30.   How To Figure Your Tax

Introduction

After you have figured your income and deductions as explained in Parts One through Five, your next step is to figure your tax. This chapter discusses:

  • The general steps you take to figure your tax,

  • An additional tax you may have to pay called the alternative minimum tax (AMT), and

  • The conditions you must meet if you want the IRS to figure your tax.

Figuring Your Tax

Your income tax is based on your taxable income. After you figure your income tax and AMT, if any, subtract your tax credits and add any other taxes you may owe. The result is your total tax. Compare your total tax with your total payments to determine whether you are entitled to a refund or if you must make a payment.

This section provides a general outline of how to figure your tax. You can find step-by-step directions in the Instructions for Forms 1040EZ, 1040A, and 1040. If you are unsure of which tax form you should file, see Which Form Should I Use? in chapter 1.

Tax.   Most taxpayers use either the Tax Table or the Tax Computation Worksheet to figure their income tax. However, there are special methods if your income includes any of the following items.
  • A net capital gain. (See chapter 16.)

  • Qualified dividends taxed at the same rates as a net capital gain. (See chapters 8 and 16.)

  • Lump-sum distributions. (See chapter 10.)

  • Farming or fishing income. (See Schedule J (Form 1040), Income Averaging for Farmers and Fishermen.)

  • Unearned income over $2,000 for certain children. (See chapter 31.)

  • Parents' election to report child's interest and dividends. (See chapter 31.)

  • Foreign earned income exclusion or the housing exclusion. (See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, and the Foreign Earned Income Tax Worksheet in the Form 1040 instructions.)

Credits.   After you figure your income tax and any AMT (discussed later), determine if you are eligible for any tax credits. Eligibility information for these tax credits is discussed in chapters 32 through 37 and your form instructions. The following table lists the credits you may be able to subtract from your tax and shows where you can find more information on each credit.
CREDITS
For information on: See 
chapter:
Adoption 37
Alternative motor vehicle 37
Alternative fuel vehicle refueling  
property
37
Child and dependent care 32
Child tax 34
Credit to holders of tax credit  
bonds
37
Education 35
Elderly or disabled 33
Electric vehicle 37
Foreign tax 37
Mortgage interest 37
Prior year minimum tax 37
Residential energy 37
Retirement savings contributions 37

  Some credits (such as the earned income credit) are not listed because they are treated as payments. See Payments , later.

  There are other credits that are not discussed in this publication. These include the following credits.
  • General business credit, which is made up of several separate business-related credits. These generally are reported on Form 3800, General Business Credit, and are discussed in chapter 4 of Publication 334, Tax Guide for Small Business.

  • Renewable electricity, refined coal, and Indian coal production credit for electricity and refined coal produced at facilities placed in service after October 22, 2004 (after October 2, 2008, for electricity produced from marine and hydrokinetic renewables), and Indian coal produced at facilities placed in service after August 8, 2005. See Form 8835, Part II.

  • Work opportunity credit. See Form 5884.

  • Credit for employer social security and Medicare taxes paid on certain employee tips. See Form 8846.

Other taxes.   After you subtract your tax credits, determine whether there are any other taxes you must pay. This chapter does not explain these other taxes. You can find that information in other chapters of this publication and your form instructions. See the following table for other taxes you may need to add to your income tax.
OTHER TAXES
For information on: See 
chapter:
Additional taxes on qualified retirement plans and IRAs 10, 17
Household employment taxes 32
Recapture of an education credit 35
Social security and Medicare tax on wages 5
Social security and Medicare tax on tips 6
Uncollected social security and Medicare tax on tips 6

  You also may have to pay AMT (discussed later in this chapter).

  There are other taxes that are not discussed in this publication. These include the following items.
  1. Self-employment tax. You must figure this tax if either of the following applies to you (or your spouse if you file a joint return).

    1. Your net earnings from self-employment from other than church employee income were $400 or more. The term “net earnings from self-employment” may include certain nonemployee compensation and other amounts reported to you on Form 1099-MISC, Miscellaneous Income. If you received a Form 1099-MISC, see the Instructions for Recipient on the back. Also see the Instructions for Schedule SE (Form 1040), Self-Employment Tax; and Publication 334, Tax Guide for Small Business.

