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Vita Tax Assistance

Vita tax assistance 1. Vita tax assistance   Investment Income Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: General InformationSSN for joint account. Vita tax assistance Custodian account for your child. Vita tax assistance Penalty for failure to supply SSN. Vita tax assistance Certification. Vita tax assistance Underreported interest and dividends. Vita tax assistance How to stop backup withholding due to underreporting. Vita tax assistance How to stop backup withholding due to an incorrect identification number. Vita tax assistance Reporting backup withholding. Vita tax assistance Nonresident aliens. Vita tax assistance Penalties. Vita tax assistance Savings account with parent as trustee. Vita tax assistance Interest IncomeInterest not reported on Form 1099-INT. Vita tax assistance Nominees. Vita tax assistance Incorrect amount. Vita tax assistance Information reporting requirement. Vita tax assistance Taxable Interest — General Below-Market Loans U. Vita tax assistance S. Vita tax assistance Savings Bonds U. Vita tax assistance S. Vita tax assistance Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Discount on Debt InstrumentsOriginal Issue Discount (OID) Market Discount Bonds Discount on Short-Term Obligations Election To Report All Interest as OID When To Report Interest IncomeConstructive receipt. Vita tax assistance How To Report Interest IncomeSchedule B (Form 1040A or 1040). Vita tax assistance Worksheet for savings bonds distributed from a retirement or profit-sharing plan. Vita tax assistance File Form 1099-INT with the IRS. Vita tax assistance Dividends and Other DistributionsDividends not reported on Form 1099-DIV. Vita tax assistance Nominees. Vita tax assistance Ordinary Dividends Capital Gain Distributions Nondividend Distributions Liquidating Distributions Distributions of Stock and Stock Rights Other Distributions How To Report Dividend IncomeElection. Vita tax assistance Independent contractor. Vita tax assistance Investment interest deducted. Vita tax assistance Exception 1. Vita tax assistance Exception 2. Vita tax assistance Undistributed capital gains. Vita tax assistance File Form 1099-DIV with the IRS. Vita tax assistance Stripped Preferred Stock REMICs, FASITs, and Other CDOsREMICs Collateralized Debt Obligations (CDOs) FASITs S CorporationsLimit on losses and deductions. Vita tax assistance Passive activity losses. Vita tax assistance Form 8582. Vita tax assistance Investment ClubsInvestments in name of member. Vita tax assistance Tax Treatment of the Club Topics - This chapter discusses: Interest Income , Discount on Debt Instruments , When To Report Interest Income , How To Report Interest Income , Dividends and Other Distributions , How To Report Dividend Income , Stripped Preferred Stock , Real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs) , S Corporations , and Investment Clubs . Vita tax assistance Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 537 Installment Sales 590 Individual Retirement Arrangements (IRAs) 925 Passive Activity and At-Risk Rules 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses 1040 U. Vita tax assistance S. Vita tax assistance Individual Income Tax Return 1040A U. Vita tax assistance S. Vita tax assistance Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1099 General Instructions for Certain Information Returns 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 3115 Application for Change in Accounting Method 6251 Alternative Minimum Tax — Individuals 8582 Passive Activity Loss Limitations 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends 8815 Exclusion of Interest From Series EE and I U. Vita tax assistance S. Vita tax assistance Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Vita tax assistance S. Vita tax assistance Savings Bonds Issued After 1989 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets 8960 Net Investment Income Tax—Individuals, Estates, and Trusts See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Vita tax assistance General Information A few items of general interest are covered here. Vita tax assistance Recordkeeping. Vita tax assistance You should keep a list showing sources and investment income amounts you receive during the year. Vita tax assistance Also keep the forms you receive showing your investment income (Forms 1099-INT, Interest Income, and 1099-DIV, Dividends and Distributions, for example) as an important part of your records. Vita tax assistance Net investment income tax (NIIT). Vita tax assistance   Beginning in 2013, you may be subject to the NIIT. Vita tax assistance The NIIT is a 3. Vita tax assistance 8% tax on the lesser of your net investment income or the amount of your modified adjusted gross income (MAGI) that is over a threshold amount based on your filing status. Vita tax assistance    Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household (with qualifying person) $200,000 Qualifying Widow(er) with dependent child $250,000    For more information, see Form 8960 and Instructions for Form 8960. Vita tax assistance Tax on unearned income of certain children. Vita tax assistance   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Vita tax assistance This may happen if all of the following are true. Vita tax assistance The child had more than $2,000 of unearned income. Vita tax assistance The child is required to file a tax return. Vita tax assistance The child was: Under age 18 at the end of 2013, Age 18 at the end of 2013 and did not have earned income that was more than half of the child's support, or A full-time student over age 18 and under age 24 at the end of 2013 and did not have earned income that was more than half of the child's support. Vita tax assistance At least one of the child's parents was alive at the end of 2013. Vita tax assistance The child does not file a joint return for 2013. Vita tax assistance A child born on January 1, 1996, is considered to be age 18 at the end of 2013; a child born on January 1, 1995, is considered to be age 19 at the end of 2013; a child born on January 1, 1990, is considered to be age 24 at the end of 2013. Vita tax assistance   If all of these statements are true, Form 8615 must be completed and attached to the child's tax return. Vita tax assistance If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Vita tax assistance    However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Vita tax assistance Use Form 8814 for this purpose. Vita tax assistance   For more information about the tax on unearned income of children and the parents' election, see Publication 929, Tax Rules for Children and Dependents. Vita tax assistance Beneficiary of an estate or trust. Vita tax assistance   Interest, dividends, and other investment income you receive as a beneficiary of an estate or trust is generally taxable income. Vita tax assistance You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Vita tax assistance , from the fiduciary. Vita tax assistance Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Vita tax assistance Social security number (SSN). Vita tax assistance   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Vita tax assistance This includes payers of interest and dividends. Vita tax assistance If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Vita tax assistance SSN for joint account. Vita tax assistance   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Vita tax assistance (For information on who owns the funds in a joint account, see Joint accounts , later. Vita tax assistance ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Vita tax assistance This is because only one name and SSN can be shown on Form 1099. Vita tax assistance   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Vita tax assistance For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Vita tax assistance Custodian account for your child. Vita tax assistance   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Vita tax assistance For example, you must give your child's SSN to the payer of dividends on stock owned by your child, even though the dividends are paid to you as custodian. Vita tax assistance Penalty for failure to supply SSN. Vita tax assistance   You will be subject to a penalty if, when required, you fail to: Include your SSN on any return, statement, or other document, Give your SSN to another person who must include it on any return, statement, or other document, or Include the SSN of another person on any return, statement, or other document. Vita tax assistance The penalty is $50 for each failure up to a maximum penalty of $100,000 for any calendar year. Vita tax assistance   You will not be subject to this penalty if you can show that your failure to provide the SSN