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Irs Gov 1040 Ez

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Irs Gov 1040 Ez

Irs gov 1040 ez Listed Property Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Listed Property DefinedPassenger Automobile Defined Dwelling Unit Other Property Used for Transportation Computers and Related Peripheral Equipment Predominant Use TestMeeting the Predominant Use Test Qualified Business Use Method of Allocating Use Applying the Predominant Use Test Deductions After Recovery Period Leased PropertyLessor Lessee What Records Must Be KeptAdequate Records Reporting Information on Form 4562 Deductions in Later Years Appendix Topics - This chapter discusses: Listed property defined The predominant use test What records must be kept Useful Items - You may want to see: Publication 463 Travel, Entertainment, and Gift Expenses 587 Business Use of Your Home (Including Use by Day-Care Providers) 917 Business Use of a Car 946 How To Depreciate Property Form (and Instructions) 2106–EZ Unreimbursed Employee Business Expenses 2106 Employee Business Expenses 4255 Recapture of Investment Credit 4562 Depreciation and Amortization This chapter discusses some special rules and recordkeeping requirements for listed property. Irs gov 1040 ez For complete coverage of the rules, including the rules concerning passenger automobiles, see Publication 946. Irs gov 1040 ez If listed property is not used predominantly (more than 50%) in a qualified business use as discussed inPredominant Use Test, later, the section 179 deduction is not allowable and the property must be depreciated using the straight line method. Irs gov 1040 ez Listed Property Defined Listed property is any of the following: Any passenger automobile (defined later), Any other property used for transportation, Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment), Any computer and related peripheral equipment, defined later, unless it is used only at a regular business establishment and owned or leased by the person operating the establishment. Irs gov 1040 ez A regular business establishment includes a portion of a dwelling unit (defined later), if, and only if, that portion is used both regularly and exclusively for business as discussed in Publication 587. Irs gov 1040 ez Any cellular telephone (or similar telecommunication equipment) placed in service or leased in a tax year beginning after 1989. Irs gov 1040 ez Passenger Automobile Defined A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (at 6,000 pounds or less of gross vehicle weight for trucks and vans). Irs gov 1040 ez It includes any part, component, or other item physically attached to the automobile or usually included in the purchase price of an automobile. Irs gov 1040 ez A passenger automobile does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business, and A vehicle used directly in the trade or business of transporting persons or property for compensation or hire. Irs gov 1040 ez Dwelling Unit A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Irs gov 1040 ez It does not include a unit in a hotel, motel, inn, or other establishment where more than half the units are used on a transient basis. Irs gov 1040 ez Other Property Used for Transportation Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles for transporting persons or goods. Irs gov 1040 ez Listed property does not include: Any vehicle which, by reason of its design, is not likely to be used more than a minimal amount for personal purposes, such as clearly marked police and fire vehicles, ambulances, or hearses used for those purposes, Any vehicle that is designed to carry cargo and that has a loaded gross vehicle weight over 14,000 pounds, bucket trucks (cherry pickers), cement mixers, combines, cranes and derricks, delivery trucks with seating only for the driver (or only for the driver plus a folding jump seat), dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified specialized utility repair trucks, and refrigerated trucks, Any passenger bus used for that purpose with a capacity of at least 20 passengers and school buses, Any tractor or other special purpose farm vehicle, and unmarked vehicles used by law enforcement officers if the use is officially authorized, and Any vehicle, such as a taxicab, if substantially all its use is in the trade or business of providing services to transport persons or property for compensation or hire by unrelated persons. Irs gov 1040 ez Computers and Related Peripheral Equipment A computer is a programmable electronically activated device that: Is capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention, and Consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Irs gov 1040 ez Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Irs gov 1040 ez Computer or peripheral equipment does not include: Any equipment which is an integral part of property which is not a computer, Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and Equipment of a kind, used primarily for the user's amusement or entertainment, such as video games. Irs gov 1040 ez Predominant Use Test If “listed property,” defined earlier, placed in service after June 18, 1984, is not used predominantly (more than 50%) in a qualified business use during any tax year: The section 179 deduction on the property is not allowable, and You must depreciate the property using the straight line method. Irs gov 1040 ez Listed property placed in service before 1987. Irs gov 1040 ez   For listed property placed in service before 1987, depreciate the property over the following