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Income Tax Extension

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Income Tax Extension

Income tax extension 3. Income tax extension   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Income tax extension They are the American opportunity credit and the lifetime learning credit. Income tax extension This chapter discusses the lifetime learning credit. Income tax extension The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Income tax extension This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Income tax extension What is the tax benefit of the lifetime learning credit. Income tax extension   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. Income tax extension There is no limit on the number of years the lifetime learning credit can be claimed for each student. Income tax extension   A tax credit reduces the amount of income tax you may have to pay. Income tax extension Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Income tax extension The lifetime learning credit is a nonrefundable credit. Income tax extension This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. Income tax extension   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Income tax extension Can you claim more than one education credit this year. Income tax extension   For each student, you can elect for any year only one of the credits. Income tax extension For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. Income tax extension   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. Income tax extension   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. Income tax extension This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Income tax extension Differences between the American opportunity and lifetime learning credits. Income tax extension   There are several differences between these two credits. Income tax extension For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. Income tax extension However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Income tax extension The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Income tax extension Overview of the lifetime learning credit. Income tax extension   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Income tax extension The details are discussed in this chapter. Income tax extension Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. Income tax extension Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Income tax extension You pay qualified education expenses of higher education. Income tax extension You pay the education expenses for an eligible student. Income tax extension The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Income tax extension Table 3-1. Income tax extension Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. Income tax extension Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Income tax extension “Qualified education expenses” are defined later under Qualified Education Expenses . Income tax extension “Eligible students” are defined later under Who Is an Eligible Student . Income tax extension A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Income tax extension You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. Income tax extension Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Income tax extension Your filing status is married filing separately. Income tax extension You are listed as a dependent on another person's tax return (such as your parents'). Income tax extension See Who Can Claim a Dependent's Expenses , later. Income tax extension Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Income tax extension MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Income tax extension You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Income tax extension More information on nonresident aliens can be found in Publication 519. Income tax extension You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. Income tax extension What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Income tax extension Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. Income tax extension For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. Income tax extension Academic period. Income tax extension   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Income tax extension In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Income tax extension Paid with borrowed funds. Income tax extension   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Income tax extension You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. Income tax extension Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Income tax extension Student withdraws from class(es). Income tax extension   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Income tax extension Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. Income tax extension The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Income tax extension Eligible educational institution. Income tax extension   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Income tax extension S. Income tax extension Department of Education. Income tax extension It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Income tax extension The educational institution should be able to tell you if it is an eligible educational institution. Income tax extension   Certain educational institutions located outside the United States also participate in the U. Income tax extension S. Income tax extension Department of Education's Federal Student Aid (FSA) programs. Income tax extension Related expenses. Income tax extension   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. Income tax extension Prepaid expenses. Income tax extension   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Income tax extension See Academic period , earlier. Income tax extension For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Income tax extension You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Income tax extension In the following examples, assume that each student is an eligible student at an eligible educational institution. Income tax extension Example 1. Income tax extension   Jackson is a sophomore in University V's degree program in dentistry. Income tax extension This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Income tax extension Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. Income tax extension Example 2. Income tax extension   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Income tax extension The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Income tax extension Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Income tax extension Donna bought hers at College W's bookstore. Income tax extension Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Income tax extension Example 3. Income tax extension   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Income tax extension This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. Income tax extension No portion of the fee covers personal expenses. Income tax extension Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Income tax extension Therefore, it is a qualified expense. Income tax extension No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. Income tax