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Irs 1040ez Form 2013

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Irs 1040ez Form 2013

Irs 1040ez form 2013 Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. Irs 1040ez form 2013 Employee business expenses. Irs 1040ez form 2013 Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Irs 1040ez form 2013 You can change your choice for each year's taxes. Irs 1040ez form 2013 To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax return. Irs 1040ez form 2013 However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Irs 1040ez form 2013 See How To Figure the Credit , later. Irs 1040ez form 2013 To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Irs 1040ez form 2013 Figure your tax both ways—claiming the credit and claiming the deduction. Irs 1040ez form 2013 Then fill out your return the way that benefits you more. Irs 1040ez form 2013 See Why Choose the Credit, later. Irs 1040ez form 2013 Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. Irs 1040ez form 2013 If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Irs 1040ez form 2013 You cannot deduct any of them. Irs 1040ez form 2013 Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Irs 1040ez form 2013 You cannot take a credit for any of them. Irs 1040ez form 2013 See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Irs 1040ez form 2013 There are exceptions to this general rule, which are described next. Irs 1040ez form 2013 Exceptions for foreign taxes not allowed as a credit. Irs 1040ez form 2013   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Irs 1040ez form 2013 Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax purposes. Irs 1040ez form 2013 For more information, see Internal Revenue Code section 901(m). Irs 1040ez form 2013 The IRS intends to issue guidance that will explain this provision in greater detail. Irs 1040ez form 2013   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. Irs 1040ez form 2013 Foreign taxes that are not income taxes. Irs 1040ez form 2013   In most cases, only foreign income taxes qualify for the foreign tax credit. Irs 1040ez form 2013 Other taxes, such as foreign real and personal property taxes, do not qualify. Irs 1040ez form 2013 But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Irs 1040ez form 2013   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. Irs 1040ez form 2013 However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Irs 1040ez form 2013 Carrybacks and carryovers. Irs 1040ez form 2013   There is a limit on the credit you can claim in a tax year. Irs 1040ez form 2013 If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. Irs 1040ez form 2013 If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Irs 1040ez form 2013 That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Irs 1040ez form 2013   For more information on the limit, see How To Figure the Credit , later. Irs 1040ez form 2013 For more information on carrybacks and carryovers, see Carryback and Carryover , later. Irs 1040ez form 2013 Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. Irs 1040ez form 2013 You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Irs 1040ez form 2013 Example. Irs 1040ez form 2013 You paid foreign taxes for the last 13 years and chose to deduct them on your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 income tax returns. Irs 1040ez form 2013 You were timely in both filing your returns and paying your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability. Irs 1040ez form 2013 In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Irs 1040ez form 2013 Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Irs 1040ez form 2013 Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Irs 1040ez form 2013 Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Irs 1040ez form 2013 If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. Irs 1040ez form 2013 Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. Irs 1040ez form 2013 Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. Irs 1040ez form 2013 However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. Irs 1040ez form 2013 You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. Irs 1040ez form 2013 See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Irs 1040ez form 2013 Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. Irs 1040ez form 2013 In most cases, if the foreign tax rate is higher than the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 rate, there will be no U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax on the foreign income. Irs 1040ez form 2013 If the foreign tax rate is lower than the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 rate, U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax on the foreign income will be limited to the difference between the rates. Irs 1040ez form 2013 The foreign tax credit can only reduce U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 taxes on foreign source income; it cannot reduce U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 taxes on U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 source income. Irs 1040ez form 2013 Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. Irs 1040ez form 2013 This is because: A credit reduces your actual U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. Irs 1040ez form 2013 You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. Irs 1040ez form 2013 (See Limit on credit under How To Figure the Credit, later. Irs 1040ez form 2013 ) Example 1. Irs 1040ez form 2013 For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Irs 1040ez form 2013 None of the dividends are qualified dividends. Irs 1040ez form 2013 You file a joint return and can claim two $3,900 exemptions. Irs 1040ez form 2013 You had to pay $2,000 in foreign income taxes on the dividend income. Irs 