was due to reasonable cause and not to willful neglect. Vita tax assistance   If you fail to supply an SSN, you may also be subject to backup withholding. Vita tax assistance Backup withholding. Vita tax assistance   Your investment income is generally not subject to regular withholding. Vita tax assistance However, it may be subject to backup withholding to ensure that income tax is collected on the income. Vita tax assistance Under backup withholding, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Vita tax assistance   Backup withholding applies if: You do not give the payer your identification number (either a social security number or an employer identification number) in the required manner, The IRS notifies the payer that you gave an incorrect identification number, The IRS notifies the payer that you are subject to backup withholding on interest or dividends because you have underreported interest or dividends on your income tax return, or You are required, but fail, to certify that you are not subject to backup withholding for the reason described in (3). Vita tax assistance Certification. Vita tax assistance   For new accounts paying interest or dividends, you must certify under penalties of perjury that your SSN is correct and that you are not subject to backup withholding. Vita tax assistance Your payer will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or similar form, to make this certification. Vita tax assistance If you fail to make this certification, backup withholding may begin immediately on your new account or investment. Vita tax assistance Underreported interest and dividends. Vita tax assistance   You will be considered to have underreported your interest and dividends if the IRS has determined for a tax year that: You failed to include any part of a reportable interest or dividend payment required to be shown on your return, or You were required to file a return and to include a reportable interest or dividend payment on that return, but you failed to file the return. Vita tax assistance How to stop backup withholding due to underreporting. Vita tax assistance   If you have been notified that you underreported interest or dividends, you can request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. Vita tax assistance You must show that at least one of the following situations applies. Vita tax assistance No underreporting occurred. Vita tax assistance You have a bona fide dispute with the IRS about whether underreporting occurred. Vita tax assistance Backup withholding will cause or is causing an undue hardship, and it is unlikely that you will underreport interest and dividends in the future. Vita tax assistance You have corrected the underreporting by filing a return if you did not previously file one and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments. Vita tax assistance   If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sent notices earlier. Vita tax assistance How to stop backup withholding due to an incorrect identification number. Vita tax assistance   If you have been notified by a payer that you are subject to backup withholding because you have provided an incorrect SSN or employer identification number, you can stop it by following the instructions the payer gives you. Vita tax assistance Reporting backup withholding. Vita tax assistance   If backup withholding is deducted from your interest or dividend income or other reportable payment, the bank or other business must give you an information return for the year (for example, a Form 1099-INT) indicating the amount withheld. Vita tax assistance The information return will show any backup withholding as “Federal income tax withheld. Vita tax assistance ” Nonresident aliens. Vita tax assistance    Generally, payments made to nonresident aliens are not subject to backup withholding. Vita tax assistance You can use Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to certify exempt status. Vita tax assistance However, this does not exempt you from the 30% (or lower treaty) withholding rate that may apply to your investment income. Vita tax assistance For information on the 30% rate, see Publication 519, U. Vita tax assistance S. Vita tax assistance Tax Guide for Aliens. Vita tax assistance Penalties. Vita tax assistance   There are civil and criminal penalties for giving false information to avoid backup withholding. Vita tax assistance The civil penalty is $500. Vita tax assistance The criminal penalty, upon conviction, is a fine of up to $1,000, or imprisonment of up to 1 year, or both. Vita tax assistance Where to report investment income. Vita tax assistance   Table 1-1 gives an overview of the forms and schedules to use to report some common types of investment income. Vita tax assistance But see the rest of this publication for detailed information about reporting investment income. Vita tax assistance Joint accounts. Vita tax assistance   If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law. Vita tax assistance Community property states. Vita tax assistance   If you are married and receive a distribution that is community income, one-half of the distribution is generally considered to be received by each spouse. Vita tax assistance If you file separate returns, you must each report one-half of any taxable distribution. Vita tax assistance See Publication 555, Community Property, for more information on community income. Vita tax assistance   If the distribution is not considered community property and you and your spouse file separate returns, each of you must report your separate taxable distributions. Vita tax assistance Example. Vita tax assistance You and your spouse have a joint money market account. Vita tax assistance Under state law, half the income from the account belongs to you, and half belongs to your spouse. Vita tax assistance If you file separate returns, you each report half the income. Vita tax assistance Income from property given to a child. Vita tax assistance   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Vita tax assistance   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Vita tax assistance Savings account with parent as trustee. Vita tax assistance   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Vita tax assistance The savings account legally belongs to the child. Vita tax assistance The parents are not legally permitted to use any of the funds to support the child. Vita tax assistance Table 1-1. Vita tax assistance Where To Report Common Types of Investment Income (For detailed information about reporting investment income, see the rest of this publication, especially How To Report Interest Income and How To Report Dividend Income in chapter 1. Vita tax assistance ) Type of Income If you file Form 1040, report on . Vita tax assistance . Vita tax assistance . Vita tax assistance If you can file Form 1040A, report on . Vita tax assistance . Vita tax assistance . Vita tax assistance If you can file Form 1040EZ, report on . Vita tax assistance . Vita tax assistance . Vita tax assistance Tax-exempt interest (Form 1099-INT, box 8) Line 8b Line 8b Space to the left of line 2 (enter “TEI” and the amount) Taxable interest that totals $1,500 or less Line 8a (You may need to file Schedule B as well. Vita tax assistance ) Line 8a (You may need to file Schedule B as well. Vita tax assistance ) Line 2 Taxable interest that totals more than $1,500 Line 8a; also use Schedule B, line 1 Line 8a; also use Schedule B, line 1   Savings bond interest you will exclude because of higher education expenses Schedule B; also use Form 8815 Schedule B; also use Form 8815   Ordinary dividends that total $1,500 or less Line 9a (You may need to file Schedule B as well. Vita tax assistance ) Line 9a (You may need to file Schedule B as well. Vita tax assistance )   Ordinary dividends that total more than $1,500 Line 9a; also use Schedule B, line 5 Line 9a; also use Schedule B, line 5   Qualified dividends (if you do not have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2 Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2   Qualified dividends (if you have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, line 2 You cannot use Form 1040A    You cannot use Form 1040EZ Capital gain distributions (if you do not have to file Schedule D) Line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3 Line 10; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3   Capital gain distributions (if you have to file Schedule D) Schedule D, line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     Section 1250, 1202, or collectibles gain (Form 1099-DIV, box 2b, 2c, or 2d) Form 8949 and Schedule D     Nondividend distributions (Form 1099-DIV, box 3) Generally not reported*     Undistributed capital gains (Form 2439, boxes 1a - 1d) Schedule