extension Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Income tax extension Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Income tax extension Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Income tax extension See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Income tax extension Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Income tax extension See Adjustments to Qualified Education Expenses, next. Income tax extension This image is too large to be displayed in the current screen. Income tax extension Please click the link to view the image. Income tax extension Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Income tax extension The result is the amount of adjusted qualified education expenses for each student. Income tax extension Tax-free educational assistance. Income tax extension   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Income tax extension See Academic period , earlier. Income tax extension   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Income tax extension This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Income tax extension   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Income tax extension If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Income tax extension   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Income tax extension Generally, any scholarship or fellowship is treated as tax free. Income tax extension However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Income tax extension The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Income tax extension The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Income tax extension You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Income tax extension For examples, see Coordination with Pell grants and other scholarships, later. Income tax extension Refunds. Income tax extension   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Income tax extension Some tax-free educational assistance received after 2013 may be treated as a refund. Income tax extension See Tax-free educational assistance , earlier. Income tax extension Refunds received in 2013. Income tax extension   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Income tax extension Refunds received after 2013 but before your income tax return is filed. Income tax extension   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Income tax extension Refunds received after 2013 and after your income tax return is filed. Income tax extension   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Income tax extension See Credit recapture, next. Income tax extension Credit recapture. Income tax extension    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Income tax extension You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Income tax extension You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Income tax extension Include that amount as an additional tax for the year the refund or tax-free assistance was received. Income tax extension Example. Income tax extension   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Income tax extension You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Income tax extension You claimed no other tax credits. Income tax extension After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Income tax extension You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Income tax extension The refigured credit is $1,280 and your tax liability increased by $580. Income tax extension See instructions for your 2014 income tax return to determine where to include this tax. Income tax extension If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Income tax extension Amounts that do not reduce qualified education expenses. Income tax extension   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Income tax extension   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Income tax extension The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Income tax extension The use of the money is not restricted. Income tax extension For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Income tax extension Coordination with Pell grants and other scholarships. Income tax extension   In some cases, you may be able to reduce your tax liability by including scholarships in income. Income tax extension If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Income tax extension The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Income tax extension Example 1—No scholarship. Income tax extension Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Income tax extension Her AGI and her MAGI, for purposes of the credit, are $27,000. Income tax extension Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. Income tax extension She claims no credits other than the lifetime learning credit. Income tax extension In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. Income tax extension Judy and the college meet all requirements for the lifetime learning tax credit. Income tax extension She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Income tax extension She claims a $900 lifetime learning credit and her tax after credits is $1,256. Income tax extension Example 2—Scholarship excluded from income. Income tax extension The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Income tax extension Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Income tax extension If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. Income tax extension Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Income tax extension Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Income tax extension Example 3—Scholarship included in income. Income tax extension The facts are the same as in Example 2—Scholarship excluded from income. Income tax extension If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. Income tax extension Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. Income tax extension She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Income tax extension Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Income tax extension Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Income tax extension This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Income tax extension Sports, games, hobbies, and noncredit courses. Income tax extension   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Income tax extension However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. Income tax extension Comprehensive or bundled fees. Income tax extension   Some eligible educational institutions combine all of their fees for an academic period into one amount. Income tax extension If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Income tax extension The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Income tax extension See Figuring the Credit , later, for more information about Form 1098-T. Income tax extension Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). Income tax extension Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. Income tax extension For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Income tax extension You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Income tax extension IF you. Income tax extension . Income tax extension . Income tax extension THEN only. Income tax extension . Income tax extension . Income tax extension claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. Income tax extension The dependent cannot claim the credit. Income tax extension do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. Income tax extension You cannot claim the credit based on this dependent's expenses. Income tax extension Expenses paid by dependent. Income tax extension   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Income tax extension Include these expenses when figuring the amount of your lifetime learning credit. Income tax extension    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Income tax extension Expenses paid by you. Income tax extension   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. Income tax extension If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. Income tax extension Expenses paid by others. Income tax extension   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Income tax extension In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Income tax extension If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Income tax extension Example. Income tax extension In 2013, Ms. Income tax extension Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Income tax extension For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Income tax extension Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. Income tax extension If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. Income tax extension If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Income tax extension Tuition reduction. Income tax extension   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Income tax extension If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Income tax extension For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Income tax extension Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. Income tax extension The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Income tax extension However, that amount may be reduced based on your MAGI. Income tax extension See Effect of the Amount of Your Income on the Amount of Your Credit , later. Income tax extension Example. Income tax extension Bruce and Toni Harper are married and file a joint tax return. Income tax extension For 2013, their MAGI is $75,000. Income tax extension Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Income tax extension She already has a bachelor's degree in history and wants to become a nurse. Income tax extension In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Income tax extension Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Income tax extension Form 1098-T. Income tax extension   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Income tax extension Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Income tax extension An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Income tax extension However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Income tax extension When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Income tax extension   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Income tax extension    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. Income tax extension Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). Income tax extension You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). Income tax extension Modified adjusted gross income (MAGI). Income tax extension   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Income tax extension MAGI when using Form 1040A. Income tax extension   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Income tax extension MAGI when using Form 1040. Income tax extension   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Income tax extension You can use Worksheet 3-1 to figure your MAGI. Income tax extension Worksheet 3-1. Income tax extension MAGI for the Lifetime Learning Credit 1. Income tax extension Enter your adjusted gross income  (Form 1040, line 38)   1. Income tax extension   2. Income tax extension Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Income tax extension       3. Income tax extension Enter your foreign housing deduction (Form 2555, line 50)   3. Income tax extension       4. Income tax extension Enter the amount of income from Puerto Rico you are excluding   4. Income tax extension       5. Income tax extension Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Income tax extension       6. Income tax extension Add the amounts on lines 2, 3, 4, and 5   6. Income tax extension   7. Income tax extension Add the amounts on lines 1 and 6. Income tax extension  This is your modified adjusted  gross income. Income tax extension Enter this amount  on Form 8863, line 14   7. Income tax extension   Phaseout. Income tax extension   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. Income tax extension The same method is shown in the following example. Income tax extension Example. Income tax extension You are filing a joint return with a MAGI of $112,000. Income tax extension In 2013, you paid $6,600 of qualified education expenses. Income tax extension You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Income tax extension The result is a $1,320 (20% x $6,600) tentative credit. Income tax extension Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. Income tax extension The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Income tax extension The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Income tax extension The result is the amount of your phased out (reduced) lifetime learning credit ($990). Income tax extension   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Income tax extension Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Income tax extension Note. Income tax extension In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Income tax extension Prev  Up  Next   Home   More Online Publications
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Many Retirees Face April 1 Deadline To Take Required Retirement Plan Distributions

IR-2014-38, March 27, 2014

WASHINGTON — The Internal Revenue Service today reminded taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014.

The April 1 deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2013 and receives the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014. 

Affected taxpayers who turned 70½ during 2013 must figure the RMD for the first year using their life expectancy on Dec. 31, 2013 and their account balance on Dec. 31, 2012. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the Appendices to Publication 590.

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who turned 71 in 2013, for example, the first required distribution would be based on a life expectancy of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2014. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2014 RMD, this amount would be on the 2013 Form 5498 that is normally issued in January 2014.

More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov.

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Page Last Reviewed or Updated: 27-Mar-2014

The Income Tax Extension