1040ez form 2013 If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Irs 1040ez form 2013 Your taxable income then is $57,500 and your tax is $7,736. Irs 1040ez form 2013 If you take the credit instead, your itemized deductions are only $13,000. Irs 1040ez form 2013 Your taxable income then is $59,500 and your tax before the credit is $8,036. Irs 1040ez form 2013 After the credit, however, your tax is only $6,036. Irs 1040ez form 2013 Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Irs 1040ez form 2013 Example 2. Irs 1040ez form 2013 In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Irs 1040ez form 2013 You report on your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 return this income as well as $56,000 of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 source wages and an allowable $49,000 partnership loss from a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 partnership. Irs 1040ez form 2013 Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Irs 1040ez form 2013 You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Irs 1040ez form 2013 If you deduct the foreign tax on your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. Irs 1040ez form 2013 If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. Irs 1040ez form 2013 You can take a credit of only $113 because of limits discussed later. Irs 1040ez form 2013 Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Irs 1040ez form 2013 If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Irs 1040ez form 2013 When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. Irs 1040ez form 2013 Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. Irs 1040ez form 2013 “Tax year” refers to the tax year for which your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 return is filed, not the tax year for which your foreign return is filed. Irs 1040ez form 2013 Accrual method of accounting. Irs 1040ez form 2013   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Irs 1040ez form 2013 You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. Irs 1040ez form 2013   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Irs 1040ez form 2013 Generally, this occurs on the last day of the tax year for which your foreign return is filed. Irs 1040ez form 2013 Contesting your foreign tax liability. Irs 1040ez form 2013   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. Irs 1040ez form 2013 However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. Irs 1040ez form 2013 Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Irs 1040ez form 2013 If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . Irs 1040ez form 2013 You may have to post a bond. Irs 1040ez form 2013   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. Irs 1040ez form 2013   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Irs 1040ez form 2013 Cash method of accounting. Irs 1040ez form 2013   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. Irs 1040ez form 2013 You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. Irs 1040ez form 2013 Choosing to take credit in the year taxes accrue. Irs 1040ez form 2013   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Irs 1040ez form 2013 You make the choice by checking the box in Part II of Form 1116. Irs 1040ez form 2013 Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. Irs 1040ez form 2013   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Irs 1040ez form 2013 You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Irs 1040ez form 2013   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. Irs 1040ez form 2013 Credit based on taxes paid in earlier year. Irs 1040ez form 2013   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. Irs 1040ez form 2013 Example. Irs 1040ez form 2013 Last year you took the credit based on taxes paid. Irs 1040ez form 2013 This year you chose to take the credit based on taxes accrued. Irs 1040ez form 2013 During the year you paid foreign income taxes owed for last year. Irs 1040ez form 2013 You also accrued foreign income taxes for this year that you did not pay by the end of the year. Irs 1040ez form 2013 You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. Irs 1040ez form 2013 Foreign Currency and Exchange Rates U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 income tax is imposed on income expressed in U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Irs 1040ez form 2013 Therefore, fluctuations in the value of the foreign currency relative to the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar may affect the foreign tax credit. Irs 1040ez form 2013 Translating foreign currency into U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollars. Irs 1040ez form 2013   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollars. Irs 1040ez form 2013 How and when you do this depends on your functional currency. Irs 1040ez form 2013 In most cases, your functional currency is the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar unless you are required to use the currency of a foreign country. Irs 1040ez form 2013   You must make all federal income tax determinations in your functional currency. Irs 1040ez form 2013 The U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar is the functional currency for all taxpayers except some qualified business units. Irs 1040ez form 2013 A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Irs 1040ez form 2013 Unless you are self-employed, your functional currency is the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar. Irs 1040ez form 2013   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar if any of the following apply. Irs 1040ez form 2013 You conduct the business primarily in dollars. Irs 1040ez form 2013 The principal place of business is located in the United States. Irs 1040ez form 2013 You choose to or are required to use