D     Gain or loss from sales of stocks or bonds Line 13; also use Form 8949, Schedule D, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet You cannot use Form 1040A   Gain or loss from exchanges of like-kind investment property Line 13; also use Schedule D, Form 8824, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     *Report any amounts in excess of your basis in your mutual fund shares on Form 8949. Vita tax assistance Use Part II if you held the shares more than 1 year. Vita tax assistance Use Part I if you held your mutual fund shares 1 year or less. Vita tax assistance For details on Form 8949, see Reporting Capital Gains and Losses in chapter 4, and the Instructions for Form 8949. Vita tax assistance Accuracy-related penalty. Vita tax assistance   An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregard of rules or regulations or substantial understatement of tax. Vita tax assistance For information on the penalty and any interest that applies, see Penalties in chapter 2. Vita tax assistance Interest Income This section discusses the tax treatment of different types of interest income. Vita tax assistance In general, any interest that you receive or that is credited to your account and can be withdrawn is taxable income. Vita tax assistance (It does not have to be entered in your passbook. Vita tax assistance ) Exceptions to this rule are discussed later. Vita tax assistance Form 1099-INT. Vita tax assistance   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Vita tax assistance This form shows you the interest you received during the year. Vita tax assistance Keep this form for your records. Vita tax assistance You do not have to attach it to your tax return. Vita tax assistance   Report on your tax return the total interest income you receive for the tax year. Vita tax assistance Interest not reported on Form 1099-INT. Vita tax assistance   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Vita tax assistance For example, you may receive distributive shares of interest from partnerships or S corporations. Vita tax assistance This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Vita tax assistance , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Vita tax assistance Nominees. Vita tax assistance   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Vita tax assistance   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on Nominee distributions , later, under How To Report Interest Income. Vita tax assistance Incorrect amount. Vita tax assistance   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Vita tax assistance The new Form 1099-INT you receive will be marked “Corrected. Vita tax assistance ” Form 1099-OID. Vita tax assistance   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Vita tax assistance For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Vita tax assistance Exempt-interest dividends. Vita tax assistance   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Vita tax assistance (However, see Information reporting requirement , next. Vita tax assistance ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Vita tax assistance You do not reduce your basis for distributions that are exempt-interest dividends. Vita tax assistance Information reporting requirement. Vita tax assistance   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Vita tax assistance This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Vita tax assistance See How To Report Interest Income , later. Vita tax assistance Note. Vita tax assistance Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Vita tax assistance The exempt-interest dividends subject to the alternative minimum tax are shown in box 11 of Form 1099-DIV. Vita tax assistance See Form 6251 and its instructions for more information about this tax. Vita tax assistance Private activity bonds are discussed later under State or Local Government Obligations. Vita tax assistance Interest on VA dividends. Vita tax assistance   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Vita tax assistance This includes interest paid on dividends on converted United States Government Life Insurance policies and on National Service Life Insurance policies. Vita tax assistance Individual retirement arrangements (IRAs). Vita tax assistance   Interest on a Roth IRA generally is not taxable. Vita tax assistance Interest on a traditional IRA is tax deferred. Vita tax assistance You generally do not include it in your income until you make withdrawals from the IRA. Vita tax assistance See Publication 590 for more information. Vita tax assistance Taxable Interest — General Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Vita tax assistance The following are some sources of taxable interest. Vita tax assistance Dividends that are actually interest. Vita tax assistance   Certain distributions commonly called dividends are actually interest. Vita tax assistance You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Vita tax assistance  The “dividends” will be shown as interest income on Form 1099-INT. Vita tax assistance Money market funds. Vita tax assistance   Money market funds are offered by nonbank financial institutions such as mutual funds and stock brokerage houses, and pay dividends. Vita tax assistance Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Vita tax assistance Certificates of deposit and other deferred interest accounts. Vita tax assistance   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Vita tax assistance You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Vita tax assistance The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Vita tax assistance If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Vita tax assistance Interest subject to penalty for early withdrawal. Vita tax assistance   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Vita tax assistance You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Vita tax assistance See Penalty on early withdrawal of savings under How To Report Interest Income, later, for more information on how to report the interest and deduct the penalty. Vita tax assistance Money borrowed to invest in certificate of deposit. Vita tax assistance   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Vita tax assistance You must report the total interest you earn on the certificate in your income. Vita tax assistance If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Vita tax assistance See Interest Expenses in chapter 3. Vita tax assistance Example. Vita tax assistance You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Vita tax assistance The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Vita tax assistance The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Vita tax assistance The bank also gives you a statement showing that you paid $310 interest for 2013. Vita tax assistance You must include the $575 in your income. Vita tax assistance If you itemize your deductions on Schedule A (Form 1040), Itemized Deductions, you can deduct $310, subject to the net investment income limit. Vita tax assistance Gift for opening account. Vita tax assistance   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Vita tax assistance   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Vita tax assistance For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Vita tax assistance The value is determined by the cost to the financial institution. Vita tax assistance Example. Vita tax assistance You open a savings account at your local bank and deposit $800. Vita tax assistance The account earns $20 interest. Vita tax assistance You also receive a $15 calculator. Vita tax assistance If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Vita tax assistance You must report $35 interest income on your tax return. Vita tax assistance Interest on insurance dividends. Vita tax assistance   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Vita tax assistance However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Vita tax assistance Prepaid insurance premiums. Vita tax assistance   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Vita tax assistance U. Vita tax assistance S. Vita tax assistance obligations. Vita tax assistance   Interest on U. Vita tax assistance S. Vita tax assistance obligations, such as U. Vita tax assistance S. Vita tax assistance Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Vita tax assistance Interest on tax refunds. Vita tax assistance   Interest you receive on tax refunds is taxable income. Vita tax assistance Interest on condemnation award. Vita tax assistance   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Vita tax assistance Installment sale payments. Vita tax assistance   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Vita tax assistance That interest is