Staff for This Book J.K Lasser Editorial Elliott Eiss, Member of the New Y ork Bar, Contributing Editor Barbara Weltman, Member of the New Y ork Bar, Contributing Editor Angelo C Jack, Production Manager William Hamill, Copyediting and Proofreading Index by WordCo Indexing Services John Wiley & Sons, Inc John Wiley & Sons, Inc 111 River Street Hoboken, NJ 07030 Copyright © 2019 by John Wiley & Sons, Inc All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 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including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 5724002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our web site at www.wiley.com ISBN 978-1-119-53271-2 (paper) ISBN 978-1-119-53267-5 (ePDF) ISBN 978-1-119-53270-5 (ePub) Eighty-Second Edition How To Use Your Income Tax 2019 Tax alert symbols Throughout the text of Your Income Tax, these special symbols alert you to advisory tips about filing your federal tax return and tax planning opportunities: Filing tip or Filing Instruction A Filing Tip or Filing Instruction helps you prepare your 2018 return Planning Reminder A Planning Reminder highlights year-end tax strategies for 2018 or planning opportunities for 2019 and later years Caution A Caution points out potential pitfalls to avoid and areas where IRS opposition may be expected Law Alert A Law Alert indicates recent changes in the tax law and pending legislation before Congress Court Decision A Court Decision highlights key rulings from the Tax Court and other federal courts IRS Alert An IRS Alert highlights key rulings and announcements from the IRS Visit jklasser.com for FREE download of e-Supplement You can download a free e-Supplement to Your Income Tax 2019 at jklasser.com The e-Supplement will provide an update on tax developments from the IRS and Congress, including a look ahead to 2019 On the homepage at jklasser.com, you will find free tax news, tax tips and tax planning articles The federal income tax law, despite efforts at simplification, remains a maze of statutes, regulations, rulings, and court decisions written in technical language covering thousands and thousands of pages For 82 years, J.K Lasser’s™ Your Income Tax has aided and guided millions of taxpayers through this complex law Every effort has been made to provide a direct and easy-to-understand explanation that shows how to comply with the law and at the same time take advantage of tax-saving options and plans The 2019 edition of Your Income Tax—our 82nd edition—continues this tradition To make maximum use of this tax guide, we suggest that you use these aids: Contents Chapter by Chapter The contents, on pages v–xxv, lists the chapters in Your Income Tax References direct you to sections within a particular chapter Thus a reference to 21.1 directs you to Chapter 21 and then to section within that chapter Section and page references are provided in the index at the back of the book What’s New for 2018 Pages xxvii–xxx alert you to tax developments that may affect your 2018 tax return Key Tax Numbers for 2018 Pages xxxi–xxxiii Tax-Saving Opportunities Page xxxiv Filing tax basics Pages 1–8 alert you to filing requirements, filing addresses for IRS Service Centers, and a calendar with 2019 filing deadlines CONTENTS Cover What’s New for 2018 Tax News for 2018 Key Tax Numbers for 2018 Tax-Saving Opportunities for 2018 Part Filing Basics Do You Have to File a 2018 Tax Return? Filing Tests for Dependents: 2018 Returns Where to File Your 2018 Form 1040 Filing Deadlines (on or before) The New Form 1040 and 1040 Schedules Chapter Filing Status 1.1 Which Filing Status Should You Use? 1.2 Tax Rates Based on Filing Status 1.3 Filing Separately Instead of Jointly 1.4 Filing a Joint Return 1.5 Nonresident Alien Spouse 1.6 Community Property Rules 1.7 Innocent Spouse Rules 1.8 Separate Liability Relief for Former Spouses 1.9 Equitable Relief 1.10 Death of Your Spouse in 2018 1.11 Qualifying Widow/Widower Status for 2018 If Your Spouse Died in 2017 or 2016 1.12 Qualifying as Head of Household 1.13 Filing for Your Child 1.14 Return for Deceased 1.15 Return for an Incompetent Person 1.16 How a Nonresident Alien Is Taxed 1.17 How a Resident Alien Is Taxed 1.18 Who Is a Resident Alien? 