the dollar as your functional currency. Irs 1040ez form 2013 The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Irs 1040ez form 2013   If your functional currency is the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar, you must immediately translate into dollars all items of income, expense, etc. Irs 1040ez form 2013 , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Irs 1040ez form 2013 If there is more than one exchange rate, use the one that most properly reflects your income. Irs 1040ez form 2013 In most cases, you can get exchange rates from banks and U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Embassies. Irs 1040ez form 2013   If your functional currency is not the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar, make all income tax determinations in your functional currency. Irs 1040ez form 2013 At the end of the year, translate the results, such as income or loss, into U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollars to report on your income tax return. Irs 1040ez form 2013    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Irs 1040ez form 2013   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. Irs 1040ez form 2013 If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Irs 1040ez form 2013 If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. Irs 1040ez form 2013   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). Irs 1040ez form 2013 Exception. Irs 1040ez form 2013   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. Irs 1040ez form 2013 This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Irs 1040ez form 2013 The foreign taxes are paid on or after the first day of the tax year to which they relate. Irs 1040ez form 2013 The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Irs 1040ez form 2013 The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Irs 1040ez form 2013 (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Irs 1040ez form 2013 )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Irs 1040ez form 2013 Election to use exchange rate on date paid. Irs 1040ez form 2013   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. Irs 1040ez form 2013 If any of the accrued taxes are unpaid, you must translate them into U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollars using the exchange rate on the last day of the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax year to which those taxes relate. Irs 1040ez form 2013 You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar functional currency. Irs 1040ez form 2013 Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Irs 1040ez form 2013 The election is available for tax years beginning after 2004. Irs 1040ez form 2013 It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. Irs 1040ez form 2013 Make the election by attaching a statement to the applicable tax return. Irs 1040ez form 2013 The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollar functional currency. Irs 1040ez form 2013 Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 foreign tax credit claimed. Irs 1040ez form 2013 The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. Irs 1040ez form 2013 If a foreign tax redetermination occurs, a redetermination of your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability is required if any of the following conditions apply. Irs 1040ez form 2013 The accrued taxes when paid differ from the amounts claimed as a credit. Irs 1040ez form 2013 The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. Irs 1040ez form 2013 If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Irs 1040ez form 2013 You will not be allowed a credit for the unpaid taxes until you pay them. Irs 1040ez form 2013 When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 dollars using the exchange rate as of the date they were paid. Irs 1040ez form 2013 The foreign tax credit is allowed for the year to which the foreign tax relates. Irs 1040ez form 2013 See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Irs 1040ez form 2013 The foreign taxes you paid are refunded in whole or in part. Irs 1040ez form 2013 For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. Irs 1040ez form 2013 However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax year. Irs 1040ez form 2013 In this case, you must adjust your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax in the tax year in which the accrued foreign taxes are paid. Irs 1040ez form 2013 Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability for each tax year affected by the redetermination. Irs 1040ez form 2013 In most cases, you must file Form 1040X, Amended U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability for the year or years affected. Irs 1040ez form 2013 See Contents of statement , later. Irs 1040ez form 2013 You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. Irs 1040ez form 2013 There are other exceptions to this requirement. Irs 1040ez form 2013 They are discussed later under Due date of notification to IRS . Irs 1040ez form 2013 Contents of statement. Irs 1040ez form 2013   The statement must include all of the following. Irs 1040ez form 2013 Your name, address, and taxpayer identification number. Irs 1040ez form 2013 The tax year or years that are affected by the foreign tax redetermination. Irs 1040ez form 2013 The date or dates the foreign taxes were accrued, if applicable. Irs 1040ez form 2013 The date or dates the foreign taxes were paid. Irs 1040ez form 2013 The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Irs 1040ez form 2013 Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. Irs 1040ez form 2013   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. Irs 1040ez form 2013   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). Irs 1040ez form 2013 Due date of notification to IRS. Irs 1040ez form 2013   