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Www gov freefile Publication 595 - Introductory Material Table of Contents Introduction Important Reminder Introduction This publication discusses the Capital Construction Fund (CCF). Www gov freefile The CCF is a special investment program administered by the National Marine Fisheries Service (NMFS) and the Internal Revenue Service (IRS). Www gov freefile This program allows fishermen to defer paying income tax on certain income they invest in a CCF account and later use to acquire, build, or rebuild fishing vessels. Www gov freefile This publication does not discuss all the tax rules that may apply to your fishing trade or business. Www gov freefile For general information about the federal tax laws that apply to individuals, including commercial fishermen, who file Schedule C or C-EZ, see Publication 334, Tax Guide for Small Business. Www gov freefile If your trade or business is a partnership or corporation, see Publication 541, Partnerships, or Publication 542, Corporations. Www gov freefile Comments and suggestions. Www gov freefile   We welcome your comments about this publication and your suggestions for future editions. Www gov freefile   You can email us at *taxforms@irs. Www gov freefile gov. Www gov freefile Please put “Publications Comment” on the subject line. Www gov freefile   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Www gov freefile NW, IR-6406 Washington, DC 20224   We respond to many letters by telephone. Www gov freefile Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www gov freefile Important Reminder Photographs of missing children. Www gov freefile  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Www gov freefile Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Www gov freefile 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. Www gov freefile Prev  Up  Next   Home   More Online Publications
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IRS Releases the Dirty Dozen Tax Scams for 2013

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Dirty Dozen: English | Spanish | ASL

IR-2013-33, March 26, 2013

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

"This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud," said IRS Acting Commissioner Steven T. Miller. "The Dirty Dozen list shows that scams come in many forms during filing season. Don't let a scam artist steal from you or talk you into doing something you will regret later."

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

Combating identity theft and refund fraud is a top priority for the IRS, and we are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. We have dramatically enhanced our systems, and we are committed to continuing to improve our prevention, detection and assistance efforts.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. We are continually reviewing our processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

This January, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions in January, including 298 indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012. The Criminal Investigation unit has devoted more than 500,000 staff-hours to fighting this issue.

We know identity theft is a frustrating and complex process for victims. The IRS has 3,000 people working on identity theft related cases — more than double the number in late 2011. And we have trained 35,000 employees who work with taxpayers to help with identity theft situations.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information that can help you protect yourself from email scams.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has created a new web page to assist taxpayers. For tips about choosing a preparer, red flags, details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 38,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $5.5 billion so far from people who participated in offshore voluntary disclosure programs since 2009.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money. They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits. For example, some promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. Con artists also falsely claim that refunds are available even if the victim went to school decades ago. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. As in the case of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

  • To help disaster victims, donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits  a contribution from you. Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.
 