1.19 Certificate of Tax Compliance for Alien Leaving the United States 1.20 Expatriation Tax Part Reporting Your Income Chapter Wages, Salary, and Other Compensation 2.1 Salary and Wage Income 2.2 Constructive Receipt of Year-End Paychecks 2.3 Pay Received in Property Is Taxed 2.4 Commissions Taxable When Credited 2.5 Unemployment Benefits 2.6 Strike Pay Benefits and Penalties 2.7 Nonqualified Deferred Compensation 2.8 Did You Return Wages Received in a Prior Year? 2.9 Waiver of Executor’s and Trustee’s Commissions 2.10 Life Insurance Benefits 2.11 Educational Benefits for Employees’ Children 2.12 Sick Pay Is Taxable 2.13 Workers’ Compensation Is Tax Free 2.14 Disability Pay and Pensions 2.15 Stock Appreciation Rights (SARs) 2.16 Stock Options 2.17 Restricted Stock Chapter Fringe Benefits 3.1 Tax-Free Health and Accident Coverage Under Employer Plans 3.2 Health Savings Accounts (HSAs) and Archer MSAs 3.3 Reimbursements and Other Tax-Free Payments From Employer Health and Accident Plans 3.4 Group-Term Life Insurance Premiums 3.5 Dependent Care Assistance 3.6 Adoption Benefits 3.7 Education Assistance Plans 3.8 Company Cars, Parking, and Transit Passes 3.9 Working Condition Fringe Benefits 3.10 De Minimis Fringe Benefits 3.11 Employer-Provided Retirement Advice 3.12 Employee Achievement Awards 3.13 Employer-Furnished Meals or Lodging 3.14 Minister’s Housing or Housing Allowance 3.15 Cafeteria Plans Provide Choice of Benefits 3.16 Flexible Spending Arrangements 3.17 Company Services Provided at No Additional Cost 3.18 Discounts on Company Products or Services Chapter Dividend and Interest Income 4.1 Reporting Dividends and Mutual Fund Distributions 4.2 Qualified Corporate Dividends Taxed at Favorable Capital Gain Rates 4.3 Dividends From a Partnership, S Corporation, Estate, or Trust 4.4 Real Estate Investment Trust (REIT) Dividends 4.5 Taxable Dividends of Earnings and Profits 4.6 Stock Dividends on Common Stock 4.7 Dividends Paid in Property 4.8 Taxable Stock Dividends 4.9 Who Reports the Dividends 4.10 Year Dividends Are Reported 4.11 Distribution Not Out of Earnings: Return of Capital 4.12 Reporting Interest on Your Tax Return 4.13 Interest on Frozen Accounts Not Taxed 4.14 Interest Income on Debts Owed to You 4.15 Reporting Interest on Bonds Bought or Sold 4.16 Forfeiture of Interest on Premature Withdrawals 4.17 Amortization of Bond Premium 4.18 Discount on Bonds 4.19 Reporting Original Issue Discount on Your Return 4.20 Reporting Income on Market Discount Bonds 4.21 Discount on Short-Term Obligations 4.22 Stripped Coupon Bonds and Stock 4.23 Sale or Retirement of Bonds and Notes 4.24 State and City Interest Generally Tax Exempt 4.25 Taxable State and City Interest 4.26 Tax-Exempt Bonds Bought at a Discount 4.27 Treasury Bills, Notes, and Bonds 4.28 Interest on United States Savings Bonds 4.29 Deferring United States Savings Bond Interest 4.30 Minimum Interest Rules Tax-exempt bonds, 91, 96, 98 Tax-exempt income, 387 Tax-exempt interest, 87, 97, 487 Tax-exempt obligations, 387 Tax-exempt organizations, 196–198, 570–571 Tax-free distributions, 195 Tax-free exchanges of property, 156–169 basis of property received in, 131 boot, 158–161 business property in, 753 closely-held corporations and, 168 exchanges of insurance policies, 168–169 exchanges of stock in same corporation, 167 by investors in real estate, 580–581 joint ownership interests and, 168 like-kind property, 157–158 QEAAs for reverse exchanges, 163–164 