period: Class of Property Listed Property Recovery Period 3-year property 5 years 5-year property 12 years 10-year property 25 years 18-year real property 40 years 19-year real property 40 years If you must use the above recovery periods for listed property not used predominantly in a trade or business, use the percentages from Table 16 titled Listed Property Not Used Predominantly (Other Than 18- or 19-year Real Property), and Table 17 for 18- or 19-year real property, near the end of this publication in the Appendix. Irs gov 1040 ez Listed property placed in service after 1986. Irs gov 1040 ez   For information on listed property placed in service after 1986, see Publication 946. Irs gov 1040 ez Meeting the Predominant Use Test Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use. Irs gov 1040 ez You must allocate the use of any item of listed property used for more than one purpose during the tax year among its various uses. Irs gov 1040 ez The percentage of investment use of listed property cannot be used as part of the percentage of qualified business use to meet the predominant use test. Irs gov 1040 ez However, the combined total of business and investment use is taken into account to figure your depreciation deduction for the property. Irs gov 1040 ez Note: Property does not stop being predominantly used in a qualified business use because of a transfer at death. Irs gov 1040 ez Example. Irs gov 1040 ez Sarah Bradley uses a home computer 50% of the time to manage her investments. Irs gov 1040 ez She also uses the computer 40% of the time in her part-time consumer research business. Irs gov 1040 ez Sarah's home computer is listed property because it is not used at a regular business establishment. Irs gov 1040 ez Because her business use of the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. Irs gov 1040 ez Because she does not meet the predominant use test, she cannot elect a section 179 deduction for this property. Irs gov 1040 ez Her combined rate of business/investment use for determining her depreciation deduction is 90%. Irs gov 1040 ez Qualified Business Use A qualified business use is any use in your trade or business. Irs gov 1040 ez However, it does not include: The use of property held merely to produce income (investment use), The leasing of property to any 5% owner or related person (to the point that the property is used by a 5% owner or person related to the owner or lessee of the property), The use of property as compensation for the performance of services by a 5% owner or related person, or The use of property as compensation for the performance of services by any person (other than a5% owner or related person) unless the value of the use is included in that person's gross income for the use of the property and income tax is withheld on that amount where required. Irs gov 1040 ez See Employees, later. Irs gov 1040 ez 5% owner. Irs gov 1040 ez   A 5% owner of a business, other than a corporation, is any person who owns more than 5% of the capital or profits interest in the business. Irs gov 1040 ez   A 5% owner of a corporation is any person who owns, or is considered to own: More than 5% of the outstanding stock of the corporation, or Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Irs gov 1040 ez Related person. Irs gov 1040 ez   A related person is anyone related to a taxpayer as discussed under Related persons, in chapter 2 under Nonqualifying Property in Publication 946. Irs gov 1040 ez Entertainment Use The use of listed property for entertainment, recreation, or amusement purposes is treated as a qualified business use only to the extent that expenses (other than interest and property tax expenses) for its use are deductible as ordinary and necessary business expenses. Irs gov 1040 ez See Publication 463. Irs gov 1040 ez Leasing or Compensatory Use of Aircraft If at least 25% of the total use of any aircraft during the tax year is for a qualified business use, the leasing or compensatory use of the aircraft by a 5% owner or related person is treated as a qualified business use. Irs gov 1040 ez Commuting The use of a vehicle for commuting is not business use, regardless of whether work is performed during the trip. Irs gov 1040 ez Use of Your Passenger Automobile by Another Person If someone else uses your automobile, that use is not business use unless: That use is directly connected with your business, The value of the use is property reported by you as income to the other person and tax is withheld on the income where required, or The value of the use results in a payment of fair market rent. Irs gov 1040 ez Any payment to you for the use of the automobile is treated as a rent payment for 3). Irs gov 1040 ez Employees Any use by an employee of his or her own listed property (or listed property rented by an employee) in performing services as an employee is not business use unless: The use is for the employer's convenience, and The use is required as a condition of employment. Irs gov 1040 ez Use for the employer's convenience. Irs gov 1040 ez   Whether the use of listed property is for the employer's convenience must be determined from all the facts. Irs gov 1040 ez The use is for the employer's convenience if it is for a substantial business reason of the employer. Irs gov 1040 ez The use of listed property during the employee's regular working hours to carry on the employer's business is generally for the employer's convenience. Irs gov 1040 ez Use required as a condition of employment. Irs gov 1040 ez   Whether the use of listed property is a condition of employment