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. Irs 1040ez form 2013 There is no limit on the time the IRS has to redetermine and assess the correct U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax due. Irs 1040ez form 2013 If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 taxes. Irs 1040ez form 2013 See Time Limit on Refund Claims , later. Irs 1040ez form 2013   Exceptions to this due date are explained in the next two paragraphs. Irs 1040ez form 2013 Multiple redeterminations of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability for same tax year. Irs 1040ez form 2013   Where more than one foreign tax redetermination requires a redetermination of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. Irs 1040ez form 2013 If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. Irs 1040ez form 2013 However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability is required may occur after the due date for providing that notification. Irs 1040ez form 2013 In this situation, you may have to file more than one Form 1040X for that tax year. Irs 1040ez form 2013 Additional U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax due eliminated by foreign tax credit carryback or carryover. Irs 1040ez form 2013   If a foreign tax redetermination requires a redetermination of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability that would otherwise result in an additional amount of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. Irs 1040ez form 2013 Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. Irs 1040ez form 2013 You must file the statement by the due date (with extensions) of that return. Irs 1040ez form 2013 The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability is required). Irs 1040ez form 2013 Failure-to-notify penalty. Irs 1040ez form 2013   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. Irs 1040ez form 2013   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax. Irs 1040ez form 2013 This penalty cannot be more than 25% of the tax due. Irs 1040ez form 2013 Foreign tax refund. Irs 1040ez form 2013   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax for the time before the date of the refund. Irs 1040ez form 2013   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. Irs 1040ez form 2013 The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. Irs 1040ez form 2013 Interest also is owed from the time you receive a refund until you pay the additional tax due. Irs 1040ez form 2013 Foreign tax imposed on foreign refund. Irs 1040ez form 2013   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Irs 1040ez form 2013 However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. Irs 1040ez form 2013 Example. Irs 1040ez form 2013 You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. Irs 1040ez form 2013 When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Irs 1040ez form 2013 Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Irs 1040ez form 2013 The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. Irs 1040ez form 2013 You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Irs 1040ez form 2013 The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). Irs 1040ez form 2013 The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Irs 1040ez form 2013 See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Irs 1040ez form 2013 Who Can Take the Credit? U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax on foreign source income may be able to take a foreign tax credit. Irs 1040ez form 2013 U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Citizens If you are a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizen, you are taxed by the United States on your worldwide income wherever you live. Irs 1040ez form 2013 You are normally entitled to take a credit for foreign taxes you pay or accrue. Irs 1040ez form 2013 Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizens. Irs 1040ez form 2013 If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Irs 1040ez form 2013 Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. Irs 1040ez form 2013 For information on alien status, see Publication 519. Irs 1040ez form 2013 Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Irs 1040ez form 2013 However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possession on income from foreign sources that is effectively connected with a trade or business in the United States. Irs 1040ez form 2013 But if you must pay tax to a foreign country or U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possession on income from U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 sources only because you are a citizen or a resident of that country or U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possession, do not use that tax in figuring the amount of your credit. Irs 1040ez form 2013 For information on alien status and effectively connected income, see Publication 519. Irs 1040ez form 2013 What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. Irs 1040ez form 2013 The tax must be imposed on you. Irs 1040ez form 2013 You must have paid or accrued the tax. Irs 1040ez form 2013 The tax must be the legal and actual foreign tax liability. Irs 1040ez form 2013 The tax must be an income tax (or a tax in lieu of an income tax). Irs 1040ez form 2013 Certain foreign taxes do not qualify for the credit even if the four tests are met. Irs 1040ez form 2013 See Foreign Taxes for Which You Cannot Take a Credit, later. Irs 1040ez form 2013 Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possession. Irs 1040ez form 2013 For example, a tax that is deducted from your wages is considered to be imposed on you. Irs 1040ez form 2013 You cannot shift the right to claim the credit by contract or other means. Irs 1040ez form 2013 Foreign country. Irs 1040ez form 2013   A foreign country includes