    2. You had church employee income of $108.28 or more.

  2. Additional Medicare Tax. Beginning in 2013, you may be subject to a 0.9% Additional Medicare Tax that applies to Medicare wages, Railroad Retirement Act compensation, and self-employment income over a threshold based on your filing status. For more information, see the Instructions for Form 1040, line 60 and Form 8959.

  3. Net Investment Income Tax (NIIT). Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of your modified adjusted gross income over a threshold amount. For more information, see the Instructions for Form 1040, line 60 and Form 8960.

  4. Recapture taxes. You may have to pay these taxes if you previously claimed an investment credit, a low-income housing credit, a new markets credit, a qualified plug-in electric drive motor vehicle credit, an alternative motor vehicle credit, a credit for employer-provided child care facilities, an Indian employment credit, or other credits listed in the instructions for Form 1040, line 60. For more information, see the instructions for Form 1040, line 60.

  5. Section 72(m)(5) excess benefits tax. If you are (or were) a 5% owner of a business and you received a distribution that exceeds the benefits provided for you under the qualified pension or annuity plan formula, you may have to pay this additional tax. See Tax on Excess Benefits in chapter 4 of Publication 560, Retirement Plans for Small Business.

  6. Uncollected social security and Medicare tax on group-term life insurance. If your former employer provides you with more than $50,000 of group-term life insurance coverage, you must pay the employee part of social security and Medicare taxes on those premiums. The amount should be shown in box 12 of your Form W-2 with codes M and N.

  7. Tax on golden parachute payments. This tax applies if you received an “excess parachute payment” (EPP) due to a change in a corporation's ownership or control. The amount should be shown in box 12 of your Form W-2 with code K. See the instructions for Form 1040, line 60.

  8. Tax on accumulation distribution of trusts. This applies if you are the beneficiary of a trust that accumulated its income instead of distributing it currently. See Form 4970 and its instructions.

  9. Additional tax on HSAs or MSAs. If amounts contributed to, or distributed from, your health savings account or medical savings account do not meet the rules for these accounts, you may have to pay additional taxes. See Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans; Form 8853, Archer MSAs and Long-Term Care Insurance Contracts; Form 8889, Health Savings Accounts (HSAs); and Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

  10. Additional tax on Coverdell ESAs. This applies if amounts contributed to, or distributed from, your Coverdell ESA do not meet the rules for these accounts. See Publication 970, Tax Benefits for Education, and Form 5329.

  11. Additional tax on qualified tuition programs. This applies to amounts distributed from qualified tuition programs that do not meet the rules for these accounts. See Publication 970 and Form 5329.

  12. Excise tax on insider stock compensation from an expatriated corporation. You may owe a 15% excise tax on the value of nonstatutory stock options and certain other stock-based compensation held by you or a member of your family from an expatriated corporation or its expanded affiliated group in which you were an officer, director, or more-than-10% owner. For more information, see the instructions for Form 1040, line 60.

  13. Additional tax on income you received from a nonqualified deferred compensation plan that fails to meet certain requirements. This income should be shown in Form W-2, box 12, with code Z, or in Form 1099-MISC, box 15b. For more information, see the instructions for Form 1040, line 60.

  14. Interest on the tax due on installment income from the sale of certain residential lots and timeshares. For more information, see the instructions for Form 1040, line 60.

  15. Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000. For more information, see the instructions for Form 1040, line 60.

  16. Repayment of first-time homebuyer credit. For more information, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. Also see the instructions for Form 1040, line 59b.

Payments.   After you determine your total tax, figure the total payments you have already made for the year. Include credits that are treated as payments. This chapter does not explain these payments and credits. You can find that information in other chapters of this publication and your form instructions. See the following table for amounts you can include in your total payments.
PAYMENTS
For information on: See 
chapter:
Child tax credit (additional) 34
Earned income credit 36
Estimated tax paid 4
Excess social security  
and RRTA tax withheld
37
Federal income tax withheld 4
Health coverage tax credit 37
Credit for tax on  
undistributed capital gain
37
Tax paid with extension 1

  Another credit that is treated as a payment is the credit for federal excise tax paid on fuels. This credit is for persons who have a nontaxable use of certain fuels, such as diesel fuel and kerosene. It is claimed on Form 1040, line 70. See Form 4136, Credit for Federal Tax Paid on Fuels.