taxable when you receive it. Vita tax assistance If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Vita tax assistance See Unstated Interest and Original Issue Discount (OID) in Publication 537. Vita tax assistance Interest on annuity contract. Vita tax assistance   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Vita tax assistance Usurious interest. Vita tax assistance   Usurious interest is interest charged at an illegal rate. Vita tax assistance This is taxable as interest unless state law automatically changes it to a payment on the principal. Vita tax assistance Interest income on frozen deposits. Vita tax assistance   Exclude from your gross income interest on frozen deposits. Vita tax assistance A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state in which the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Vita tax assistance   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Vita tax assistance If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income for information about reporting this interest income exclusion on your tax return. Vita tax assistance   The interest you exclude is treated as credited to your account in the following year. Vita tax assistance You must include it in income in the year you can withdraw it. Vita tax assistance Example. Vita tax assistance $100 of interest was credited on your frozen deposit during the year. Vita tax assistance You withdrew $80 but could not withdraw any more as of the end of the year. Vita tax assistance You must include $80 in your income and exclude $20 from your income for the year. Vita tax assistance You must include the $20 in your income for the year you can withdraw it. Vita tax assistance Bonds traded flat. Vita tax assistance    If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Vita tax assistance The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Vita tax assistance When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Vita tax assistance Interest that accrues after the date of purchase, however, is taxable interest income for the year received or accrued. Vita tax assistance See Bonds Sold Between Interest Dates , later in this chapter. Vita tax assistance Below-Market Loans If you make a below-market gift or demand loan, you must report as interest income any forgone interest (defined later) from that loan. Vita tax assistance The below-market loan rules and exceptions are described in this section. Vita tax assistance For more information, see section 7872 of the Internal Revenue Code and its regulations. Vita tax assistance If you receive a below-market loan, you may be able to deduct the forgone interest as well as any interest you actually paid, but not if it is personal interest. Vita tax assistance Loans subject to the rules. Vita tax assistance   The rules for below-market loans apply to: Gift loans, Pay-related loans, Corporation-shareholder loans, Tax avoidance loans, and Certain loans made to qualified continuing care facilities under a continuing care contract. Vita tax assistance A pay-related loan is any below-market loan between an employer and an employee or between an independent contractor and a person for whom the contractor provides services. Vita tax assistance A tax avoidance loan is any below-market loan where the avoidance of federal tax is one of the main purposes of the interest arrangement. Vita tax assistance Forgone interest. Vita tax assistance   For any period, forgone interest is: The amount of interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Vita tax assistance Applicable federal rate. Vita tax assistance   Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Vita tax assistance Some IRS offices have these bulletins available for research. Vita tax assistance See chapter 5, How To Get Tax Help , for other ways to get this information. Vita tax assistance Rules for below-market loans. Vita tax assistance   The rules that apply to a below-market loan depend on whether the loan is a gift loan, demand loan, or term loan. Vita tax assistance Gift and demand loans. Vita tax assistance   A gift loan is any below-market loan where the forgone interest is in the nature of a gift. Vita tax assistance   A demand loan is a loan payable in full at any time upon demand by the lender. Vita tax assistance A demand loan is a below-market loan if no interest is charged or if interest is charged at a rate below the applicable federal rate. Vita tax assistance   A demand loan or gift loan that is a below-market loan is generally treated as an arm's-length transaction in which the lender is treated as having made: A loan to the borrower in exchange for a note that requires the payment of interest at the applicable federal rate, and An additional payment to the borrower in an amount equal to the forgone interest. Vita tax assistance The borrower is generally treated as transferring the additional payment back to the lender as interest. Vita tax assistance The lender must report that amount as interest income. Vita tax assistance   The lender's additional payment to the borrower is treated as a gift, dividend, contribution to capital, pay for services, or other payment, depending on the substance of the transaction. Vita tax assistance The borrower may have to report this payment as taxable income, depending on its classification. Vita tax assistance These transfers are considered to occur annually, generally on December 31. Vita tax assistance Term loans. Vita tax assistance   A term loan is any loan that is not a demand loan. Vita tax assistance A term loan is a below-market loan if the amount of the loan is more than the present value of all payments due under the loan. Vita tax assistance   A lender who makes a below-market term loan other than a gift loan is treated as transferring an additional lump-sum cash payment to the borrower (as a dividend, contribution to capital, etc. Vita tax assistance ) on the date the loan is made. Vita tax assistance The amount of this payment is the amount of the loan minus the present value, at the applicable federal rate, of all payments due under the loan. Vita tax assistance An equal amount is treated as original issue discount (OID). Vita tax assistance The lender must report the annual part of the OID as interest income. Vita tax assistance The borrower may be able to deduct the OID as interest expense. Vita tax assistance See Original Issue Discount (OID) , later. Vita tax assistance Exceptions to the below-market loan rules. Vita tax assistance   Exceptions to the below-market loan rules are discussed here. Vita tax assistance Exception for loans of $10,000 or less. Vita tax assistance   The rules for below-market loans do not apply to any day on which the total outstanding amount of loans between the borrower and lender is $10,000 or less. Vita tax assistance This exception applies only to: Gift loans between individuals if the gift loan is not directly used to buy or carry income-producing assets, and Pay-related loans or corporation-shareholder loans if the avoidance of federal tax is not a principal purpose of the interest arrangement. Vita tax assistance This exception does not apply to a term loan described in (2) earlier that previously has been subject to the below-market loan rules. Vita tax assistance Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Vita tax assistance Exception for loans to continuing care facilities. Vita tax assistance   Loans to qualified continuing care facilities under continuing care contracts are not subject to the rules for below-market loans for the calendar year if the lender or the lender's spouse is age 62 or older at the end of the year. Vita tax assistance For the definitions of qualified continuing care facility and continuing care contract, see Internal Revenue Code section 7872(h). Vita tax assistance Exception for loans without significant tax effect. Vita tax assistance   Loans are excluded from the below-market loan rules if their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Vita tax assistance These loans include: Loans made available by the lender to the general public on the same terms and conditions that are consistent with the lender's customary business practice; Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public; Certain employee-relocation loans; Certain loans from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Vita tax assistance S. Vita tax assistance trade or business and would not be exempt from U. Vita tax assistance S. Vita tax assistance tax under an income tax treaty; Gift loans to a charitable organization, contributions to which are deductible, if the total outstanding amount of loans between the organization and lender is $250,000 or less at all times during the tax year; and Other loans on which the interest