any foreign state and its political subdivisions. Irs 1040ez form 2013 Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Irs 1040ez form 2013 U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possessions. Irs 1040ez form 2013   For foreign tax credit purposes, all qualified taxes paid to U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possessions are considered foreign taxes. Irs 1040ez form 2013 For this purpose, U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possessions include Puerto Rico and American Samoa. Irs 1040ez form 2013   When the term “foreign country” is used in this publication, it includes U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possessions unless otherwise stated. Irs 1040ez form 2013 You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 possession. Irs 1040ez form 2013 However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. Irs 1040ez form 2013 Joint return. Irs 1040ez form 2013   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. Irs 1040ez form 2013 Combined income. Irs 1040ez form 2013   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. Irs 1040ez form 2013 901-2(f)(3)(iii). Irs 1040ez form 2013 Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. Irs 1040ez form 2013   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Irs 1040ez form 2013 However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. Irs 1040ez form 2013 For more details, see paragraphs (f) and (h) of Regulations section 1. Irs 1040ez form 2013 901-2. Irs 1040ez form 2013 For similar rules applicable to prior tax years, see Regulations section 1. Irs 1040ez form 2013 901-2 (revised as of April 1, 2011). Irs 1040ez form 2013 Example. Irs 1040ez form 2013 You and your spouse reside in Country X, which imposes income tax on your combined incomes. Irs 1040ez form 2013 Both of you use the “u” as your functional currency. Irs 1040ez form 2013 Country X apportions tax based on income. Irs 1040ez form 2013 You had income of 30,000u and your spouse had income of 20,000u. Irs 1040ez form 2013 Your filing status on your U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 income tax return is married filing separately. Irs 1040ez form 2013 You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Irs 1040ez form 2013 S income tax return. Irs 1040ez form 2013 Your spouse can claim only 40% (20,000u/50,000u). Irs 1040ez form 2013 Partner or S corporation shareholder. Irs 1040ez form 2013   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. Irs 1040ez form 2013 These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Irs 1040ez form 2013 However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. Irs 1040ez form 2013 Beneficiary. Irs 1040ez form 2013   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. Irs 1040ez form 2013 This amount will be shown on the Schedule K-1 you receive from the estate or trust. Irs 1040ez form 2013 However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Irs 1040ez form 2013 Mutual fund shareholder. Irs 1040ez form 2013   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. Irs 1040ez form 2013 You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. Irs 1040ez form 2013 If you do not receive this information, you will need to contact the fund. Irs 1040ez form 2013 Controlled foreign corporation shareholder. Irs 1040ez form 2013   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. Irs 1040ez form 2013 If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Irs 1040ez form 2013 Controlled foreign corporation. Irs 1040ez form 2013   A controlled foreign corporation is a foreign corporation in which U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 shareholders own more than 50% of the voting power or value of the stock. Irs 1040ez form 2013 You are considered a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Irs 1040ez form 2013 See Internal Revenue Code sections 951(b) and 958(b) for more information. Irs 1040ez form 2013 Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Irs 1040ez form 2013 Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Irs 1040ez form 2013 Foreign tax refund. Irs 1040ez form 2013   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. Irs 1040ez form 2013   For example, the United States has tax treaties with many countries allowing U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizens and residents reductions in the rates of tax of those foreign countries. Irs 1040ez form 2013 However, some treaty countries require U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. Irs 1040ez form 2013 The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. Irs 1040ez form 2013 Subsidy received. Irs 1040ez form 2013   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Irs 1040ez form 2013 This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. Irs 1040ez form 2013 A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. Irs 1040ez form 2013   The term “subsidy” includes any type of benefit. Irs 1040ez form 2013 Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Irs 1040ez form 2013 Shareholder receiving refund for corporate tax in integrated system. Irs 1040ez form 2013   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Irs 1040ez form 2013 You may be able to claim a refund of these taxes from the foreign government. Irs 1040ez form 2013 You must include the refund (including any amount withheld) in your income in the year received. Irs 1040ez form 2013 Any tax withheld from the refund is a qualified foreign tax. Irs 1040ez form 2013 Example. Irs 1040ez form 2013 You are a shareholder of a French corporation. Irs 1040ez form 2013 You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Irs 1040ez form 2013 The French government imposes a 15% withholding tax ($15) on the refund you received. Irs 1040ez form 2013 You receive a check for $85. Irs 