between related parties, 164 between spouses and ex-spouses, 164–167 time limits and security arrangement for deferred exchanges, 161–163 Tax-free pay, 636–637 Tax-free rollovers (retirement plan), 178–179 Tax-free rule of common stock, 83 Tax-free stock rights, 127 Tax home, 30, 448–450, 830 Tax identification number, 679, 830 Tax liability, 478–482 additional Medicare tax and NIIT, 482 adoption credit and, 510 allocating, between spouses, 20–21 child tax credit and, 500 of children, 495–496 elderly or disabled tax credit and, 629 equitable relief for, 22 for farmers and fishermen, 481 from Foreign Earned Income Tax Worksheet, 481 and incentive stock options, 51 and innocent spouse rules, 14–15, 17–18 Lifetime Learning credit and, 609 mortgage interest credit and, 516 with net capital gain or qualified dividends, 481 saver's credit and, 513 separate liability relief, 18–21 of surviving spouse, 24 from Tax Computation Worksheet, 480 taxable income and, 479 transfer of, 168 understatement of, 786 using Tax Table, 479–480 Tax payment deductions, 391–398 and assessments, 396 automobile license fees, 398 buying/selling real estate and, 396–397 foreign taxes, 398 general sales tax, 394 nondeductible taxes, 392 overall limit on, 392 real estate taxes, 394–395 from self-employed income, 687 self-employment taxes, 760 state and local income taxes, 392–394 and taxes as business expenses, 398 and tenants' payment of taxes, 396 Tax payments, 639, 771–773 Tax planning, 541 Tax preference items, 830 Tax preparation costs, 687 Tax rates, 11–12, 29, 81–82, 661–662 Tax-related identity theft, 773 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, 134 Tax Results from Calls, 568 Tax Results from Puts, 569 Tax return preparation costs, 263 Tax returns alimony recapture on, 657 copies of, 768 corrections to prior, 719 depreciation deductions on, 720 filing basics, 1–8 identifying care provider on, 502 IRA distributions on, 224 mailing, 769 personal rollovers on, 181–182 reporting children's income on parents', 493, 495–496 reporting foreign income on, 649, 651 reporting fringe benefits on, 65, 66 residence sale gains and losses on, 544 retirement plan information on, 713 Tax-shelter farm losses, 489 Tax-sheltered annuities, 196–197, 830 Tax Table See IRS Tax Table Tax treaties, 31, 650 Tax year, 681, 830 Taxable income, 830 See also Salary or wage income (compensation) Taxable Income Brackets for 2018, 11 Taxable income limit, 277, 278 Taxable interest, 97–98 Taxable Premiums for Group-Term Insurance Coverage Over $50,000, 64 Taxes paid, allocating vehicle expenses for, 738 Taxpayer Advocate Service, 782 Taxpayer Bill of Rights, 781–782 Taxpayer identification number (TIN), 608 Teaching assistants, 601 TEFRA (Tax Act of 1982), 189 Telephones, 69, 771 Temporary assignments, 444–445, 450–451 Temporary property rental, 274–275 Temporary rental sale, 557 Ten-year property, 723 Tenancy by the entireties, 830 Tenancy in common, 168, 830 Tenants, 136–138, 262–264, 396, 828 Terminally ill persons, 417 Terrorist attacks or action, 50, 638–639 Testamentary trusts, 830 Theft losses, 424–425 See also Disaster losses deductible, 428–431 in excess of income, 432 in federally declared disaster, 419–421 floors for personal-use property losses, 426–427 on Form 4864, 427–430 as other itemized deductions, 441 for property with personal and business use, 430 repairs and, 431 and Section 1231 assets, 754–755 Third homes, 375 Third parties, 166, 589–590, 607, 655 Three-year property, 722 Three-year reporting and repayment rule, 260 Threshold conditions for equitable relief, 22 Thrift Savings Plan (TSP), 197 Tickets, 351, 352 Tie-breaker rules, 468–469 Time limits, 161–163, 777–778 Time shares, 151 Time test for foreign earned income, 646 TIN (taxpayer identification number), 608 Tips, 38–40, 524–525 TIPS (Treasury inflation-protected