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Www gov freefile 6. Www gov freefile   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. Www gov freefile  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). Www gov freefile For more information, see the retiree drug subsidy frequently asked questions on IRS. Www gov freefile gov. Www gov freefile Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. 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Www gov freefile If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Www gov freefile If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Www gov freefile Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. Www gov freefile Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Www gov freefile Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. Www gov freefile The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Www gov freefile A child includes your son, daughter, stepchild, adopted child, or foster child. Www gov freefile A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Www gov freefile One of the following statements must be true. Www gov freefile You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. Www gov freefile You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Www gov freefile , box 14, code A. Www gov freefile You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. Www gov freefile You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Www gov freefile Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. Www gov freefile The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. Www gov freefile For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. Www gov freefile For partners, a policy can be either in the name of the partnership or in the name of the partner. Www gov freefile You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. 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Www gov freefile Otherwise, the insurance plan will not be considered to be established under your business. Www gov freefile Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Www gov freefile If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. Www gov freefile For more information, see Form 1040X, Amended U. Www gov freefile S. Www gov freefile Individual Income Tax Return. Www gov freefile Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Www gov freefile Take the deduction on Form 1040, line 29. Www gov freefile Qualified long-term care insurance. Www gov freefile   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. Www gov freefile But, for each person covered, you can include only the smaller of the following amounts. Www gov freefile The amount paid for that person. Www gov freefile The amount shown below. Www gov freefile Use the person's age at the end of the tax year. Www gov freefile Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. Www gov freefile   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. Www gov freefile The contract must meet all the following requirements. Www gov freefile It must be guaranteed renewable. 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Www gov freefile The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. Www gov freefile Worksheet 6-A. Www gov freefile Self-Employed Health Insurance Deduction Worksheet Note. Www gov freefile Use a separate worksheet for each trade or business under which an insurance plan is established. Www gov freefile 1. Www gov freefile Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. Www gov freefile Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Www gov freefile But do not include the following. Www gov freefile   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. 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Www gov freefile         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Www gov freefile If more than one person is covered, figure separately the amount to enter for each person. Www gov freefile Then enter the total of those amounts 2. Www gov freefile   3. Www gov freefile Add lines 1 and 2 3. Www gov freefile   4. Www gov freefile Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. Www gov freefile Do not include Conservation Reserve Program payments exempt from self-employment tax. 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Www gov freefile Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. Www gov freefile   10. Www gov freefile Subtract line 9 from line 8 10. Www gov freefile   11. Www gov freefile Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. Www gov freefile   12. Www gov freefile Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. Www gov freefile   13. Www gov freefile Subtract line 12 from line 10 or 11, whichever applies 13. Www gov freefile   14. Www gov freefile Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. Www gov freefile Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). Www gov freefile 14. Www gov freefile   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. Www gov freefile Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. Www gov freefile * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. Www gov freefile However, it does not include capital gain income. Www gov freefile Chronically ill individual. Www gov freefile   A chronically ill individual is a person who has been certified as one of the following. Www gov freefile An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. Www gov freefile Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. Www gov freefile An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Www gov freefile The certification must have been made by a licensed health care practitioner within the previous 12 months. Www gov freefile Benefits received. Www gov freefile   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. Www gov freefile Other coverage. Www gov freefile   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. Www gov freefile In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. Www gov freefile   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. Www gov freefile However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. Www gov freefile Effect on itemized deductions. Www gov freefile   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. Www gov freefile Effect on self-employment tax. Www gov freefile   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. Www gov freefile For more information, see Schedule SE (Form 1040). Www gov freefile How to figure the deduction. Www gov freefile   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Www gov freefile However, if any of the following apply, you must use Worksheet 6-A in this chapter. Www gov freefile You had more than one source of income subject to self-employment tax. Www gov freefile You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Www gov freefile You are using amounts paid for qualified long-term care insurance to figure the deduction. Www gov freefile If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. Www gov freefile Health coverage tax credit. Www gov freefile   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. Www gov freefile Use Form 8885 to figure the amount, if any, of this credit. Www gov freefile   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. Www gov freefile Any amounts you included on Form 8885, line 4. Www gov freefile Any qualified health insurance premiums you paid to “U. Www gov freefile S. Www gov freefile Treasury-HCTC. Www gov freefile ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Www gov freefile More than one health plan and business. Www gov freefile   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Www gov freefile Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). Www gov freefile For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. Www gov freefile Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. Www gov freefile Self-insurance reserve funds. Www gov freefile You cannot deduct amounts credited to a reserve set up for self-insurance. Www gov freefile This applies even if you cannot get business insurance coverage for certain business risks. Www gov freefile However, your actual losses may be deductible. Www gov freefile See Publication 547. Www gov freefile Loss of earnings. Www gov freefile You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. Www gov freefile However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. Www gov freefile Certain life insurance and annuities. Www gov freefile For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Www gov freefile You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Www gov freefile A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Www gov freefile For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Www gov freefile The disallowance applies without regard to whom the policy covers. Www gov freefile Partners. Www gov freefile If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. Www gov freefile You cannot deduct the insurance premiums. Www gov freefile Insurance to secure a loan. Www gov freefile If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Www gov freefile Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Www gov freefile In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. Www gov freefile Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Www gov freefile Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Www gov freefile You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Www gov freefile Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. Www gov freefile Uniform capitalization rules. Www gov freefile   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Www gov freefile Produce real property or tangible personal property. Www gov freefile For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Www gov freefile Acquire property for resale. Www gov freefile However, these rules do not apply to the following property. Www gov freefile Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Www gov freefile Property you produce if you meet either of the following conditions. Www gov freefile Your indirect costs of producing the property are $200,000 or less. Www gov freefile You use the cash method of accounting and do not account for inventories. Www gov freefile More information. Www gov freefile   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Www gov freefile When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. Www gov freefile Cash method. Www gov freefile   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. Www gov freefile However, see Prepayment , later. Www gov freefile Accrual method. Www gov freefile   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. Www gov freefile In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). Www gov freefile For more information about the accrual method of accounting, see chapter 1. Www gov freefile For information about the exception for recurring items, see Publication 538. Www gov freefile Prepayment. Www gov freefile   You cannot deduct expenses in advance, even if you pay them in advance. Www gov freefile This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Www gov freefile   Expenses such as insurance are generally allocable to a period of time. Www gov freefile You can deduct insurance expenses for the year to which they are allocable. Www gov freefile Example. Www gov freefile In 2013, you signed a 3-year insurance contract. Www gov freefile Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Www gov freefile You can deduct in 2014 and 2015 the premium allocable to those years. Www gov freefile Dividends received. Www gov freefile   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. Www gov freefile For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. Www gov freefile Prev  Up  Next   Home   More Online Publications