Income tax extension 8. Income tax extension   Dividends and Other Distributions Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. Income tax extension Reporting tax withheld. Income tax extension Nominees. Income tax extension Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. Income tax extension Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. Income tax extension Alternative minimum tax treatment. Income tax extension How To Report Dividend IncomeInvestment interest deducted. Income tax extension Reminder Foreign-source income. Income tax extension  If you are a U. Income tax extension S. Income tax extension citizen with dividend income from sources outside the United States (foreign-source income), you must report that income on your tax return unless it is exempt by U. Income tax extension S. Income tax extension law. Income tax extension This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Income tax extension Introduction This chapter discusses the tax treatment of: Ordinary dividends, Capital gain distributions, Nondividend distributions, and Other distributions you may receive from a corporation or a mutual fund. Income tax extension This chapter also explains how to report dividend income on your tax return. Income tax extension Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. Income tax extension You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. Income tax extension However, some amounts you receive that are called dividends are actually interest income. Income tax extension (See Dividends that are actually interest under Taxable Interest in chapter 7. Income tax extension ) Most distributions are paid in cash (or check). Income tax extension However, distributions can consist of more stock, stock rights, other property, or services. Income tax extension Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 550 Investment Income and Expenses Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends General Information This section discusses general rules for dividend income. Income tax extension Tax on unearned income of certain children. Income tax extension   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Income tax extension If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Income tax extension If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Income tax extension    Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Income tax extension Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Income tax extension   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Income tax extension Beneficiary of an estate or trust. Income tax extension    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. Income tax extension You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Income tax extension , from the fiduciary. Income tax extension Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Income tax extension Social security number (SSN) or individual taxpayer identification number (ITIN). Income tax extension    You must give your SSN or ITIN to any person required by federal tax law to make a return, statement, or other document that relates to you. Income tax extension This includes payers of dividends. Income tax extension If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. Income tax extension For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. Income tax extension Backup withholding. Income tax extension   Your dividend income is generally not subject to regular withholding. Income tax extension However, it may be subject to backup withholding to ensure that income tax is collected on the income. Income tax extension Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Income tax extension   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Income tax extension For more information, see Backup Withholding in chapter 4. Income tax extension Stock certificate in two or more names. Income tax extension   If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person's share of any dividends from the stock is determined by local law. Income tax extension Form 1099-DIV. Income tax extension   Most corporations and mutual funds use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. Income tax extension Keep this form with your records. Income tax extension You do not have to attach it to your tax return. Income tax extension Dividends not reported on Form 1099-DIV. Income tax extension   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. Income tax extension For example, you may receive distributive shares of dividends from partnerships or S corporations. Income tax extension These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Income tax extension , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Income tax extension Reporting tax withheld. Income tax extension   If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. Income tax extension Nominees. Income tax extension   If someone receives distributions as a nominee for you, that person should give you a Form 1099-DIV, which will show distributions received on your behalf. Income tax extension Form 1099-MISC. Income tax extension   Certain substitute payments in lieu of dividends or tax-exempt interest received by a broker on your behalf must be reported to you on Form 1099-MISC, Miscellaneous Income, or a similar statement. Income tax extension See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. Income tax extension Incorrect amount shown on a Form 1099. Income tax extension   If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Income tax extension The new Form 1099 you receive will be marked “Corrected. Income tax extension ” Dividends on stock sold. Income tax extension   If stock is sold, exchanged, or otherwise disposed of after a dividend is declared but before it is paid, the owner of record (usually the payee shown on the dividend check) must include the dividend in income. Income tax extension Dividends received in January. Income tax extension   If a mutual fund (or other regulated investment company) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December, payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. Income tax extension You report the dividend in the year it was declared. Income tax extension Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. Income tax extension They are paid out of earnings and profits and are ordinary income to you. Income tax extension This means they are not capital gains. Income tax extension You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Income tax extension Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. Income tax extension Qualified Dividends Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. Income tax extension They should be shown in box 1b of the Form 1099-DIV you receive. Income tax extension The maximum rate of tax on qualified dividends is: 0% on any amount that otherwise would be taxed at a 10% or 15% rate. Income tax extension 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. Income tax extension 6%. Income tax extension 20% on any amount that otherwise would be taxed at a 39. Income tax extension 6% rate. Income tax extension To qualify for the maximum rate, all of the following requirements must be met. Income tax extension The dividends must have been paid by a U. Income tax extension S. Income tax extension corporation or a qualified foreign corporation. Income tax extension (See Qualified foreign corporation , later. Income tax extension ) The