Refund or balance due.   To determine whether you are entitled to a refund or whether you must make a payment, compare your total payments with your total tax. If you are entitled to a refund, see your form instructions for information on having it directly deposited into one or more of your accounts, or to purchase U.S. savings bonds instead of receiving a paper check.

Alternative Minimum Tax (AMT)

This section briefly discusses an additional tax you may have to pay.

The tax law gives special treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. Taxpayers who benefit from this special treatment may have to pay at least a minimum amount of tax through an additional tax called AMT.

You may have to pay the AMT if your taxable income for regular tax purposes, combined with certain adjustments and tax preference items, is more than a certain amount. See Form 6251, Alternative Minimum Tax — Individuals.

Adjustments and tax preference items.   The more common adjustments and tax preference items include:
  • Addition of personal exemptions,

  • Addition of the standard deduction (if claimed),

  • Addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses,

  • Subtraction of any refund of state and local taxes included in gross income,

  • Changes to accelerated depreciation of certain property,

  • Difference between gain or loss on the sale of property reported for regular tax purposes and AMT purposes,

  • Addition of certain income from incentive stock options,

  • Change in certain passive activity loss deductions,

  • Addition of certain depletion that is more than the adjusted basis of the property,

  • Addition of part of the deduction for certain intangible drilling costs, and

  • Addition of tax-exempt interest on certain private activity bonds.

More information.   For more information about the AMT, see the instructions for Form 6251.

Tax Figured by IRS

If you file by April 15, 2014, you can have the IRS figure your tax for you on Form 1040EZ, Form 1040A, or Form 1040.

If the IRS figures your tax and you paid too much, you will receive a refund. If you did not pay enough, you will receive a bill for the balance. To avoid interest or the penalty for late payment, you must pay the bill within 30 days of the date of the bill or by the due date for your return, whichever is later.

The IRS can also figure the credit for the elderly or the disabled and the earned income credit for you.

When the IRS cannot figure your tax.   The IRS cannot figure your tax for you if any of the following apply.
  1. You want your refund directly deposited into your accounts.

  2. You want any part of your refund applied to your 2014 estimated tax.

  3. You had income for the year from sources other than wages, salaries, tips, interest, dividends, taxable social security benefits, unemployment compensation, IRA distributions, pensions, and annuities.

  4. Your taxable income is $100,000 or more.

  5. You itemize deductions.

  6. You file any of the following forms.

    1. Form 2555, Foreign Earned Income.

    2. Form 2555-EZ, Foreign Earned Income Exclusion.

    3. Form 4137, Social Security and Medicare Tax on Unreported Tip Income.

    4. Form 4970, Tax on Accumulation Distribution of Trusts.

    5. Form 4972, Tax on Lump-Sum Distributions.

    6. Form 6198, At-Risk Limitations.

    7. Form 6251, Alternative Minimum Tax—Individuals.

    8. Form 8606, Nondeductible IRAs.

    9. Form 8615, Tax for Certain Children Who Have Unearned Income.

    10. Form 8814, Parents' Election To Report Child's Interest and Dividends.

    11. Form 8839, Qualified Adoption Expenses.

    12. Form 8853, Archer MSAs and Long-Term Care Insurance Contracts.

    13. Form 8889, Health Savings Accounts (HSAs).

    14. Form 8919, Uncollected Social Security and Medicare Tax on Wages.

Filing the Return

After you complete the line entries for the tax form you are filing, fill in your name and address. Enter your social security number in the space provided. If you are married, enter the social security numbers of you and your spouse even if you file separately. Sign and date your return and enter your occupation(s). If you are filing a joint return, both you and your spouse must sign it. Enter your daytime phone number in the space provided. This may help speed the processing of your return if we have a question that can be answered over the phone. If you are filing a joint return, you may enter either your or your spouse's daytime phone number.