1040ez form 2013 You include $100 in your income. Irs 1040ez form 2013 The $15 of tax withheld is a qualified foreign tax. Irs 1040ez form 2013 Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. Irs 1040ez form 2013 Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Irs 1040ez form 2013 Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. Irs 1040ez form 2013 See Taxes in Lieu of Income Taxes , later. Irs 1040ez form 2013 Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. Irs 1040ez form 2013 A foreign levy is an income tax only if it meets both of the following requirements. Irs 1040ez form 2013 It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Irs 1040ez form 2013 The predominant character of the tax is that of an income tax in the U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 sense. Irs 1040ez form 2013 A foreign levy may meet these requirements even if the foreign tax law differs from U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax law. Irs 1040ez form 2013 The foreign law may include in income items that U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 law does not include, or it may allow certain exclusions or deductions that U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 law does not allow. Irs 1040ez form 2013 Specific economic benefit. Irs 1040ez form 2013   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. Irs 1040ez form 2013   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. Irs 1040ez form 2013   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Irs 1040ez form 2013 Economic benefits. Irs 1040ez form 2013   Economic benefits include the following. Irs 1040ez form 2013 Goods. Irs 1040ez form 2013 Services. Irs 1040ez form 2013 Fees or other payments. Irs 1040ez form 2013 Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Irs 1040ez form 2013 Discharges of contractual obligations. Irs 1040ez form 2013   In most cases, the right or privilege merely to engage in business is not an economic benefit. Irs 1040ez form 2013 Dual-capacity taxpayers. Irs 1040ez form 2013   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. Irs 1040ez form 2013 ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. Irs 1040ez form 2013    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. Irs 1040ez form 2013   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. Irs 1040ez form 2013    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. Irs 1040ez form 2013 For more information about these agreements, see Publication 54. Irs 1040ez form 2013 Soak-up taxes. Irs 1040ez form 2013   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Irs 1040ez form 2013 A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. Irs 1040ez form 2013 This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Irs 1040ez form 2013 Penalties and interest. Irs 1040ez form 2013   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. Irs 1040ez form 2013 Taxes not based on income. Irs 1040ez form 2013   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. Irs 1040ez form 2013 Taxes based on assets, such as property taxes, do not qualify for the credit. Irs 1040ez form 2013 Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. Irs 1040ez form 2013 A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. Irs 1040ez form 2013 A tax in lieu of an income tax does not have to be based on realized net income. Irs 1040ez form 2013 A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Irs 1040ez form 2013 In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Irs 1040ez form 2013 However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. Irs 1040ez form 2013 The soak-up tax. Irs 1040ez form 2013 The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. Irs 1040ez form 2013 Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Irs 1040ez form 2013 These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Irs 1040ez form 2013 Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 gross income. Irs 1040ez form 2013 Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 income under the foreign earned income exclusion or the foreign housing exclusion. Irs 1040ez form 2013 See Publication 54 for more information on the foreign earned income and housing exclusions. Irs 1040ez form 2013 Wages completely excluded. Irs 1040ez form 2013   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Irs 1040ez form 2013 Wages partly excluded. Irs 1040ez form 2013   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Irs 1040ez form 2013 You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. Irs 1040ez form 2013   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. Irs 1040ez form 2013 Deductible expenses do not include the foreign housing deduction. Irs 1040ez form 2013   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Irs 1040ez form 2013 If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 sources or a type of income not subject to U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. Irs 1040ez form 2013 Example. Irs 1040ez form 2013 You are a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizen and a cash basis taxpayer, employed by Company X and living in Country A. Irs 1040ez form 2013 Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. Irs 1040ez form 2013 To find that part, do the following. Irs 1040ez form 2013 First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Irs 1040ez form 2013 To do this, multiply the otherwise deductible expenses by a fraction. Irs 1040ez form 2013 That fraction is the excluded wages over your foreign earned income. Irs 1040ez form 2013   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Irs 1040ez form 2013 To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Irs 1040ez form 2013 The result is $81,984. Irs 1040ez form 2013 Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). Irs 1040ez