dividends are not of the type listed later under Dividends that are not qualified dividends . Income tax extension You meet the holding period (discussed next). Income tax extension Holding period. Income tax extension   You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Income tax extension The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. Income tax extension Instead, the seller will get the dividend. Income tax extension   When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. Income tax extension See the examples later. Income tax extension Exception for preferred stock. Income tax extension   In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. Income tax extension If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. Income tax extension Example 1. Income tax extension You bought 5,000 shares of XYZ Corp. Income tax extension common stock on July 9, 2013. Income tax extension XYZ Corp. Income tax extension paid a cash dividend of 10 cents per share. Income tax extension The ex-dividend date was July 16, 2013. Income tax extension Your Form 1099-DIV from XYZ Corp. Income tax extension shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). Income tax extension However, you sold the 5,000 shares on August 12, 2013. Income tax extension You held your shares of XYZ Corp. Income tax extension for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). Income tax extension The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. Income tax extension You have no qualified dividends from XYZ Corp. Income tax extension because you held the XYZ stock for less than 61 days. Income tax extension Example 2. Income tax extension Assume the same facts as in Example 1 except that you bought the stock on July 15, 2013 (the day before the ex-dividend date), and you sold the stock on September 16, 2013. Income tax extension You held the stock for 63 days (from July 16, 2013, through September 16, 2013). Income tax extension The $500 of qualified dividends shown in box 1b of your Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from July 16, 2013, through September 14, 2013). Income tax extension Example 3. Income tax extension You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. Income tax extension ABC Mutual Fund paid a cash dividend of 10 cents a share. Income tax extension The ex-dividend date was July 16, 2013. Income tax extension The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. Income tax extension Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. Income tax extension However, you sold the 10,000 shares on August 12, 2013. Income tax extension You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. Income tax extension Holding period reduced where risk of loss is diminished. Income tax extension   When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which you meet any of the following conditions. Income tax extension You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially identical stock or securities. Income tax extension You were grantor (writer) of an option to buy substantially identical stock or securities. Income tax extension Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. Income tax extension   For information about how to apply condition (3), see Regulations section 1. Income tax extension 246-5. Income tax extension Qualified foreign corporation. Income tax extension   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. Income tax extension The corporation is incorporated in a U. Income tax extension S. Income tax extension possession. Income tax extension The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. Income tax extension For a list of those treaties, see Table 8-1. Income tax extension The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. Income tax extension See Readily tradable stock , later. Income tax extension Exception. Income tax extension   A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year. Income tax extension Readily tradable stock. Income tax extension   Any stock (such as common, ordinary, or preferred) or an American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation , if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. Income tax extension For a list of the exchanges that meet these requirements, see www. Income tax extension sec. Income tax extension gov/divisions/marketreg/mrexchanges. Income tax extension shtml. Income tax extension Dividends that are not qualified dividends. Income tax extension   The following dividends are not qualified dividends. Income tax extension They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. Income tax extension Capital gain distributions. Income tax extension Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. Income tax extension S. Income tax extension building and loan associations, U. Income tax extension S. Income tax extension savings and loan associations, federal savings and loan associations, and similar financial institutions. Income tax extension (Report these amounts as interest income. Income tax extension ) Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year. Income tax extension Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation. Income tax extension Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. Income tax extension Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Income tax extension Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. Income tax extension Table 8-1. Income tax extension Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. Income tax extension Australia Indonesia Romania Austria Ireland Russian Bangladesh Israel Federation Barbados Italy Slovak Belgium Jamaica Republic Bulgaria Japan Slovenia Canada Kazakhstan South Africa China Korea Spain Cyprus Latvia Sri Lanka Czech Lithuania Sweden Republic Luxembourg Switzerland Denmark Malta Thailand Egypt Mexico Trinidad and Estonia Morocco Tobago Finland Netherlands Tunisia France New Zealand Turkey Germany Norway Ukraine Greece Pakistan United Hungary Philippines Kingdom Iceland Poland Venezuela India Portugal     Dividends Used to Buy More Stock The corporation in which you own stock may have a dividend reinvestment plan. Income tax extension This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. Income tax extension Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. Income tax extension If you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as income. Income tax extension If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date. Income tax extension You also must report as dividend income any service charge subtracted from your cash dividends before the dividends are used to buy the additional stock. Income tax extension But you may be able to deduct the service charge. Income tax extension See chapter 28 for more information about deducting expenses of producing income. Income tax extension In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. Income tax extension If you choose to do this, you must report as dividend income the difference between the cash you invest and the fair market value of the stock you buy. Income tax extension When figuring this amount, use the fair market value of the stock on the dividend payment date. Income tax extension Money Market Funds Report amounts you receive from money