If you want to allow a friend, family member, or any other person you choose to discuss your 2013 tax return with the IRS, check the “Yes” box in the “Third party designee” area on your return. Also enter the designee's name, phone number, and any five digits the designee chooses as his or her personal identification number (PIN). If you check the “Yes” box, you, and your spouse if filing a joint return, are authorizing the IRS to call the designee to answer any questions that may arise during the processing of your return.

Fill in and attach any schedules and forms asked for on the lines you completed to your paper return. Attach a copy of each of your Forms W-2 to your paper return. Also attach to your paper return any Form 1099-R you received that has withholding tax in box 4.

Mail your return to the Internal Revenue Service Center for the area where you live. A list of Service Center addresses is in the instructions for your tax return.

Form 1040EZ Line Entries

Read lines 1 through 8b and fill in the lines that apply to you. Do not complete lines 9 through 12. If you are filing a joint return, use the space to the left of line 6 to separately show your taxable income and your spouse's taxable income.

Payments.   Enter any federal income tax withheld on line 7. Federal income tax withheld is shown on Form W-2, box 2, or Form 1099, box 4.

Earned income credit.   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. Enter “EIC” in the space to the left of line 8a. Enter the nontaxable combat pay you elect to include in earned income on line 8b.

  If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862, Information To Claim Earned Income Credit After Disallowance, with your return. For details, see the Form 1040EZ Instructions.

Form 1040A Line Entries

Read lines 1 through 27 and fill in the lines that apply to you. If you are filing a joint return, use the space to the left of the entry space for line 27 to separately show your taxable income and your spouse's taxable income. Do not complete line 28. Complete lines 29 through 33 and 36 through 40 if they apply to you. However, do not fill in lines 30 and 38a if you want the IRS to figure the credits shown on those lines. Also, enter any write-in information that applies to you in the space to the left of line 41. Do not complete lines 34, 35, and 42 through 46.

Payments.   Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 36. Enter any estimated tax payments you made on line 37.

Credit for child and dependent care expenses.   If you can take this credit, as discussed in chapter 32, complete Form 2441, Child and Dependent Care Expenses, and attach it to your return. Enter the amount of the credit on line 29. The IRS will not figure this credit.

Credit for the elderly or the disabled.   If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. Enter “CFE” in the space to the left of line 30 and attach Schedule R (Form 1040A or 1040), Credit for the Elderly or the Disabled, to your paper return. On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. Complete Part II and Part III, lines 11 and 13, if they apply.

Earned income credit.   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. Enter “EIC” to the left of the entry space for line 38a. Enter the nontaxable combat pay you elect to include in earned income on line 38b.

   If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. If you do not provide the child's social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2013.

  If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. For details, see the Form 1040A Instructions.

Form 1040 Line Entries

Read lines 1 through 43 and fill in the lines that apply to you. Do not complete line 44.

If you are filing a joint return, use the space under the words “Adjusted Gross Income” on the front of your return to separately show your taxable income and your spouse's taxable income.

Read lines 45 through 71. Fill in the lines that apply to you, but do not fill in lines 54, 61, and 72. Also, do not complete line 55 and lines 73 through 77. Do not fill in line 53, box “c,” if you are completing Schedule R (Form 1040A or 1040), or line 64a if you want the IRS to figure the credits shown on those lines.

Payments.   Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 62. Enter any estimated tax payments you made on line 63.

Credit for child and dependent care expenses.   If you can take this credit, as discussed in chapter 32, complete Form 2441 and attach it to your paper return. Enter the amount of the credit on line 48. The IRS will not figure this credit.

Credit for the elderly or the disabled.   If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. Enter “CFE” on the line next to line 53, check box “c,” and attach Schedule R (Form 1040A or 1040) to your paper return. On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. Complete Part II and Part III, lines 11 and 13, if they apply.

Earned income credit.   If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. Enter “EIC” on the dotted line next to Form 1040, line 64a. Enter the nontaxable combat pay you elect to include in earned income on line 64b.

  If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. If you do not provide the child's social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2013.

  If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. For details, see the Form 1040 Instructions.


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