securities), 98 Token items, 353 "Too good to be true" test, 786 Total blindness, 345 Town government, donations to, 350 Trade Act (1974), 43 Trade-ins, 747, 755 Trade names, 732–733 Trademarks, 732–733 Traders, 573–576, 686, 759 Traditional IRAs active participation in, 215–221 contributions to, 212–223, 250 converting Roth IRAs and, 223, 229, 254–255, 257 deductions for, 339 distributions from, 223–226, 235–238 in divorce, 230 inherited, 238–246 for married participants, 214–215 nondeductible contributions to, 221–222, 225–226 penalty for excess contributions, 222–223 penalty for withdrawals before age 59 1/2, 230–234 recharacterizations, 230, 253–255 required mandatory distributions from, 235–238 retirement income from, 172, 179 starting, 211–212 transfers between, 226–230 transfers to HSAs from, 59 Training exercises, Armed Forces, 638 Transfer taxes, 392 Transfers of Coverdell ESA assets, 611–612 at death, 101, 149 of employer plan benefits, 230 to HSAs, 59 between IRAs, 226–230 of IRAs, 59, 226–230 of mortgaged real estate, 165, 590 of partnership interest, 326 of property, 654 Section 83, 45 separate liability relief and, 21 of tax liability, 168 of U.S savings bonds, 101 Transfers in trust, 165 Transient workers, 449 Transit passes, 68 Transportation benefits, 56, 66–68 Transportation costs, 617–618 Transportation industry workers, 447, 457 Travel as education expense, 618 and payment extensions, 770 Travel allowance, on Form W-2, 38 Travel and meal expense deductions, 443–462 50% limit on, 456–457 away from home test for, 448–449 for business trips, 447–448 business-vacation trips, 451–453 commuting expenses, 444–445 for conventions, 453–454 entertainment expenses, 455 living costs on temporary assignment, 450–451 meal costs, 445–447, 455–457 proving, 457–458 reimbursements for, 458–462 reporting of, 458 rules for, 444 and tax home, 450 Travel expenses deductions for Reservists/National Guard members, 337 medical expense deductions for, 410–412 for recreational purposes, 354 as rental deductions, 263 repayment of disallowed, 45 as work-related costs of education, 617–618 Travel restrictions, income from countries with, 644 Treasury bills, 99, 385 Treasury bonds, 98 Treasury Department, 387 Treasury inflation-indexed securities, 92 Treasury inflation-protected securities (TIPS), 98 Treasury notes, 98 Trustees, waiver of commissions by, 46 Trusts, 328–329, 829, 830 See also specific types basis of property received by, 132 charitable donations through, 365–366 dividends from, 82 gift tax and, 670–671 gifts of income interests in, 365–366 as IRA beneficiaries, 243–244 net investment income tax on, 538 retirement distributions to, 178 transfers to, 101, 165 TSP (Thrift Savings Plan), 197 Tuition as charitable donation, 351 for college employees, 601–602 deduction for, 337, 612–613, 616 in Education Assistance plans, 66 elementary and secondary school, 604 as fringe benefits, 56 IRA distributions for, 189 Twenty-year property, 723 Two-Earners/Multiple Jobs Worksheet, 524 Two-year resale rule, 144–145 Two-year rule, 164 U UGMA See Uniform Transfers to Minors Act Unadjusted basis of property, 130–139 Unauthorized collection lawsuits, 792 Uncle, as qualifying relative, 469 Underpayments (tax), 530, 774 Underpriced award items, 70 Understanding Your Form W-2 for 2016 Wages and Tips, 38–39 Unearned commissions, 42 Unearned income of children See Kiddie tax Unemployment benefits, 43, 45, 339 Unforeseen circumstances, sales due to, 552 Unified Estate and Gift Tax Schedule for 2018 and Later Years, 674 Uniform Lifetime Table, 236, 238 Uniform Transfers to Minors Act (UGMA), 87, 194, 311, 669, 670 Unmarried co-owners of home, 376–377 Unmarried cohabitants, 470–471 Unmarried head of household, 25 Unmarried joint tenants, 137 Unrecaptured Section 1250 Gain Worksheet, 113–114, 751 Unrecaptured