market funds as dividend income. Income tax extension Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. Income tax extension Capital Gain Distributions Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds (or other regulated investment companies) and real estate investment trusts (REITs). Income tax extension They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. Income tax extension Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. Income tax extension Undistributed capital gains of mutual funds and REITs. Income tax extension    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. Income tax extension You must treat your share of these gains as distributions, even though you did not actually receive them. Income tax extension However, they are not included on Form 1099-DIV. Income tax extension Instead, they are reported to you in box 1a of Form 2439. Income tax extension   Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. Income tax extension   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. Income tax extension You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. Income tax extension Attach Copy B of Form 2439 to your return, and keep Copy C for your records. Income tax extension Basis adjustment. Income tax extension   Increase your basis in your mutual fund, or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid. Income tax extension Additional information. Income tax extension   For more information on the treatment of distributions from mutual funds, see Publication 550. Income tax extension Nondividend Distributions A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. Income tax extension You should receive a Form 1099-DIV or other statement showing the nondividend distribution. Income tax extension On Form 1099-DIV, a nondividend distribution will be shown in box 3. Income tax extension If you do not receive such a statement, you report the distribution as an ordinary dividend. Income tax extension Basis adjustment. Income tax extension   A nondividend distribution reduces the basis of your stock. Income tax extension It is not taxed until your basis in the stock is fully recovered. Income tax extension This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. Income tax extension If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. Income tax extension   When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. Income tax extension Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. Income tax extension See Holding Period in chapter 14. Income tax extension Example. Income tax extension You bought stock in 2000 for $100. Income tax extension In 2003, you received a nondividend distribution of $80. Income tax extension You did not include this amount in your income, but you reduced the basis of your stock to $20. Income tax extension You received a nondividend distribution of $30 in 2013. Income tax extension The first $20 of this amount reduced your basis to zero. Income tax extension You report the other $10 as a long-term capital gain for 2013. Income tax extension You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. Income tax extension Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. Income tax extension These distributions are, at least in part, one form of a return of capital. Income tax extension They may be paid in one or more installments. Income tax extension You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. Income tax extension For more information on liquidating distributions, see chapter 1 of Publication 550. Income tax extension Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. Income tax extension Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. Income tax extension Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. Income tax extension Taxable stock dividends and stock rights. Income tax extension   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. Income tax extension You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. Income tax extension The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders. Income tax extension The distribution is in convertible preferred stock and has the same result as in (2). Income tax extension The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. Income tax extension The distribution is on preferred stock. Income tax extension (The distribution, however, is not taxable if it is an increase in the conversion ratio of convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise result in reducing the conversion right. Income tax extension )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. Income tax extension If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. Income tax extension Preferred stock redeemable at a premium. Income tax extension   If you hold preferred stock having a redemption price higher than its issue price, the difference (the redemption premium) generally is taxable as a constructive distribution of additional stock on the preferred stock. Income tax extension For more information, see chapter 1 of Publication 550. Income tax extension Basis. Income tax extension   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. Income tax extension If you receive stock or stock rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550 for information on how to figure their basis. Income tax extension Fractional shares. Income tax extension    You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. Income tax extension However, with the approval of the shareholders, the corporation may set up a plan in which fractional shares are not issued but instead are sold, and the cash proceeds are given to the shareholders. Income tax extension Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. Income tax extension Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. Income tax extension Enter your gain or loss, the difference between the cash you receive and the basis of the fractional shares sold, in column (h) of Schedule D (Form 1040) in Part I or Part II, whichever is appropriate. Income tax extension    Report these transactions on Form 8949 with the correct box checked. Income tax extension   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. Income tax extension Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Income tax extension Example. Income tax extension You own one share of common stock that you bought on January 3, 2004, for $100. Income tax extension The corporation declared a common stock dividend of 5% on June 29, 2013. Income tax extension The fair market value of the stock at the time the stock dividend was declared was $200. Income tax extension You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. Income tax extension You figure your gain or loss as follows: Fair market value of old stock $200. Income tax extension 00 Fair market value of stock dividend (cash received) +10. Income tax extension 00 Fair market value of old stock and stock dividend $210. Income tax extension 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. Income tax extension 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. Income tax extension 76 Total $100. Income tax extension 00 Cash received $10. Income tax extension 00 Basis (cost) of stock dividend − 4. Income tax extension 76 Gain $5. Income tax extension 24 Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the stock dividend is a long-term capital gain. Income tax extension Scrip dividends. Income tax extension   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. Income tax extension The certificate is generally nontaxable when you receive it. Income tax extension If you choose to have the corporation sell the certificate for you and give you the proceeds, your gain or loss is the difference between the proceeds and the portion of your basis in the corporation's stock allocated to the certificate. Income tax extension   However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate is taxable when you receive it. Income tax extension You must include its fair market value in income on the date you receive it. Income tax extension Other Distributions You may receive any of the following distributions during the year. Income tax extension Exempt-interest dividends. Income tax extension   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Income tax extension Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Income tax extension Information reporting requirement. Income tax extension   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. Income tax extension This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. Income tax extension Alternative minimum tax treatment. Income tax extension   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Income tax extension See Alternative Minimum Tax (AMT) in chapter 30 for more information. Income tax extension Dividends on insurance policies. Income tax extension    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. Income tax extension However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. Income tax extension    If dividends on an insurance contract (other than a modified endowment contract) are distributed to you, they are a partial return of the premiums you paid. Income tax extension Do not include them in your gross income until they are more than the total of all net premiums you paid for the contract. Income tax extension Report any taxable distributions on insurance policies on Form 1040, line 21. Income tax extension Dividends on veterans' insurance. Income tax extension   Dividends you receive on veterans' insurance policies are not taxable. Income tax extension In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. Income tax extension Patronage dividends. Income tax extension   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. Income tax extension   Do not include in your income patronage dividends you receive on: Property bought for your personal use, or Capital assets or depreciable property bought for use in your business. Income tax extension But you must reduce the basis (cost) of the items bought. Income tax extension If the dividend is more than the adjusted basis of the assets, you must report the excess as income. Income tax extension   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. Income tax extension Alaska Permanent Fund dividends. Income tax extension    Do not report these amounts as dividends. Income tax extension Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. Income tax extension How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. Income tax extension Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. Income tax extension Report qualified dividends on line 9b of Form 1040 or Form 1040A. Income tax extension If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. Income tax extension See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. Income tax extension If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. Income tax extension You cannot use Form 1040EZ if you receive any dividend income. Income tax extension Form 1099-DIV. Income tax extension   If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. Income tax extension Even if you do not receive Form 1099-DIV, you must report all your dividend income. Income tax extension   See Form 1099-DIV for more information on how to report dividend income. Income tax extension Form 1040A or 1040. Income tax extension    You must complete Schedule B (Form 1040A or 1040), Part II, and attach it to your Form 1040A or 1040, if: Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or You received, as a nominee, dividends that actually belong to someone else. Income tax extension If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. Income tax extension   List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. Income tax extension If your securities are held by a brokerage firm (in “street name”), list the name of the brokerage firm shown on Form 1099-DIV as the payer. Income tax extension If your stock is held by a nominee who is the owner of record, and the nominee credited or paid you dividends on the stock, show the name of the nominee and the dividends you received or for which you were credited. Income tax extension   Enter on line 6 the total of the amounts listed on line 5. Income tax extension Also enter this total on line 9a of Form 1040A or 1040. Income tax extension Qualified dividends. Income tax extension   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. Income tax extension The amount in box 1b is already included in box 1a. Income tax extension Do not add the amount in box 1b to, or substract it from, the amount in box 1a. Income tax extension   Do not include any of the following on line 9b. Income tax extension Qualified dividends you received as a nominee. Income tax extension See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. Income tax extension Dividends on stock for which you did not meet the holding period. Income tax extension See Holding period , earlier under Qualified Dividends. Income tax extension Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. Income tax extension Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Income tax extension Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. Income tax extension   If you have qualified dividends, you must figure your tax by completing the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or 1040A instructions or the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions, whichever applies. Income tax extension Enter qualified dividends on line 2 of the worksheet. Income tax extension Investment interest deducted. Income tax extension   If you claim a deduction for investment interest, you may have to reduce the amount of your qualified dividends that are eligible for the 0%, 15%, or 20% tax rate. Income tax extension Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. Income tax extension This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. Income tax extension For more information about the limit on investment interest, see Investment expenses in chapter 23. Income tax extension Expenses related to dividend income. Income tax extension   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). Income tax extension See chapter 28 for general information about deducting expenses of producing income. Income tax extension More information. Income tax extension    For more information about how to report dividend income, see chapter 1 of Publication 550 or the instructions for the form you must file. Income tax extension Prev  Up  Next   Home   More Online Publications