depends on all the facts and circumstances. Irs gov 1040 ez The use of property must be required for the employee to perform duties properly. Irs gov 1040 ez The employer need not explicitly require the employee to use the property. Irs gov 1040 ez A mere statement by the employer that the use of the property is a condition of employment is not sufficient. Irs gov 1040 ez Example 1. Irs gov 1040 ez Virginia Sycamore is employed as a courier with We Deliver which provides local courier services. Irs gov 1040 ez She owns and uses a motorcycle to deliver packages to downtown offices. Irs gov 1040 ez We Deliver explicitly requires all delivery persons to own a small car or motorcycle for use in their employment. Irs gov 1040 ez The company reimburses delivery persons for their costs. Irs gov 1040 ez Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Irs gov 1040 ez Example 2. Irs gov 1040 ez Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Irs gov 1040 ez He must travel to these sites on a regular basis. Irs gov 1040 ez Uplift does not furnish an automobile or explicitly require him to use his own automobile. Irs gov 1040 ez However, it reimburses him for any costs he incurs in traveling to the various sites. Irs gov 1040 ez The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Irs gov 1040 ez Method of Allocating Use For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Irs gov 1040 ez You determine the percentage of qualified business use by dividing the number of miles the vehicle is driven for business purposes during the year by the total number of miles the vehicle is driven for all purposes (including business miles) during the year. Irs gov 1040 ez For other items of listed property, allocate the property's use on the basis of the most appropriate unit of time. Irs gov 1040 ez For example, you can determine the percentage of business use of a computer by dividing the number of hours the computer is used for business purposes during the year by the total number of hours the computer is used for all purposes (including business hours) during the year. Irs gov 1040 ez Applying the Predominant Use Test You must apply the predominant use test for an item of listed property each year of the recovery period. Irs gov 1040 ez First Recovery Year If any item of listed property is not used predominantly in a qualified business use in the year it is placed in service: The property is not eligible for a section 179 deduction, and The depreciation deduction must be figured using the straight line method. Irs gov 1040 ez Note: The required use of the straight line method for an item of listed property that does not meet the predominant use test is not the same as electing the straight line method. Irs gov 1040 ez It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Irs gov 1040 ez Years After the First Recovery Year If you use listed property predominantly (more than 50%) in a qualified business use in the tax year you place it in service, but not in a subsequent tax year during the recovery period, the following rules apply: Figure depreciation using the straight line method. Irs gov 1040 ez Do this for each year, beginning with the year you no longer use the property predominantly in a qualified business use, and Figure any excess depreciation on the property and add it to: Your gross income, and The adjusted basis of your property. Irs gov 1040 ez See Recapture of excess depreciation, next. Irs gov 1040 ez Recapture of excess depreciation. Irs gov 1040 ez   You must include any excess depreciation in your gross income for the first tax year the property is not predominantly used in a qualified business use. Irs gov 1040 ez Any excess depreciation must also be added to the adjusted basis of your property. Irs gov 1040 ez Excess depreciation is the excess (if any) of: The amount of depreciation allowable for the property (including any section 179 deduction claimed) for tax years before the first tax year the property was not predominantly used in a qualified business use, over The amount of depreciation that would have been allowable for those years if the property were not used predominantly in a qualified business use for the year it was placed in service. Irs gov 1040 ez This means you figure your depreciation using the percentages fromTable 16 or 17. Irs gov 1040 ez For information on investment credit recapture, see the instructions for Form 4255. Irs gov 1040 ez Deductions After Recovery Period When listed property (other than passenger automobiles) is used for business, investment, and personal purposes, no deduction is ever allowable for the personal use. Irs gov 1040 ez In tax years after the recovery period, you must determine if there is any unrecovered basis remaining before you compute the depreciation deduction for that tax year. Irs gov 1040 ez To make this determination, figure the depreciation for earlier tax years as if your property were used 100% for business or investment purposes, beginning with the first tax year in which some or all use is for business or investment. Irs gov 1040 ez See Car Used 50% or Less for Business in Publication 917. Irs gov 1040 ez Leased Property The limitations on cost recovery deductions apply to the rental of listed property. Irs gov 1040 ez The following discussion covers the rules that apply to the lessor (the owner of the property) and the lessee (the person who rents the property from the owner). Irs gov 1040 ez SeeLeasing a Car in Publication 917 for a discussion of leased passenger automobiles. Irs gov 1040 ez Lessor The limitations on cost recovery