arrangement can be shown to have no significant effect on the federal tax liability of the lender or the borrower. Vita tax assistance For a loan described in (6) above, all the facts and circumstances are used to determine if the interest arrangement has a significant effect on the federal tax liability of the lender or borrower. Vita tax assistance Some factors to be considered are: Whether items of income and deduction generated by the loan offset each other; The amount of these items; The cost to you of complying with the below-market loan rules, if they were to apply; and Any reasons other than taxes for structuring the transaction as a below-market loan. Vita tax assistance If you structure a transaction to meet this exception and one of the principal purposes of that structure is the avoidance of federal tax, the loan will be considered a tax-avoidance loan, and this exception will not apply. Vita tax assistance Limit on forgone interest for gift loans of $100,000 or less. Vita tax assistance   For gift loans between individuals, if the outstanding loans between the lender and borrower total $100,000 or less, the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. Vita tax assistance If the borrower's net investment income is $1,000 or less, it is treated as zero. Vita tax assistance This limit does not apply to a loan if the avoidance of federal tax is one of the main purposes of the interest arrangement. Vita tax assistance Effective dates. Vita tax assistance    These rules apply to term loans made after June 6, 1984, and to demand loans outstanding after that date. Vita tax assistance U. Vita tax assistance S. Vita tax assistance Savings Bonds This section provides tax information on U. Vita tax assistance S. Vita tax assistance savings bonds. Vita tax assistance It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Vita tax assistance U. Vita tax assistance S. Vita tax assistance savings bonds currently offered to individuals include Series EE bonds and Series I bonds. Vita tax assistance For other information on U. Vita tax assistance S. Vita tax assistance savings bonds, write to:  For Series HH/H: Bureau of the Fiscal Service Division of Customer Assistance P. Vita tax assistance O. Vita tax assistance Box 2186 Parkersburg, WV 26106-2186  For Series EE and I paper savings bonds: Bureau of the Fiscal Service Division of Customer Assistance P. Vita tax assistance O. Vita tax assistance Box 7012 Parkersburg, WV 26106-7012  For Series EE and I electronic bonds: Bureau of the Fiscal Service  Division of Customer Assistance P. Vita tax assistance O. Vita tax assistance Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Vita tax assistance treasurydirect. Vita tax assistance gov/indiv/indiv. Vita tax assistance htm. Vita tax assistance Accrual method taxpayers. Vita tax assistance   If you use an accrual method of accounting, you must report interest on U. Vita tax assistance S. Vita tax assistance savings bonds each year as it accrues. Vita tax assistance You cannot postpone reporting interest until you receive it or until the bonds mature. Vita tax assistance Cash method taxpayers. Vita tax assistance   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Vita tax assistance S. Vita tax assistance savings bonds when you receive it. Vita tax assistance But see Reporting options for cash method taxpayers , later. Vita tax assistance Series HH bonds. Vita tax assistance   These bonds were issued at face value. Vita tax assistance Interest is paid twice a year by direct deposit to your bank account. Vita tax assistance If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Vita tax assistance   Series HH bonds were first offered in 1980 and last offered in August 2004. Vita tax assistance Before 1980, series H bonds were issued. Vita tax assistance Series H bonds are treated the same as series HH bonds. Vita tax assistance If you are a cash method taxpayer, you must report the interest when you receive it. Vita tax assistance   Series H bonds have a maturity period of 30 years. Vita tax assistance Series HH bonds mature in 20 years. Vita tax assistance The last series H bonds matured in 2009. Vita tax assistance The last series HH bonds will mature in 2024. Vita tax assistance Series EE and series I bonds. Vita tax assistance   Interest on these bonds is payable when you redeem the bonds. Vita tax assistance The difference between the purchase price and the redemption value is taxable interest. Vita tax assistance Series EE bonds. Vita tax assistance   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Vita tax assistance Before July 1980, series E bonds were issued. Vita tax assistance The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Vita tax assistance Paper series EE and series E bonds are issued at a discount. Vita tax assistance The face value is payable to you at maturity. Vita tax assistance Electronic series EE bonds are issued at their face value. Vita tax assistance The face value plus accrued interest is payable to you at maturity. Vita tax assistance As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Vita tax assistance    Owners of paper series EE bonds can convert them to electronic bonds. Vita tax assistance These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Vita tax assistance Series I bonds. Vita tax assistance   Series I bonds were first offered in 1998. Vita tax assistance These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Vita tax assistance The face value plus all accrued interest is payable to you at maturity. Vita tax assistance Reporting options for cash method taxpayers. Vita tax assistance   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Vita tax assistance Method 1. Vita tax assistance Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. Vita tax assistance (However, see Savings bonds traded , later. Vita tax assistance )  Note. Vita tax assistance Series EE bonds issued in 1983 matured in 2013. Vita tax assistance If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Vita tax assistance The last series E bonds were issued in 1980 and matured in 2010. Vita tax assistance If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Vita tax assistance Method 2. Vita tax assistance Choose to report the increase in redemption value as interest each year. Vita tax assistance  You must use the same method for all series EE, series E, and series I bonds you own. Vita tax assistance If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Vita tax assistance If you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Vita tax assistance To learn how, see Education Savings Bond Program, later. Vita tax assistance Change from method 1. Vita tax assistance   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Vita tax assistance In the year of change, you must report all interest accrued to date and not previously reported for all your bonds. Vita tax assistance   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Vita tax assistance Change from method 2. Vita tax assistance   To change from method 2 to method 1, you must request permission from the IRS. Vita tax assistance Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Vita tax assistance You have typed or printed the following number at the top: “131. Vita tax assistance ” It includes your name and social security number under “131. Vita tax assistance ” It includes the year of change (both the beginning and ending dates). Vita tax assistance It identifies the savings bonds for which you are requesting this change. Vita tax assistance It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest; and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Vita tax assistance   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Vita tax assistance   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Vita tax assistance On the statement, type or print “Filed pursuant to section 301. Vita tax assistance 9100-2. Vita tax assistance ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Vita tax assistance    By the date you file the original statement with your return, you must also send a signed copy to the address below. Vita tax assistance    Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Vita tax assistance O. Vita tax assistance Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Vita tax assistance Internal Revenue Service Attention: CC:IT&A  (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW Washington, DC 20224    Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115. Vita tax assistance In that case, follow the form instructions for an automatic change. Vita tax assistance No user fee is required. Vita tax assistance Co-owners. Vita tax assistance   If a U. Vita tax assistance S. Vita tax assistance savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Vita