Section 1250 gains, 12, 80, 108, 111–114, 118, 481, 555, 595, 751, 752, 830 Unrecovered basis, 226 Unrecovered investments, 441 Unreimbursed expenses, 353–355, 458 Unused tax credits, 317 U.S Individual Income Tax Return See Form 1040 U.S savings bond tuition plans, 601–602 U.S savings bonds, 99–102, 165, 359 U.S Tax Guide for Aliens See IRS Publication 519 U.S Virgin Islands, 649 Use-it-or-lose-it deadline, 76 Use tests, 545–548 Useful life, 719–720, 830 V VA (Veterans Administration), 50 Vacant land, 544 Vacant residences, 268 Vacation areas, trips to, 452 Vacation homes, 281, 363, 556 Vacations, 451–453 Value portion, auto license fee, 398 Vans, 68, 740 See also Car and truck expenses Variable annuities, 203 Vehicle loans, 738 Vehicles business, 747–749 See also Automobiles; Car and truck expenses charitable donations of, 359–360 Vesting, 54 Veterans, 635, 778 Veterans Administration (VA), 50 VISTA volunteers, 72 Vitamins, 401 Voluntary conveyances, 321, 584–585, 589 Voluntary interest payments, 614 Volunteers, 72, 353–355 W Wage and Tax Statement See Form W-2 Wage income See Salary or wage income (compensation) Waivers, 531 War Orphans Educational Assistance Act, 473 Warrants, 567 Wash sales, 114, 128, 565–567, 575, 592, 596, 830 Water conservation expenses, 705 Weekends, business-vacation trips on, 453 Weight-reduction programs, 401 Wellness programs, 75 What You Need To Substantiate Your Donations, 369 What's New for 2018, xxvii–xxx Whistleblower awards, 339 Who Claims the Deduction for Real Estate Taxes?, 395 Whole life insurance contracts, 331–332 Widows or widowers See Qualifying widows or widowers Winnings, 311–313, 525–526 Withdrawals from 401(k) plans, 193–194 of nondeductible IRA contributions, 221–222, 225–226 penalties for IRA, 230–235, 257 premature, 89 by reservists, 639–640 saver's credit and, 513 before start date of annuities, 199, 203, 208–209 Withholdings, 521–527, 646, 830 additional Medicare tax, 536 for Armed Forces personnel, 49, 634, 635 backup, 525, 527 calculating amount for, 524–525 changing, 523 for children, 27 to cover prior tax underpayments, 530 estimated tax and, 522 FICA, 526 filing for refund of, on Form W-2, 38 on gambling winnings, 525–526 on government payments, 524 for household employees, 662, 663 for housekeepers, 502 on late-filed original returns, 777–778 for low earners, 523 on lump-sum distributions from retirement plans, 174 on retirement distributions/commercial annuities, 526–527 and retirement plan rollovers, 181 for retirement plans, 140 on Social Security benefits, 620 on tips, 524–525 on wages, 522–523 Work camps, 649 Work expenses, impairment-related, 441 Work-related costs of education, 614–618 Workers abroad, 649 Workers' compensation, 48–49, 621 Workforce, amortization of, 733 Working condition fringe benefits, 56, 69 Working interests, in oil and gas wells, 297–298 "Workouts," mortgage loan, 321 Worthless securities, 151–152 Wrongful incarceration, restitution for, 320 Wrongful termination, 319–320 Y Year-end benefits, 67 Year-end dividends, 85, 593 Year-end donations, 349 Year-end purchases, 722 Year-end sales, 128, 141 Year-end securities transactions, 561 Z Zero coupon bond discount, 96 WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... 2018 Key Tax Numbers for 2018 Tax- Saving Opportunities for 2018 Part Filing Basics Do You Have to File a 2018 Tax Return? Filing Tests for Dependents: 2018 Returns Where to File Your 2018 Form... index at the back of the book What’s New for 2018 Pages xxvii–xxx alert you to tax developments that may affect your 2018 tax return Key Tax Numbers for 2018 Pages xxxi–xxxiii Tax- Saving Opportunities... Computing the “Kiddie Tax on Your Child’s Unearned Income 24.1 Filing Your Child’s Return 24.2 Children Subject to “Kiddie Tax for 2018 24.3 Computing “Kiddie Tax on Child’s Return 24.4 Parent’s