generally do not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Irs gov 1040 ez A person is considered regularly engaged in the business of leasing listed property only if contracts for leasing of listed property are entered into with some frequency over a continuous period of time. Irs gov 1040 ez This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of the person's business in its entirety. Irs gov 1040 ez Occasional or incidental leasing activity is insufficient. Irs gov 1040 ez For example, a person leasing only one passenger automobile during a tax year is not regularly engaged in the business of leasing automobiles. Irs gov 1040 ez An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Irs gov 1040 ez Lessee A lessee of listed property (other than passenger automobiles), must include an amount in gross income called the inclusion amount for the first tax year the property is not used predominantly in a qualified business use. Irs gov 1040 ez Inclusion amount for property leased before 1987. Irs gov 1040 ez   You determine the inclusion amount for property leased after June 18, 1984 and before 1987 by multiplying the fair market value of the property by both the average business/investment use percentage and the applicable percentage. Irs gov 1040 ez You can find the applicable percentages for listed property that is 5- or 10-year recovery property in Tables 19 or 20 in Appendix A of Publication 946. Irs gov 1040 ez   The lease term for listed property other than 18- or 19-year real property, and residential rental or nonresidential real property, includes options to renew. Irs gov 1040 ez For 18- or 19-year real property and residential rental or nonresidential real property that is listed property, the period of the lease does not include any option to renew at fair market value, determined at the time of renewal. Irs gov 1040 ez You treat two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property as one lease. Irs gov 1040 ez Special rules. Irs gov 1040 ez   The lessee adds the inclusion amount to gross income in the next tax year if: The lease term begins within 9 months before the close of the lessee's tax year, The lessee does not use the property predominantly in a qualified business use during that portion of the tax year, and The lease term continues into the lessee's next tax year. Irs gov 1040 ez The lessee determines the inclusion amount by taking into account the average of the business/investment use for both tax years and the applicable percentage for the tax year the lease term begins. Irs gov 1040 ez   If the lease term is less than one year, the amount included in gross income is the amount that bears the same ratio to the additional inclusion amount as the number of days in the lease term bears to 365. Irs gov 1040 ez Maximum inclusion amount. Irs gov 1040 ez   The inclusion amount cannot be more than the sum of the deductible amounts of rent allocable to the lessee's tax year in which the amount must be included in gross income. Irs gov 1040 ez What Records Must Be Kept You cannot take any depreciation or section 179 deduction for the use of listed property (including passenger automobiles) unless you can prove business/investment use with adequate records or sufficient evidence to support your own statements. Irs gov 1040 ez How long to keep records. Irs gov 1040 ez   For listed property, records must be kept for as long as any excess depreciation can be recaptured (included in income). Irs gov 1040 ez Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Irs gov 1040 ez It is not necessary to record information in an account book, diary, or similar record if the information is already shown on the receipt. Irs gov 1040 ez However, your records should back up your receipts in an orderly manner. Irs gov 1040 ez Elements of Expenditure or Use The records or other documentary evidence must support: The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses, The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year, The date of the expenditure or use, and The business or investment purpose for the expenditure or use. Irs gov 1040 ez Written documents of your expenditure or use are generally better evidence than oral statements alone. Irs gov 1040 ez A written record prepared at or near the time of the expenditure or use has greater value as proof of the expenditure or use. Irs gov 1040 ez A daily log is not required. Irs gov 1040 ez However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time and backed up by other documents is preferable to a statement prepared later. Irs gov 1040 ez Timeliness The elements of an expenditure or use must be recorded at the time you have full knowledge of the elements. Irs gov 1040 ez An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use is generally considered a timely record if in the regular course of business: The statement is submitted by an employee to the employer, or The statement is submitted by an independent contractor to the client or customer. Irs gov 1040 ez For example, a log maintained on a weekly basis, which accounts for use during the week, will be considered a record made at or near the time of use. Irs gov 1040 ez Business Purpose Supported An adequate record of business purpose must generally be in the form of a written statement. Irs gov 1040 ez However, the amount of backup necessary to establish a business purpose depends on the facts and circumstances of each case. Irs gov 1040 ez A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Irs gov 1040 ez For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Irs