tax assistance One co-owner's funds used. Vita tax assistance   If you used your funds to buy the bond, you must pay the tax on the interest. Vita tax assistance This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Vita tax assistance Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Vita tax assistance The co-owner who redeemed the bond is a “nominee. Vita tax assistance ” See Nominee distributions under How To Report Interest Income, later, for more information about how a person who is a nominee reports interest income belonging to another person. Vita tax assistance Both co-owners' funds used. Vita tax assistance   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Vita tax assistance Community property. Vita tax assistance   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Vita tax assistance If you file separate returns, each of you generally must report one-half of the bond interest. Vita tax assistance For more information about community property, see Publication 555. Vita tax assistance Table 1-2. Vita tax assistance   These rules are also shown in Table 1-2. Vita tax assistance Child as only owner. Vita tax assistance   Interest on U. Vita tax assistance S. Vita tax assistance savings bonds bought for and registered only in the name of your child is income to your child, even if you paid for the bonds and are named as beneficiary. Vita tax assistance If the bonds are series EE, series E, or series I bonds, the interest on the bonds is income to your child in the earlier of the year the bonds are cashed or disposed of or the year the bonds mature, unless your child chooses to report the interest income each year. Vita tax assistance Choice to report interest each year. Vita tax assistance   The choice to report the accrued interest each year can be made either by your child or by you for your child. Vita tax assistance This choice is made by filing an income tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. Vita tax assistance Either you or your child should keep a copy of this return. Vita tax assistance   Unless your child is otherwise required to file a tax return for any year after making this choice, your child does not have to file a return only to report the annual accrual of U. Vita tax assistance S. Vita tax assistance savings bond interest under this choice. Vita tax assistance However, see Tax on unearned income of certain children , earlier, under General Information. Vita tax assistance Neither you nor your child can change the way you report the interest unless you request permission from the IRS, as discussed earlier under Change from method 2 . Vita tax assistance Ownership transferred. Vita tax assistance   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Vita tax assistance But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Vita tax assistance   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Vita tax assistance Example. Vita tax assistance You bought series EE bonds entirely with your own funds. Vita tax assistance You did not choose to report the accrued interest each year. Vita tax assistance Later, you transfer the bonds to your former spouse under a divorce agreement. Vita tax assistance You must include the deferred accrued interest, from the date of the original issue of the bonds to the date of transfer, in your income in the year of transfer. Vita tax assistance Your former spouse includes in income the interest on the bonds from the date of transfer to the date of redemption. Vita tax assistance Table 1-2. Vita tax assistance Who Pays the Tax on U. Vita tax assistance S. Vita tax assistance Savings Bond Interest IF . Vita tax assistance . Vita tax assistance . Vita tax assistance THEN the interest must be reported by . Vita tax assistance . Vita tax assistance . Vita tax assistance you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Vita tax assistance you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Vita tax assistance you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Vita tax assistance you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Vita tax assistance If you file separate returns, both you and your spouse generally report one-half of the interest. Vita tax assistance Purchased jointly. Vita tax assistance   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Vita tax assistance The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Vita tax assistance This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Vita tax assistance   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Vita tax assistance But the new co-owner will report only his or her share of the interest earned after the transfer. Vita tax assistance   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Vita tax assistance Example 1. Vita tax assistance You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Vita tax assistance The bond was issued to you and your spouse as co-owners. Vita tax assistance You both postpone reporting interest on the bond. Vita tax assistance You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Vita tax assistance At that time neither you nor your spouse has to report the interest earned to the date of reissue. Vita tax assistance Example 2. Vita tax assistance You bought a $1,000 series EE savings bond entirely with your own funds. Vita tax assistance The bond was issued to you and your spouse as co-owners. Vita tax assistance You both postponed reporting interest on the bond. Vita tax assistance You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Vita tax assistance You must report half the interest earned to the date of reissue. Vita tax assistance Transfer to a trust. Vita tax assistance   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Vita tax assistance However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Vita tax assistance You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Vita tax assistance   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Vita tax assistance See Savings bonds traded , later. Vita tax assistance Decedents. Vita tax assistance   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Vita tax assistance Decedent who reported interest each year. Vita tax assistance   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. Vita tax assistance The person who acquires the bonds includes in income only interest earned after the date of death. Vita tax assistance Decedent who postponed reporting interest. Vita tax assistance   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways. Vita tax assistance The surviving spouse or personal representative (executor, administrator, etc. Vita tax assistance ) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. Vita tax assistance The person who acquires the bonds then includes in income only interest earned after the date of death. Vita tax assistance If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. Vita tax assistance All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. Vita tax assistance If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. Vita tax assistance In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate. Vita tax assistance For more information on income in respect of a decedent, see Publication 559, Survivors, Executors, and Administrators. Vita tax assistance Example 1. Vita tax assistance Your uncle, a cash method taxpayer, died and left you a $1,000 series EE bond. Vita tax assistance He had bought the bond for $500 and had not chosen to report the interest each year. Vita tax assistance At the date of death, interest of $200 had accrued on the bond, and its value of $700 was included in your uncle's estate. Vita tax assistance Your uncle's executor chose not to include the $200 accrued interest in your uncle's final income tax return. Vita tax assistance The $200 is income in respect of the decedent. Vita tax assistance You are a cash method taxpayer and do not choose to report the interest each year as it is earned. Vita tax assistance If you cash the bond when it reaches maturity value of $1,000, you report $500 interest income—the difference between maturity value of $1,000 and the original cost of $500. Vita tax assistance For that year, you can deduct (as a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit) any federal estate tax paid because the $200 interest was included in your uncle's estate. Vita tax assistance Example 2. Vita tax assistance If, in Example 1 , the executor had chosen to include the $200 accrued interest in your uncle's final return, you would report only $300 as interest when you cashed the bond at maturity. Vita tax assistance $300 is the interest earned after your uncle's death. Vita tax assistance Example 3. Vita tax assistance If, in Example 1 , you make or have made the choice to report the increase in