total of lines 5, 6, and 7. H&r block online taxes You must determine the amount of net capital gain and qualified dividends included on this line before completing Form 8615, line 9. H&r block online taxes Net capital gain. H&r block online taxes   Net capital gain is the smaller of the gain, if any, on Schedule D (Form 1040), line 15, or the gain, if any, on Schedule D, line 16. H&r block online taxes If Schedule D is not required, it is the amount on Form 1040, line 13; Form 1040A, line 10; or Form 1040NR, line 14. H&r block online taxes Qualified dividends. H&r block online taxes   Qualified dividends are those dividends reported on line 9b of Form 1040 or Form 1040A, or line 10b of Form 1040NR. H&r block online taxes Net capital gain and qualified dividends on line 8. H&r block online taxes   If neither the child, nor the parent, nor any other child has net capital gain, the net capital gain on line 8 is zero. H&r block online taxes   If neither the child, nor the parent, nor any other child has qualified dividends, the amount of qualified dividends on line 8 is zero. H&r block online taxes   If the child, parent, or any other child has net capital gain, figure the amount of net capital gain included on line 8 by adding together the net capital gain amounts included on lines 5, 6, and 7 of Form 8615. H&r block online taxes   If the child, parent, or any other child has qualified dividends, figure the amount of qualified dividends included on line 8 by adding together the qualified dividend amounts included on lines 5, 6, and 7. H&r block online taxes   Use the instructions for Form 8615, line 8, including the appropriate Line 5 Worksheet, to find these amounts. H&r block online taxes See the instructions for Form 8615 for more details. H&r block online taxes Note. H&r block online taxes The amount of any net capital gain or qualified dividends is not separately reported on line 8. H&r block online taxes It is  needed, however, when figuring the tax on line 9. H&r block online taxes Line 9 (Tax on Parent's Taxable Income Plus Children's Net Unearned Income) Figure the tax on the amount on line 8 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions), or Schedule J (Form 1040), as follows. H&r block online taxes If line 8 does not include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet to figure this tax. H&r block online taxes But if Schedule J, Income Averaging for Farmers and Fishermen, is used to figure the tax on the parent's return, use it to figure this tax. H&r block online taxes If line 8 includes any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. H&r block online taxes For details, see the instructions for Form 8615, line 9. H&r block online taxes However, if the child, parent, or any other child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. H&r block online taxes But if Schedule J is used to figure the tax on the parent's return, use it to figure this tax. H&r block online taxes Child files Form 2555 or 2555-EZ. H&r block online taxes   If line 8 includes any net capital gain or qualified dividends and the child, or any other child filing Form 8615, also files Form 2555 or 2555-EZ, use Using the Schedule D Tax Worksheet for line 9 tax, next, to figure the line 9 tax. H&r block online taxes Using the Schedule D Tax Worksheet for line 9 tax. H&r block online taxes    Use the Schedule D Tax Worksheet (in the Schedule D instructions) to figure the line 9 tax on Form 8615 if the child, parent, or any other child has unrecaptured section 1250 gain or 28% rate gain. H&r block online taxes If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child, parent, or any other child. H&r block online taxes Then figure the line 9 tax using another Schedule D Tax Worksheet. H&r block online taxes (Do not attach this Schedule D Tax Worksheet to the child's return. H&r block online taxes )   Complete this Schedule D Tax Worksheet as follows. H&r block online taxes On line 1, enter the amount from Form 8615, line 8. H&r block online taxes On line 2, enter the qualified dividends included on Form 8615, line 8. H&r block online taxes (See the earlier discussion for line 8. H&r block online taxes ) On line 3, enter the total of the amounts, if any, on line 4g of all Forms 4952 filed by the child, parent, or any other child. H&r block online taxes On line 4, enter the total of the amounts, if any, on line 4e of all Forms 4952 filed by the child, parent, or any other child. H&r block online taxes If applicable, include instead the smaller amount entered on the dotted line next to line 4e. H&r block online taxes On lines 5 and 6, follow the worksheet instructions. H&r block online taxes On line 7, enter the net capital gain included on Form 8615, line 8. H&r block online taxes (See the earlier discussion for line 8. H&r block online taxes ) On lines 8 through 10, follow the worksheet instructions. H&r block online taxes On line 11, enter zero if neither the child, nor the parent, nor any other child has unrecaptured section 1250 gain (Schedule D, line 19) or 28% rate gain (Schedule D, line 18). H&r block online taxes Otherwise, enter the amount of unrecaptured section 1250 gain and 28% rate gain included in the net capital gain on line 8 of Form 8615. H&r block online taxes Figure these amounts as explained later under Figuring unrecaptured section 1250 gain (line 11) and Figuring 28% rate gain (line 11). H&r block online taxes If the Foreign Earned Income Tax Worksheet was used to figure the parent's tax or the tax of any child, go to step 10 below. H&r block online taxes Otherwise, skip steps 10, 11, and 12 below, and go to step 13. H&r block online taxes Determine whether there is a line 8 capital gain excess as follows. H&r block online taxes Add the amounts on line 2 of all Foreign Earned Income Tax Worksheets completed by the parent or any child for whom Form 8615 is filed. H&r block online taxes (But for each child do not add more than the excess, if any, of the amount on line 5 of the child's Form 8615 over the child's taxable income on Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. H&r block online taxes ) Subtract (a) from the amount on line 1 of this Schedule D Tax Worksheet. H&r block online taxes Subtract (b) from the amount on line 10 of this Schedule D Tax Worksheet. H&r block online taxes If the result is more than zero, that amount is the line 8 capital gain excess. H&r block online taxes If the result is zero or less, there is no line 8 capital gain excess. H&r block online taxes If there is no line 8 capital gain excess, skip step 12 below and go to step 13. H&r block online taxes If there is a line 8 capital gain excess, complete a second Schedule D Tax Worksheet as instructed above and in step 13, but in its entirety and with the following additional modifications. H&r block online taxes (These modifications are to be made only for purposes of filling out this additional Schedule D Tax Worksheet. H&r block online taxes ) Reduce the amount you would otherwise enter on line 9 (but not below zero) by the line 8 capital gain excess. H&r block online taxes Reduce the amount you would otherwise enter on line 6 (but not below zero) by any of the line 8 capital gain excess not used in (a) above. H&r block online taxes If the child, parent, or any other child has 28% rate gain, reduce the amount you would otherwise enter on line 8 of Worksheet 1 for Line 11 of the Schedule D Tax Worksheet – 28% Rate Gain (Line 9 Tax), shown later, (but not below zero) by the line 8 capital gain excess, and refigure the amount on line 11 of this Schedule D Tax Worksheet. H&r block online taxes If the child, parent, or any other child has unrecaptured section 1250 gain, reduce the amount you would otherwise enter on line 8 of Worksheet 2 for Line 11 of the Schedule D Tax Worksheet – Unrecaptured Section 1250 Gain (Line 9 Tax) (but not below zero) by the line 8 capital gain excess not used in 12(c), and refigure the amount on line 11 of this Schedule D Tax Worksheet. H&r block online taxes Complete lines 12 through 45 following the worksheet instructions. H&r block online taxes Use the parent's filing status to complete lines 15, 42, and 44. H&r block online taxes Enter the amount from line 45 of this Schedule D Tax Worksheet on Form 8615, line 9, and check the box on that line