gov 1040 ez Business Use Supported An adequate record contains enough information on each element of every business or investment use. Irs gov 1040 ez The amount of detail required to support the use depends on the facts and circumstances. Irs gov 1040 ez For example, a taxpayer whose only business use of a truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Irs gov 1040 ez Although an adequate record generally must be written, a record of the business use of listed property, such as a computer or automobile, can be prepared in a computer memory device using a logging program. Irs gov 1040 ez Separate or Combined Expenditures or Uses Each use by you is normally considered a separate use. Irs gov 1040 ez However, repeated uses can be combined as a single item. Irs gov 1040 ez Each expenditure is recorded as a separate item and not combined with other expenditures. Irs gov 1040 ez If you choose, however, amounts spent for the use of listed property during a tax year, such as for gasoline or automobile repairs, can be combined. Irs gov 1040 ez If these expenses are combined, you do not need to support the business purpose of each expense. Irs gov 1040 ez Instead, you can divide the expenses based on the total business use of the listed property. Irs gov 1040 ez Uses which can be considered part of a single use, such as a round trip or uninterrupted business use, can be accounted for by a single record. Irs gov 1040 ez For example, use of a truck to make deliveries at several locations which begin and end at the business premises and can include a stop at the business in between deliveries can be accounted for by a single record of miles driven. Irs gov 1040 ez Use of a passenger automobile by a salesperson for a business trip away from home over a period of time can be accounted for by a single record of miles traveled. Irs gov 1040 ez Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Irs gov 1040 ez Confidential Information If any of the information on the elements of an expenditure or use is confidential, it does not need to be in the account book or similar record if it is recorded at or near the time of the expenditure or use. Irs gov 1040 ez It must be kept elsewhere and made available as support to the district director on request. Irs gov 1040 ez Substantial Compliance If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the district director's satisfaction, you can establish this element by any evidence the district director deems adequate. Irs gov 1040 ez If you fail to establish that you have substantially complied with the adequate records requirement for an element of an expenditure or use to the district director's satisfaction, you must establish the element: By your own oral or written statement containing detailed information as to the element, and By other evidence sufficient to establish the element. Irs gov 1040 ez If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Irs gov 1040 ez If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Irs gov 1040 ez Sampling You can maintain an adequate record for portions of a tax year and use that record to support your business and investment use for the entire tax year if it can be shown by other evidence that the periods for which an adequate record is maintained are representative of use throughout the year. Irs gov 1040 ez Loss of Records When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Irs gov 1040 ez Reporting Information on Form 4562 If you claim a deduction for any listed property, you must provide the requested information on page 2, Section B of Form 4562. Irs gov 1040 ez If you claim a deduction for any vehicle, you must answer certain questions onpage 2 of Form 4562 to provide information about the vehicle use. Irs gov 1040 ez Employees. Irs gov 1040 ez   Employees claiming the standard mileage rate or actual expenses (including depreciation) must use Form 2106 instead of Part V of Form 4562. Irs gov 1040 ez Employees claiming the standard mileage rate may be able to use Form 2106–EZ. Irs gov 1040 ez Employer who provides vehicles to employees. Irs gov 1040 ez   An employer who provides vehicles to employees must obtain enough information from those employees to provide the requested information onForm 4562. Irs gov 1040 ez   An employer who provides more than five vehicles to employees need not include any information on his or her tax return. Irs gov 1040 ez Instead, the employer must obtain the information from his or her employees and indicate on his or her return that the information was obtained and is being retained. Irs gov 1040 ez   You do not need to provide the information requested on page 2 of Form 4562 if, as an employer: You can satisfy the requirements of a written policy statement for vehicles either not used for personal purposes, or not used for personal purposes other than commuting, or You treat all vehicle use by employees as personal use. Irs gov 1040 ez See the instructions for Form 4562. Irs gov 1040 ez Deductions in Later Years When listed property is used for business, investment, and personal purposes, no deduction is allowable for its personal use either in the current year or any later tax year. Irs gov 1040 ez In later years, you must determine if there is any remaining unadjusted or unrecovered basis before you compute the depreciation deduction for that tax year. Irs gov 1040 ez In making this determination, figure the depreciation deductions for earlier tax years as if the listed property were used 100% for business or investment purposes in those years, beginning with the first tax year in which some or all of the property use is for business or investment. Irs gov 1040 ez For more information about deductions after the recovery period for automobiles, see Publication 917. Irs gov 1040 ez Appendix The following tables are for use in figuring depreciation deductions under the ACRS system. Irs gov 1040 ez Table 1. Irs gov 1040 ez 15-Year Real Property* (Other Than Low-Inclome Housing) Table 3. Irs gov 1040 ez Low-Income Housing* Table 6 - Table 9 Table 6 - Table 9 Table 10 - Table 13 Table 14 - Table 17 Prev  Up  Next   Home   More Online Publications