form 2013 Finally, multiply the foreign tax you paid by the resulting fraction. Irs 1040ez form 2013   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Irs 1040ez form 2013 Taxes on Income From Puerto Rico Exempt From U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. Irs 1040ez form 2013 For information on figuring the reduction, see Publication 570. Irs 1040ez form 2013 Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. Irs 1040ez form 2013 For more information on this exclusion, see Publication 570. Irs 1040ez form 2013 Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Irs 1040ez form 2013 However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Irs 1040ez form 2013 Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. Irs 1040ez form 2013 However, you can claim an itemized deduction for these taxes. Irs 1040ez form 2013 See Choosing To Take Credit or Deduction , earlier. Irs 1040ez form 2013 Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Irs 1040ez form 2013 The following countries meet this description for 2013. Irs 1040ez form 2013 Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Irs 1040ez form 2013 Cuba. Irs 1040ez form 2013 Iran. Irs 1040ez form 2013 Libya (but see Note later). Irs 1040ez form 2013 North Korea. Irs 1040ez form 2013 Sudan. Irs 1040ez form 2013 Syria. Irs 1040ez form 2013 Waiver of denial of the credit. Irs 1040ez form 2013   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 companies in the sanctioned country. Irs 1040ez form 2013 The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. Irs 1040ez form 2013 Note. Irs 1040ez form 2013 Effective December 10, 2004, the President granted a waiver to Libya. Irs 1040ez form 2013 Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Irs 1040ez form 2013 Limit on credit. Irs 1040ez form 2013   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. Irs 1040ez form 2013 You must fill out a separate Form 1116 for this income. Irs 1040ez form 2013 This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Irs 1040ez form 2013 Example. Irs 1040ez form 2013 You lived and worked in Iran until August, when you were transferred to Italy. Irs 1040ez form 2013 You paid taxes to each country on the income earned in that country. Irs 1040ez form 2013 You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Irs 1040ez form 2013 Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Irs 1040ez form 2013 You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Irs 1040ez form 2013 Figuring the credit when a sanction ends. Irs 1040ez form 2013    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Irs 1040ez form 2013 For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. Irs 1040ez form 2013 Example. Irs 1040ez form 2013 The sanctions against Country X ended on July 31. Irs 1040ez form 2013 On August 19, you receive a distribution from a mutual fund of Country X income. Irs 1040ez form 2013 The fund paid Country X income tax for you on the distribution. Irs 1040ez form 2013 Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. Irs 1040ez form 2013 Amounts for the nonsanctioned period. Irs 1040ez form 2013   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. Irs 1040ez form 2013 Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Irs 1040ez form 2013   Number of nonsanctioned days in year  Number of days in year Example. Irs 1040ez form 2013 You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. Irs 1040ez form 2013 Sanctions against Country X ended on July 11, 2013. Irs 1040ez form 2013 You are unable to determine how much of the income or tax is for the nonsanctioned period. Irs 1040ez form 2013 Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. Irs 1040ez form 2013 You would compute the income for the nonsanctioned period as follows. Irs 1040ez form 2013 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Irs 1040ez form 2013 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. Irs 1040ez form 2013 Further information. Irs 1040ez form 2013   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. Irs 1040ez form 2013 This Cumulative Bulletin can be found in many libraries and IRS offices. Irs 1040ez form 2013 Table 1. Irs 1040ez form 2013 Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. Irs 1040ez form 2013 Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. Irs 1040ez form 2013 The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). Irs 1040ez form 2013 The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. Irs 1040ez form 2013 If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Irs 1040ez form 2013 When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Irs 1040ez form 2013 Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. Irs 1040ez form 2013 Withholding tax. Irs 1040ez form 2013   For this purpose, withholding tax includes any tax determined on a gross basis. Irs 1040ez form 2013 It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Irs 1040ez form 2013 Ex-dividend date. Irs 1040ez form 2013   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. Irs 1040ez form 2013 Example 1. Irs 1040ez form 2013 You bought common stock from a foreign corporation on November 3. Irs 1040ez form 2013 You sold the stock on November 19. Irs 1040ez form 2013 You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Irs 1040ez form 2013 To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). Irs 1040ez form 2013 Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Irs 1040ez form 2013 Example 2. Irs 1040ez form 2013 The facts are the same as in Example 1 except that you sold the stock on November 14. Irs 1040ez form 2013 You held the stock for only 11 days. Irs 1040ez form 2013 You are not entitled to the credit. Irs 1040ez form 2013 Exception. Irs 1040ez form 2013   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. Irs 1040ez form 2013 See