redemption value as interest each year, you include in gross income for the year you acquire the bond all of the unreported increase in value of all series E, series EE, and series I bonds you hold, including the $200 on the bond you inherited from your uncle. Vita tax assistance Example 4. Vita tax assistance When your aunt died, she owned series HH bonds that she had acquired in a trade for series EE bonds. Vita tax assistance You were the beneficiary of these bonds. Vita tax assistance Your aunt used the cash method and did not choose to report the interest on the series EE bonds each year as it accrued. Vita tax assistance Your aunt's executor chose not to include any interest earned before your aunt's death on her final return. Vita tax assistance The income in respect of the decedent is the sum of the unreported interest on the series EE bonds and the interest, if any, payable on the series HH bonds but not received as of the date of your aunt's death. Vita tax assistance You must report any interest received during the year as income on your return. Vita tax assistance The part of the interest payable but not received before your aunt's death is income in respect of the decedent and may qualify for the estate tax deduction. Vita tax assistance For information on when to report the interest on the series EE bonds traded, see Savings bonds traded , later. Vita tax assistance Savings bonds distributed from a retirement or profit-sharing plan. Vita tax assistance   If you acquire a U. Vita tax assistance S. Vita tax assistance savings bond in a taxable distribution from a retirement or profit-sharing plan, your income for the year of distribution includes the bond's redemption value (its cost plus the interest accrued before the distribution). Vita tax assistance When you redeem the bond (whether in the year of distribution or later), your interest income includes only the interest accrued after the bond was distributed. Vita tax assistance To figure the interest reported as a taxable distribution and your interest income when you redeem the bond, see Worksheet for savings bonds distributed from a retirement or profit-sharing plan under How To Report Interest Income, later. Vita tax assistance Savings bonds traded. Vita tax assistance   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Vita tax assistance (You cannot trade series I bonds for series HH bonds. Vita tax assistance After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Vita tax assistance ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Vita tax assistance When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Vita tax assistance Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Vita tax assistance Example. Vita tax assistance You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Vita tax assistance You reported the $223 as taxable income on your tax return. Vita tax assistance At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Vita tax assistance You hold the series HH bonds until maturity, when you receive $2,500. Vita tax assistance You must report $300 as interest income in the year of maturity. Vita tax assistance This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Vita tax assistance (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Vita tax assistance ) Choice to report interest in year of trade. Vita tax assistance   You could have chosen to treat all of the previously unreported accrued interest on series EE or series E bonds traded for series HH bonds as income in the year of the trade. Vita tax assistance If you made this choice, it is treated as a change from method 1. Vita tax assistance See Change from method 1 under Series EE and series I bonds, earlier. Vita tax assistance Form 1099-INT for U. Vita tax assistance S. Vita tax assistance savings bond interest. Vita tax assistance   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Vita tax assistance Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Vita tax assistance However, your Form 1099-INT may show more interest than you have to include on your income tax return. Vita tax assistance For example, this may happen if any of the following are true. Vita tax assistance You chose to report the increase in the redemption value of the bond each year. Vita tax assistance The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Vita tax assistance You received the bond from a decedent. Vita tax assistance The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Vita tax assistance Ownership of the bond was transferred. Vita tax assistance The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Vita tax assistance You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Vita tax assistance The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Vita tax assistance (See Co-owners , earlier in this section, for more information about the reporting requirements. Vita tax assistance ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Vita tax assistance The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Vita tax assistance (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Vita tax assistance , for the year of distribution. Vita tax assistance )   For more information on including the correct amount of interest on your return, see U. Vita tax assistance S. Vita tax assistance savings bond interest previously reported or Nominee distributions under How To Report Interest Income, later. Vita tax assistance    Interest on U. Vita tax assistance S. Vita tax assistance savings bonds is exempt from state and local taxes. Vita tax assistance The Form 1099-INT you receive will indicate the amount that is for U. Vita tax assistance S. Vita tax assistance savings bonds interest in box 3. Vita tax assistance Do not include this income on your state or local income tax return. Vita tax assistance Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Vita tax assistance S. Vita tax assistance savings bonds during the year if you pay qualified higher educational expenses during the same year. Vita tax assistance This exclusion is known as the Education Savings Bond Program. Vita tax assistance You do not qualify for this exclusion if your filing status is married filing separately. Vita tax assistance Form 8815. Vita tax assistance   Use Form 8815 to figure your exclusion. Vita tax assistance Attach the form to your Form 1040 or Form 1040A. Vita tax assistance Qualified U. Vita tax assistance S. Vita tax assistance savings bonds. Vita tax assistance   A qualified U. Vita tax assistance S. Vita tax assistance savings bond is a series EE bond issued after 1989 or a series I bond. Vita tax assistance The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Vita tax assistance You must be at least 24 years old before the bond's issue date. Vita tax assistance For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Vita tax assistance    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Vita tax assistance Beneficiary. Vita tax assistance   You can designate any individual (including a child) as a beneficiary of the bond. Vita tax assistance Verification by IRS. Vita tax assistance   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of Treasury. Vita tax assistance Qualified expenses. Vita tax assistance   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Vita tax assistance   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Vita tax assistance For information about these programs, see Publication 970, Tax Benefits for Education. Vita tax assistance   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Vita tax assistance Eligible educational institutions. Vita tax assistance   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the Department of Education. Vita tax assistance Reduction for certain benefits. Vita tax assistance   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Vita tax assistance Tax-free part of scholarships and fellowships. Vita tax assistance Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Vita tax assistance Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Vita tax assistance Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Vita tax assistance Any expense used in figuring the American Opportunity and lifetime learning credits. Vita tax assistance For information about these benefits, see Publication 970. Vita tax assistance Amount excludable. Vita tax assistance   If the total proceeds (interest and principal) from the qualified U. Vita tax assistance S. Vita tax assistance savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Vita tax assistance If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Vita tax assistance   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Vita tax assistance The numer
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Highlights from the IRS Report