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The Irs Gov 1040 Ez

Irs gov 1040 ez 35. Irs gov 1040 ez   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. Irs gov 1040 ez They are: The American opportunity credit, and The lifetime learning credit. Irs gov 1040 ez The chapter will present an overview of these education credits. Irs gov 1040 ez To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. Irs gov 1040 ez Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. Irs gov 1040 ez For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. Irs gov 1040 ez   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. Irs gov 1040 ez   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. Irs gov 1040 ez This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Irs gov 1040 ez Table 35-1. Irs gov 1040 ez Comparison of Education Credits Caution. Irs gov 1040 ez You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. Irs gov 1040 ez   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. Irs gov 1040 ez   There are several differences between these two credits. Irs gov 1040 ez These differences are summarized in Table 35-1, later. Irs gov 1040 ez Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. Irs gov 1040 ez The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. Irs gov 1040 ez For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). Irs gov 1040 ez Academic period. Irs gov 1040 ez   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Irs gov 1040 ez In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Irs gov 1040 ez Eligible educational institution. Irs gov 1040 ez   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Irs gov 1040 ez S. Irs gov 1040 ez Department of Education. Irs gov 1040 ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs gov 1040 ez The educational institution should be able to tell you if it is an eligible educational institution. Irs gov 1040 ez   Certain educational institutions located outside the United States also participate in the U. Irs gov 1040 ez S. Irs gov 1040 ez Department of Education's Federal Student Aid (FSA) programs. Irs gov 1040 ez Who can claim a dependent's expenses. Irs gov 1040 ez   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Irs gov 1040 ez Therefore, only that person can claim an education credit for the student. Irs gov 1040 ez If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. Irs gov 1040 ez Expenses paid by a third party. Irs gov 1040 ez   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Irs gov 1040 ez However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Irs gov 1040 ez Therefore, you are treated as having paid expenses that were paid by the third party. Irs gov 1040 ez For more information and an example see Who Can Claim a Dependent's Expenses in Pub. Irs gov 1040 ez 970, chapter 2 or 3. Irs gov 1040 ez Who cannot claim a credit. Irs gov 1040 ez   You cannot take an education credit if any of the following apply. Irs gov 1040 ez You are claimed as a dependent on another person's tax return, such as your parent's return. Irs gov 1040 ez Your filing status is married filing separately. Irs gov 1040 ez You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. Irs gov 1040 ez Your MAGI is one of the following. Irs gov 1040 ez American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). Irs gov 1040 ez Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . Irs gov 1040 ez   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. Irs gov 1040 ez However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. Irs gov 1040 ez For details, see Pub. Irs gov 1040 ez 970. Irs gov 1040 ez    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. Irs gov 1040 ez The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. Irs gov 1040 ez However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. Irs gov 1040 ez You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Irs gov 1040 ez See Pub. Irs gov 1040 ez 970 for information on other education benefits. Irs gov 1040 ez Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. Irs gov 1040 ez It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. Irs gov 1040 ez For course-related books, supplies, and equipment, only certain expenses qualify. Irs gov 1040 ez American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Irs gov 1040 ez Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. Irs gov 1040 ez Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. Irs gov 1040 ez However, fees for personal expenses (described below) are never qualified education expenses. Irs gov 1040 ez Qualified education expenses for either credit do not include amounts paid for: Personal expenses. Irs gov 1040 ez This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. Irs gov 1040 ez Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. Irs gov 1040 ez You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). Irs gov 1040 ez However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). Irs gov 1040 ez