section 901(k)(4) of the Internal Revenue Code for more information. Irs 1040ez form 2013 Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. Irs 1040ez form 2013 When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Irs 1040ez form 2013 Withholding tax. Irs 1040ez form 2013   For this purpose, withholding tax includes any tax determined on a gross basis. Irs 1040ez form 2013 It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Irs 1040ez form 2013 Exception for dealers. Irs 1040ez form 2013   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. Irs 1040ez form 2013 See section 901(I)(2) of the Internal Revenue Code for more information. Irs 1040ez form 2013 Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. Irs 1040ez form 2013 A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax purposes but not for foreign tax purposes. Irs 1040ez form 2013 For more information, see Internal Revenue Code section 901(m). Irs 1040ez form 2013 The IRS intends to issue guidance that will explain this provision in greater detail. Irs 1040ez form 2013 Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. Irs 1040ez form 2013 Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. Irs 1040ez form 2013 For details, see Regulations section 1. Irs 1040ez form 2013 901-3. Irs 1040ez form 2013 Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. Irs 1040ez form 2013 See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Irs 1040ez form 2013 In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. Irs 1040ez form 2013 List of boycotting countries. Irs 1040ez form 2013   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Irs 1040ez form 2013 As of November 2013, the following countries are listed. Irs 1040ez form 2013 Iraq. Irs 1040ez form 2013 Kuwait. Irs 1040ez form 2013 Lebanon. Irs 1040ez form 2013 Libya. Irs 1040ez form 2013 Qatar. Irs 1040ez form 2013 Saudi Arabia. Irs 1040ez form 2013 Syria. Irs 1040ez form 2013 United Arab Emirates. Irs 1040ez form 2013 Yemen. Irs 1040ez form 2013    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. Irs 1040ez form 2013   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. Irs 1040ez form 2013 The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Irs 1040ez form 2013 Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Irs 1040ez form 2013 Public inspection. Irs 1040ez form 2013   A determination and any related background file is open to public inspection. Irs 1040ez form 2013 However, your identity and certain other information will remain confidential. Irs 1040ez form 2013 Reporting requirements. Irs 1040ez form 2013   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. Irs 1040ez form 2013 A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. Irs 1040ez form 2013 A partnership in which you are a partner. Irs 1040ez form 2013 A trust you are treated as owning. Irs 1040ez form 2013 Form 5713 required. Irs 1040ez form 2013   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Irs 1040ez form 2013 See the Instructions for Form 5713 for information on when and where to file the form. Irs 1040ez form 2013 Penalty for failure to file. Irs 1040ez form 2013   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. Irs 1040ez form 2013 Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. Irs 1040ez form 2013 The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 tax liability (Form 1040, line 44) divided by your worldwide taxable income. Irs 1040ez form 2013 You may be entitled to carry over to other years taxes reduced under this rule. Irs 1040ez form 2013 See Internal Revenue Code section 907(f). Irs 1040ez form 2013 Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Irs 1040ez form 2013 Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Irs 1040ez form 2013 Taxes of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. Irs 1040ez form 2013 If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. Irs 1040ez form 2013 See Penalty for not filing Form 5471 or Form 8865 , later. Irs 1040ez form 2013 U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 persons controlling foreign corporations. Irs 1040ez form 2013   If you are a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 Persons With Respect To Certain Foreign Corporations. Irs 1040ez form 2013 Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. Irs 1040ez form 2013 U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 persons controlling foreign partnerships. Irs 1040ez form 2013   If you are a U. Irs 1040ez form 2013 S. Irs 1040ez form 2013 citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
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Can I Deduct My Charitable Contributions?

Information You Will Need:

  • Your and your spouse’s filing status
  • Your adjusted gross income amount
  • Amounts donated and to what organization
  • For non-cash contributions, any appraisal or information you have to determine the fair market value of the donation
  • Is the charitable organization qualified? Refer to Search for Charities for a list or verify with the organization that they are.

Note: This application is not designed to address the following types of charitable contributions:

  • Business property/inventory
  • A partial interest and Right to Use property
  • A fractional interest in tangible personal property
  • A qualified conservation contribution
  • A future interest in tangible personal property
  • A patent or other intellectual property

Please refer to Publication 526, Charitable Contributions, for these contributions.

Estimated Completion Time: 12 minutes. However: 5 minutes of inactivity will end the interview and you will be forced to start over.

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Page Last Reviewed or Updated: 14-Feb-2014

The Irs 1040ez Form 2013

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