FS-2013-7, June 2013 

The report released by Principal Deputy Commissioner Danny Werfel reflects a number of important findings, aggressive actions and next steps to help the IRS make improvements. Highlights of the three major areas covered in “Charting a Path Forward at the IRS: Initial Assessment and Plan of Action” include:

Accountability. This covers the steps being taken to ensure accountability for the mismanagement described in last month’s Treasury Inspector General for Tax Administration (TIGTA) report:

  • The report found significant management and judgment failures occurred, as outlined in the TIGTA report. These contributed to the inappropriate treatment of taxpayers applying for tax- exempt status. 

  • The IRS is identifying the individuals within the IRS who are responsible for the mismanagement identified in the TIGTA report, evaluating their role and determining the appropriate consequences for each individual.

  • We have installed new leadership at all five levels of the senior executive managerial chain that had responsibility over the activities identified in the TIGTA report.

  • The IRS is digging deeper into the facts to determine if there are instances of wrongdoing or inappropriate conduct beyond the mismanagement identified in the original TIGTA report.  By extending our review beyond the scope of the original audit, we are ensuring a more comprehensive understanding of the facts and circumstances that led to these events.

  • In addition, the IRS has empaneled an Accountability Review Board to provide recommendations within 60 days (and later as needed) on any additional personnel actions that should be taken.

Fixing the Problems with the Review of Applications for Tax-Exempt Status. This part covers several process improvements underway to ensure that taxpayers are treated appropriately and effectively in the review of applications for tax-exempt status:   

  • Suspended the use of any “be-on-the-lookout,” or BOLO, lists in the application process for tax-exempt status.

  • Started development of new guidance materials to allow IRS staff to operate without BOLO lists and under the reformed, more efficient process.

  • Initiated an end-to-end overhaul of the business processes by which applications for tax-exempt status are fulfilled.

  • Added technical and programmatic experts from across the IRS to assist the Exempt Organizations staff with the review of applications for tax- exempt status.

  • Created a new voluntary process to help certain taxpayers who have been in our priority application backlog for more than 120 days to gain fast-track approval to operate as a 501(c)(4) tax-exempt entity. This self-certification process allows them a streamlined path to tax-exempt status if they agree they will operate within limits and thresholds of political and social welfare activities. These groups have the option of obtaining an approval if they self-certify that less than 40 percent of their expenditures and volunteer time will go toward political campaign intervention activities and that at least 60 percent of their expenditures and volunteer time will go toward social welfare activities. 

  • Created a new “Advocacy Application Review Committee” to provide expertise from other parts of the IRS to review screening and determination decisions inside the Exempt Organizations area.

  • Started the process to create a new check-and-balance mechanism, where IRS criteria and screening procedures will be reviewed on a systemic basis and report any material risks of inappropriate criteria immediately to the IRS Commissioner, the IRS Oversight Board, and the relevant tax committees of Congress.

  • Worked with the Department of the Treasury regarding the need for greater clarity for certain terms relevant for 501(c)(4) tax-exempt organizations, with a commitment for inclusion in the next Treasury Priority Guidance Plan.

  • Continued to make substantial progress on all TIGTA recommendations from their May report on Exempt Organizations.

Review of IRS Operations and Risks. The report identifies a series of actions to ensure taxpayers that selection criteria across the IRS are appropriate and that taxpayers are aware of how they can seek assistance if they have concerns about the IRS. The report further outlines steps underway to ensure that critical program or operational risks within the IRS are identified early, raised to the right decision-makers and shared timely with key stakeholders:

  • Although there is no current evidence that selection criteria in other IRS business unit is inappropriate, the nature of the problems identified in the tax-exempt application process warrants a review of certain process controls within the IRS.  The IRS will initiate a comprehensive, agency-wide review of compliance selection criteria.  Results will be shared with the Department of the Treasury, the IRS Oversight Board, and the Chairpersons of the House Ways and Means Committee and the Senate Finance Committee.

  • The IRS has been very successful in mission execution across its very broad portfolio for many years, collecting 92 percent of government receipts of about $2.5 trillion in FY 2012.  At the same time, the Service is challenged by many of the same concerns affecting other large organizations, both public and private sector, including budgetary concerns, human capital concerns, and overall programmatic execution concerns. The report outlines initial areas where challenges exist and actions are needed to position the IRS to successfully fulfill its mission.

  • The report calls for establishing an Enterprise Risk Management Program to provide a common framework for capturing, reporting and addressing risk areas across the IRS.  This will improve timeliness in bringing information to the attention of the Commissioner and other IRS leaders as well as stakeholders to help prevent future instances of inappropriate treatment or mismanagement.

  • Initiate additional internal and external education and outreach about the role of the National Taxpayer Advocate, an independent voice inside the IRS, in assisting taxpayers in resolving problems with the IRS. 

  • Establish routine reporting on IRS operational risks with Congress and the IRS Oversight Board.

 

Page Last Reviewed or Updated: 19-Dec-2013

The Vita Tax Assistance

Vita tax assistance Publication 503 - Introductory Material Table of Contents Future Developments Reminders IntroductionOrdering forms and publications. Vita tax assistance Tax questions. Vita tax assistance Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 503, such as legislation enacted after it was published, go to www. Vita tax assistance irs. Vita tax assistance gov/pub503. Vita tax assistance Reminders Taxpayer identification number needed for each qualifying person. Vita tax assistance  You must include on line 2 of Form 2441, Child and Dependent Care Expenses, the name and taxpayer identification number (generally the social security number) of each qualifying person. Vita tax assistance See Taxpayer identification number under Qualifying Person Test, later. Vita tax assistance You may have to pay employment taxes. Vita tax assistance  If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Vita tax assistance Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. Vita tax assistance See Employment Taxes for Household Employers, later. Vita tax assistance Photographs of missing children. Vita tax assistance  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Vita tax assistance Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Vita tax assistance You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Vita tax assistance Introduction This publication explains the tests you must meet to claim the credit for child and dependent care expenses. Vita tax assistance It explains how to figure and claim the credit. Vita tax assistance You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. Vita tax assistance The credit can be up to 35% of your expenses. Vita tax assistance To qualify, you must pay these expenses so you can work or look for work. Vita tax assistance This publication also discusses some of the employment tax rules for household employers. Vita tax assistance Dependent care benefits. Vita tax assistance   If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. Vita tax assistance You must complete Form 2441, Part III, before you can figure the amount of your credit. Vita tax assistance See Dependent Care Benefits under How To Figure the Credit, later. Vita tax assistance Comments and suggestions. Vita tax assistance   We welcome your comments about this publication and your suggestions for future editions. Vita tax assistance   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Vita tax assistance NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Vita tax assistance Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Vita tax assistance   You can send your comments from www. Vita tax assistance irs. Vita tax assistance gov/formspubs/. Vita tax assistance Click on “More Information” and then on “Comment on Tax Forms and Publications. Vita tax assistance ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Vita tax assistance Ordering forms and publications. Vita tax assistance   Visit www. Vita tax assistance irs. Vita tax assistance gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Vita tax assistance Internal Revenue Service 1201 N. Vita tax assistance Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Vita tax assistance   If you have a tax question, check the information available on IRS. Vita tax assistance gov or call 1-800-829-1040. Vita tax assistance We cannot answer tax questions sent to either of the above addresses. Vita tax assistance Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 926 Household Employer's Tax Guide Form (and Instructions) 2441 Child and Dependent Care Expenses Schedule H (Form 1040) Household Employment Taxes W-10 Dependent Care Provider's Identification and Certification See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. Vita tax assistance Prev  Up  Next   Home   More Online Publications