In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. Irs gov 1040 ez Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Irs gov 1040 ez Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Irs gov 1040 ez If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. Irs gov 1040 ez Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. Irs gov 1040 ez See Adjustments to Qualified Education Expenses, later. Irs gov 1040 ez Prepaid Expenses. Irs gov 1040 ez   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. Irs gov 1040 ez See Academic period , earlier. Irs gov 1040 ez For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Irs gov 1040 ez    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Irs gov 1040 ez Paid with borrowed funds. Irs gov 1040 ez   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Irs gov 1040 ez Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. Irs gov 1040 ez Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Irs gov 1040 ez Student withdraws from class(es). Irs gov 1040 ez   You can claim an education credit for qualified education expenses not refunded when a student withdraws. Irs gov 1040 ez No Double Benefit Allowed You cannot do any of the following. Irs gov 1040 ez Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. Irs gov 1040 ez Claim more than one education credit based on the same qualified education expenses. Irs gov 1040 ez Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Irs gov 1040 ez Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. Irs gov 1040 ez See Adjustments to Qualified Education Expenses, next. Irs gov 1040 ez Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. Irs gov 1040 ez The result is the amount of adjusted qualified education expenses for each student. Irs gov 1040 ez Tax-free educational assistance. Irs gov 1040 ez   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Irs gov 1040 ez See Academic period , earlier. Irs gov 1040 ez      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. Irs gov 1040 ez 970), The tax-free part of Pell grants (see chapter 1 of Pub. Irs gov 1040 ez 970), The tax-free part of employer-provided educational assistance (see Pub. Irs gov 1040 ez 970), Veterans' educational assistance (see chapter 1 of Pub. Irs gov 1040 ez 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Irs gov 1040 ez Generally, any scholarship or fellowship is treated as tax-free educational assistance. Irs gov 1040 ez However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Irs gov 1040 ez 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Irs gov 1040 ez 970, chapter 1. Irs gov 1040 ez You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. Irs gov 1040 ez For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. Irs gov 1040 ez 970. Irs gov 1040 ez Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Irs gov 1040 ez This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Irs gov 1040 ez If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Irs gov 1040 ez If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Irs gov 1040 ez Refunds. Irs gov 1040 ez   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Irs gov 1040 ez Some tax-free educational assistance received after 2013 may be treated as a refund. Irs gov 1040 ez See Tax-free educational assistance, earlier. Irs gov 1040 ez Refunds received in 2013. Irs gov 1040 ez   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Irs gov 1040 ez Refunds received after 2013 but before your income tax return is filed. Irs gov 1040 ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. Irs gov 1040 ez Refunds received after 2013 and after your income tax return is filed. Irs gov 1040 ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. Irs gov 1040 ez See Credit recapture, next. Irs gov 1040 ez Credit recapture. Irs gov 1040 ez    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Irs gov 1040 ez You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Irs gov 1040 ez You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Irs gov 1040 ez Include that amount as an additional tax for the year the refund or tax-free assistance was received. Irs gov 1040 ez Example. Irs gov 1040 ez    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. Irs gov 1040 ez You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . Irs gov 1040 ez 20). Irs gov 1040 ez You claimed no other tax credits. Irs gov 1040 ez After you filed your return, your child withdrew from two courses and you received a refund of $1,400. Irs gov 1040 ez You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). Irs gov 1040 ez The refigured credit is $1,320 and your tax liability increased by $280. Irs gov 1040 ez You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. Irs gov 1040 ez See the instructions for your 2014 income tax return to determine where to include this tax. Irs gov 1040 ez If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Irs gov 1040 ez Amounts that do not reduce qualified education expenses. Irs gov 1040 ez   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Irs gov 1040 ez   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Irs gov 1040 ez The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. Irs gov 1040 ez 970. Irs gov 1040 ez The use of the money is not restricted. Irs gov 1040 ez   For examples, see chapter 2 in Pub. Irs gov 1040 ez 970. Irs gov 1040 ez Figure 35-A. Irs gov 1040 ez Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. Irs gov 1040 ez Please click the link to view the image. Irs gov 1040 ez Figure 35-A. Irs gov 1040 ez Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications