Departmentof theTreasury

InternalRevenueService

Your FederalIncome TaxFor Individuals

Publication 17Cat. No. 10311G

For use inpreparing

1998Returns

Your FederalIncome TaxFor IndividualsDepartment

of theTreasury

InternalRevenueService

Contents

Introduction ...................................................... 1

Important Changes for 1998 ........................... 1

Important Reminders ....................................... 2

Part One. The Income Tax Return1. Filing Information .................................... 42. Filing Status ............................................ 183. Personal Exemptions and Dependents .. 224. Decedents ............................................... 315. Tax Withholding and Estimated Tax ...... 36

Part Two. Income 6. Wages, Salaries, and Other Earnings .... 467. Tip Income .............................................. 538. Interest Income ....................................... 559. Dividends and Other Corporate

Distributions ........................................... 6310. Rental Income and Expenses ................ 6711. Retirement Plans, Pensions, and

Annuities ................................................ 7612. Social Security and Equivalent Railroad

Retirement Benefits ............................... 8213. Other Income .......................................... 86

Part Three. Gains and Losses14. Basis of Property .................................... 9515. Sale of Property ...................................... 10016. Selling Your Home ................................. 10717. Reporting Gains and Losses .................. 112

Part Four. Adjustments to Income18. Individual Retirement Arrangements

(IRAs) ..................................................... 11819. Moving Expenses ................................... 13020. Alimony ................................................... 135

Part Five. Standard Deduction and ItemizedDeductions

21. Standard Deduction ................................ 13822. Limit on Itemized Deductions ................. 14123. Medical and Dental Expenses ................ 14224. Taxes ...................................................... 14725. Interest Expense ..................................... 15126. Contributions ........................................... 15727. Nonbusiness Casualty and Theft Losses 16528. Car Expenses and Other Employee

Business Expenses ............................... 17129. Educational Expenses ............................ 18930. Miscellaneous Deductions ...................... 193

Part Six. Figuring Your Taxes and Credits 31. How To Figure Your Tax ........................ 19932. Tax on Investment Income of Certain

Minor Children ....................................... 20233. Child and Dependent Care Credit .......... 20934. Credit for the Elderly or the Disabled ..... 21935. Child Tax Credit ...................................... 22736. Education Credits ................................... 22937. Earned Income Credit ............................ 23238. Other Credits .......................................... 245

1998 Tax Table ................................................. 248

1998 Tax Rate Schedules ................................ 260

Your Rights as a Taxpayer ............................. 261

How To Get More Information ........................ 262

Index .................................................................. 264

Order Blank (Inside back cover)

The explanations and examples in this publication re-flect the interpretation by the Internal Revenue Service(IRS) of:

• Tax laws enacted by Congress,

• Treasury regulations, and

• Court decisions.

However, the information given does not cover everysituation and is not intended to replace the law orchange its meaning.

This publication covers some subjects on which acourt may have made a decision more favorable totaxpayers than the interpretation by the IRS. Untilthese differing interpretations are resolved by highercourt decisions or in some other way, this publicationwill continue to present the interpretation by the IRS.

All taxpayers have important rights when workingwith the IRS. These rights are described in YourRights as a Taxpayer in the back of this publication.

The IRS Mission. Provide America's taxpayers topquality service by helping them understand and meettheir tax responsibilities and by applying the tax lawwith integrity and fairness to all.

All material in thispublication may bereprinted freely. Acitation to Your FederalIncome Tax (1998)would be appropriate.

Page 2

IntroductionThis publication can help youprepare your tax return by takingyou through each part of the re-turn. It supplements the informa-tion in your tax form instructionbooklet. It explains the tax lawand will help you understandyour taxes so that you pay onlyas much tax as you owe and nomore.

The publication begins withthe rules for filing a tax return.It explains who must file a return,which tax form to use, when thereturn is due, and other generalinformation. It will help you iden-tify which filing status you qualifyfor, whether you can claim anydependents, and whether the in-come you are receiving is taxa-ble. The publication goes on toexplain the standard deduction,the kinds of expenses you maybe able to deduct, and the vari-

ous kinds of credits you may beable to take to reduce your tax.

Throughout the publicationare examples showing how thetax law applies in typical situ-ations. Sample forms andschedules show you how to re-port certain items on your return.Also throughout the publicationare flowcharts and tables thatpresent tax information in aneasy-to-understand manner.

The index in the back of thepublication will help you find theinformation you need.

Some material that you mayfind helpful is not included in thispublication but can be found inyour tax form instruction booklet.It includes the following informa-tion.

• List of where to report cer-tain items listed on informa-tion documents.

• List of mailing addresses forwhere to file returns.

• List of recorded tax informa-tion topics (TeleTax).

If you operate your ownbusiness or have other self-employment income, such asbabysitting or selling crafts, seethe following publications formore information.

• Publication 334, Tax Guidefor Small Business.

• Publication 533, Self-Employment Tax.

• Publication 535, BusinessExpenses.

• Publication 587, BusinessUse of Your Home (IncludingUse by Day-Care Providers).

For information on how youcan get free IRS publications and

forms, see How To Get More In-formation in the back of thispublication. Also see the frontcover of this publication for in-formation on using your com-puter or fax machine to getforms.

We welcome your sug-gestions for future editions of thispublication. Please send yourideas to the following address.

Internal Revenue ServiceTechnical Publications

Branch (OP:FS:FP:P)Washington, DC 20224

We respond to many letters bytelephone. Therefore, it wouldbe helpful if you would includeyour area code and daytimephone number along with yourreturn address.

Important Changes for 1998This section summarizes impor-tant tax changes that took effectin 1998. These changes are dis-cussed in more detail throughoutthis publication.

Changes are also discussedin Publication 553, Highlights of1998 Tax Changes.

Write in your social securitynumber. To protect your pri-vacy, social security numbers(SSNs) are not printed on thepeel-off label that comes in themail with your tax instructionbooklet. This means you mustenter your SSN in the spaceprovided on your tax form. If youfiled a joint return for 1997 andare filing a joint return for 1998with the same spouse, enter yournames and SSNs in the sameorder as on your 1997 return.See chapter 1.

Include your phone number onyour return. To promptly re-solve any questions we have inprocessing your tax return, wewould like to be able to call you.Please enter your daytime tele-phone number on your tax formin the space provided next toyour signature. See chapter 1.

Payment of taxes. Instead ofmaking your check or money or-der payable to “Internal RevenueService,” make it payable to“United States Treasury.” Seechapter 1.

Child tax credit. You may beable to claim a tax credit of up to$400 ($500 beginning in 1999)for each of your qualifying chil-dren under the age of 17. Seechapter 35.

Education benefits. There arenew tax benefits for higher edu-cation. You cannot claim morethan one benefit for the sameexpense. Highlights of the newbenefits follow.

Hope credit. You may beable to claim a tax credit of up to$1,500 for each eligible student.The Hope credit is allowed forthe first 2 years of postsecondaryeducation and is based on thequalified tuition and related ex-penses paid during the tax year.See chapter 36.

Lifetime learning credit. Forexpenses paid after June 30,1998, you may be able to claima tax credit of up to $1,000 perfamily for the total qualified tui-tion and related expenses paidduring the tax year. There is nomaximum period for which thelifetime learning credit can beclaimed. See chapter 36.

Education IRAs. You maybe able to make nondeductiblecontributions of up to $500 to aneducation IRA for a child under18. Earnings in the IRA accu-mulate tax free. See chapter 18.

Interest on student loans.You may be able to claim a de-duction of up to $1,000 ($1,500

for 1999) for interest paid on aqualified student loan. You claimthe deduction on line 24 of Form1040 or line 16 of Form 1040A.See your form instructions.

Individual retirement arrange-ment (IRA) changes. The fol-lowing paragraphs highlight thenew tax benefits that relate toIRAs. See chapter 18 for details.

Traditional IRA income lim-its. If you are covered under anemployer retirement plan, theamount of income you can haveand not be affected by the de-duction phaseout has increasedfor most taxpayers. The amountsvary depending on filing status.

Spouse covered by plan.Even if your spouse is coveredby an employer-sponsored re-tirement plan, you may be ableto deduct contributions to yourtraditional IRA if you are notcovered by an employer plan.

New Roth IRA. You may beable to establish a Roth IRA. Inthis new type of IRA, contribu-tions are not deductible butearnings grow tax free and qual-ified withdrawals are not taxable.You may also be able to converta traditional IRA to a Roth IRA,but you must include all or partof the taxable converted amountin income.

New investment opportu-nities allowed. Your IRA caninvest in certain platinum coins

and certain gold, silver, platinum,and palladium bullion.

Penalty-free withdrawals.You generally pay a 10% addi-tional tax if you withdraw fundsfrom your IRA before age 591/2.However, you may not have topay this additional tax if thewithdrawal is:

• Not more than your qualifiedhigher education expenses,or

• Used to buy, build, or rebuilda qualified first home.

New recovery method for jointand survivor annuity pay-ments from qualified plans. For annuity starting dates begin-ning in 1998, there is a newmethod for figuring the tax-freeportion of an annuity paymentthat is payable over the lives ofmore than one annuitant. Underthis method, the number of an-ticipated monthly payments usedto recover the tax-free invest-ment in the contract is deter-mined by combining the ages ofthe annuitants. See chapter 11.

Elimination of 18-month hold-ing period for lowest capitalgains rates. Beginning in 1998,you no longer have to holdproperty for more than 18months to be eligible for thelowest capital gains rates. Now,in most cases, you only have tohold property more than one

year to be eligible for the 10%or 20% tax rate. See chapter 17.

Sale of qualified small busi-ness stock. You may have topay tax on only one-half of yourgain from the sale or exchangeof qualified small business stock.The stock must have been ori-ginally issued after August 10,1993, and held by you for morethan 5 years. See chapter 4 ofPublication 550.

Capital gain distributions. Ifyou receive a capital gain distri-bution, you now report it directlyon Schedule D (Form 1040). Youno longer report it on ScheduleB (Form 1040). See chapter 17.

Foreign earned income exclu-sion. The amount of foreignearned income that you can ex-clude increases to $72,000. SeePublication 54, Tax Guide forU.S. Citizens and Resident Al-iens Abroad.

Increased standard deductionfor employed dependents. Thestandard deduction for manyemployed dependents for whoman exemption can be claimed byanother taxpayer will increase byup to $250. See chapter 21.

Increased standard mileagerate for charitable purposes.The standard mileage rate forthe cost of operating your car forcharitable purposes is increasedto 14 cents a mile. See chapter26.

Employee business expenses.Certain employee business ex-pense deductions have been in-

creased or modified. Employeebusiness expenses are dis-cussed in chapter 28.

The standard mileage ratefor the cost of operating your carincreased to 321/2 cents a mile forall business miles. You can nowuse the standard mileage rate fora car you lease, as well as a caryou own.

If you are a rural mail carrierwho received qualified re-imbursements for business carexpenses, you may be able totreat the amount of such re-imbursement as your allowablecar expense. The higher stand-ard mileage rate that previouslyapplied to rural mail carriers isrepealed.

If you are subject to the De-partment of Transportation'shours of service limits, youmay be able to deduct 55% ofyour qualified meal andbeverage expenses while travel-ing away from your tax home.

Certain federal employeeswho are participating in federalcrime investigations or prose-cutions are not subject to the1-year rule for deducting tempo-rary travel expenses.

Credit for the elderly or disa-bled. If you are under age 65and retired on permanent andtotal disability, you may be ableto claim the credit for the elderlyor disabled. You are no longerrequired to attach to your returna physician's statement (certify-ing that you are permanently ortotally disabled), but your physi-cian must complete the state-ment for you to keep with yourrecords. See chapter 34.

Claiming the foreign tax credit.If your foreign taxes are $300 orless ($600 or less in the case ofa joint return) and all your foreignincome is passive income, youmay be able to claim the foreigntax credit without filing Form1116. See chapter 38.

Credit for federal tax paid onkerosene. If you use kerosenefor household use (such as forheating, lighting, or cooking), youmay be able to claim a credit of24.4 cents for each gallon. Andyou can get a refund even if youdo not owe tax. This credit ap-plies to undyed kerosene pur-chased (other than from ablocked pump) after June 30,1998. You must complete Form4136, Credit for Federal TaxPaid on Fuels, and attach it toForm 1040. The form instructionshave information on how tocomplete it.

Self-employed health insur-ance. The part of your self-employed health insurance pre-miums that you can deduct asan adjustment to income in-creased to 45% (60% for 1999).See chapter 23.

Estimated tax penalty ruleeased. You may be subject toan estimated tax penalty if theamount you owe with your 1998return is $1,000 or more (up from$500). See chapter 5.

Certain amounts increased.Some tax items that are indexedfor inflation increased for 1998.

Earned income credit. Themaximum amount of income you

can earn and still get the earnedincome credit has increased.You may be able to take thecredit if you earned less than$30,095 ($10,030 if you do nothave any qualifying children).The maximum amount of invest-ment income you can have andstill be eligible for the credit hasincreased to $2,300. See chapter37.

Exemption amount. You areallowed a $2,700 deduction foreach exemption to which you areentitled. However, your ex-emption amount could bephased out if you have high in-come. See chapter 3.

Limit on itemized de-ductions. Some of your itemizeddeductions may be limited if youradjusted gross income is morethan a certain dollar amount. For1998, the amount is $124,500($62,250 if you are married filingseparately). See chapter 22.

Social security and Medi-care taxes. The maximumwages subject to social securitytax (6.2%) has increased to$68,400. All wages are subjectto Medicare tax (1.45%).

Joint return responsibility.Generally, both spouses are re-sponsible for the tax and any in-terest or penalties on a joint taxreturn. In some cases, onespouse may be relieved of thatresponsibility for items of theother spouse that were incor-rectly reported on the joint return.For details, see Joint responsi-bility in chapter 2.

Important RemindersListed below are important re-minders and other items thatmay help you file your 1998 taxreturn. Many of these items areexplained in more detail later inthis publication.

Taxpayer identification num-bers. You must provide thetaxpayer identification numberfor each person for whom youclaim certain tax benefits. Thisapplies even if the person wasborn in 1998. Generally, thisnumber is the person's socialsecurity number (SSN). Seechapter 1.

Individual taxpayer identifi-cation number (ITIN). A resi-dent or nonresident alien whodoes not have and is not eligibleto get an SSN can file FormW–7, Application for IRS Individ-ual Taxpayer Identification Num-ber, with the IRS to apply for an

ITIN. An ITIN is for tax purposesonly, but it cannot be used forpurposes of the earned incomecredit.

Adoption taxpayer identifi-cation number (ATIN). If a childis placed in your home by anauthorized adoption agency, youmay be able to claim the childas your dependent and alsoclaim certain tax credits. Gener-ally, if you cannot get an SSN forthe child until the adoption isfinal, use Form W–7A, Applica-tion for Taxpayer IdentificationNumber for Pending U.S.Adoptions, to get an ATIN for thechild. However, you cannot usean ATIN for purposes of theearned income credit.

Earned income credit not al-lowed. If the IRS determinesthat you should not have claimedthe earned income credit for a

tax year beginning after 1996,you may not be eligible to claimthe credit for the next 2 years (10years if you are denied the creditbased on fraud). See chapter 37.

Advance earned incomecredit. If a qualifying child liveswith you and you expect toqualify for the earned incomecredit in 1999, you may be ableto get part of the credit paid toyou in advance throughout theyear (by your employer) insteadof waiting until you file your taxreturn. See chapter 37.

Sale of your home. Generally,you will only need to report thesale of your home if your gain ismore than $250,000 ($500,000if married filing a joint return).Report the gain on Schedule D(Form 1040). Do not use Form2119, which is obsolete. Seechapter 16.

Adoption tax credit. You maybe able to claim a tax credit forqualified adoption expenses paidin 1998. The credit can be asmuch as $5,000 for each child($6,000 for a child with specialneeds). See chapter 38.

Adoption assistance. If youremployer has an adoption as-sistance program and pays orincurs qualified expenses onyour behalf, you may be able toexclude from your gross incomeup to $5,000 ($6,000 for a childwith special needs) of thesepayments. See Publication 968,Tax Benefits for Adoption.

Medical savings accounts(MSAs). If you are covered onlyunder a high deductible healthplan, you may be able to partic-ipate in an MSA program. Youcan deduct contributions to your

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MSA even if you do not itemizeyour deductions. See chapter 23.

Long-term care expenses. Youcan include with your medicalexpenses your payments forqualified long-term care insur-ance premiums (up to certainlimits) and unreimbursed costsfor qualified long-term care of achronically ill individual. Seechapter 23.

Generally, benefits you re-ceive under a long-term care in-surance contract can be ex-cluded from your income. Seechapter 13.

Accelerated death benefits.Certain payments received un-der a life insurance contract onthe life of a terminally or chron-ically ill individual before deathcan be excluded from income.This also applies to amounts re-ceived on the sale or assignmentof the contract to a viaticalsettlement provider. See chapter13.

Survivor benefits of publicsafety officers. Generally, sur-vivor annuities paid to thespouse, former spouse, or childof a public safety officer killed inthe line of duty can be excluded

from income. This applies to of-ficers dying after 1996. Seechapter 13.

Qualified state tuition pro-grams. For purposes of qual-ified state tuition programs, theterm “qualified higher educationexpenses” now includes the rea-sonable costs for room andboard if the student is carryingat least half of the normal full-time workload for his or hercourse of study. See chapter 13.

Individual retirement arrange-ment (IRA) for spouse. A mar-ried couple filing a joint returncan contribute up to $2,000 eachto their IRAs, even if one spousehad little or no income. Seechapter 18.

Penalty-free IRA withdrawalsto pay medical expenses andmedical insurance. You gener-ally pay a 10% additional tax ifyou withdraw funds from yourIRA before age 591/2. However,you may not have to pay thisadditional tax if the withdrawalsare not more than the amountyou paid for unreimbursed med-ical expenses that are more than71 / 2% of your adjusted gross in-come.

If you lose your job, you maynot have to pay the additional taxif the withdrawals are not morethan the amount paid for medicalinsurance for you and your fam-ily. See chapter 18.

Foreign source income. If youare a U.S. citizen with incomefrom sources outside the UnitedStates (foreign income), youmust report all such income onyour tax return unless it is ex-empt by U.S. law. This is truewhether you reside inside oroutside the United States andwhether or not you receive aForm W–2 or 1099 from the for-eign payer. This applies toearned income (such as wagesand tips) as well as unearnedincome (such as interest, divi-dends, capital gains, pensions,rents and royalties).

If you reside outside theUnited States, you may be ableto exclude part or all of your for-eign source earned income. Fordetails, see Publication 54, TaxGuide for U.S. Citizens andResident Aliens Abroad.

Faster ways to file your return.The IRS offers fast, accurateways to file your tax return infor-

mation. These include the fol-lowing methods:

• IRS e-file (electronic filing),

• TeleFile, and

• Computerized returns.

For details on these fast filingmethods, see chapter 1.

Private delivery services. Youmay be able to use a designatedprivate delivery service to mailyour tax returns and payments.See chapter 1 for more informa-tion.

Privacy Act and paperwork re-duction information. The Pri-vacy Act of 1974 and the Paper-work Reduction Act of 1980 saythat when we ask you for infor-mation we must first tell you whatour legal right is to ask for theinformation, why we are askingfor it, how it will be used, whatcould happen if we do not re-ceive it, and whether your re-sponse is voluntary, required toobtain a benefit, or mandatoryunder the law. A complete state-ment on this subject can befound in your tax form instructionbooklet.

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The five chapters in this part provide basic information on the taxsystem. They take you through the first steps of filling out a tax return—such as deciding what your filing status is, how many exemptions youcan take, and what form to file. They also discuss recordkeepingrequirements, IRS e-file (electronic filing), certain penalties, and the twomethods used to pay tax during the year: withholding and estimated tax.

Part One.

The IncomeTax Return

1.FilingInformation

Important ChangesWrite in your social security number.The peel-off address label included in your1998 tax return package will have yourname and address printed on it. Your socialsecurity number (SSN) will not be printedon the label. You must write your SSN inthe spaces provided on your tax return. Ifthe label is for a joint return, please write theSSNs in the same order as the names.

Who must file. Generally, the amount ofincome you can receive before you must filea return has been increased.

Important RemindersAlternative filing methods. Rather thanfiling a return on paper, you may be able touse one of the following methods.

• IRS e-file.• TeleFile.• Computerized return.

For information on these methods, seeDoes My Return Have To Be On Paper,later.

Change of address. If you change youraddress, you should notify the IRS. SeeChange of Address, later, under WhatHappens After I File.

Direct deposit of refund. Instead of get-ting a paper check, you may be able to haveyour refund deposited directly into your ac-count at a bank or other financial institution.See Direct deposit under Refunds, later.

Installment agreement. If you cannot paythe full amount due with your return, youmay ask to make monthly installment pay-ments. See Installment Agreement, later,under Amount You Owe.

Service in combat zone. You are allowedextra time to take care of tax matters if youare a member of the Armed Forces who

served in a combat zone, or if you servedin the combat zone in support of the ArmedForces. See Individuals Serving in CombatZone, later, under When Do I Have To File.

Adoption taxpayer identification number.If a child has been placed in your home forpurposes of legal adoption and you will notbe able to get a social security number(SSN) for the child in time to file your return,you may be able to get an adoption tax-payer identification number (ATIN). SeeAdoptive child with no SSN, later, underSocial Security Number.

Taxpayer identification number for al-iens. If you or your dependent is a nonres-ident or resident alien who does not haveand is not eligible to get a social securitynumber, file Form W–7 with the IRS to ap-ply for an Individual Taxpayer IdentificationNumber (ITIN). For more information onITINs, see Social Security Number underHow Do I Prepare My Return.

IntroductionThis chapter discusses:

• Whether you have to file a return,

• Which form to use,

• When, how, and where to file your re-turn,

• What happens if you pay too little or toomuch tax,

• What records you should keep and howlong you should keep them, and

• How you can change a return you havealready filed.

Do I Have ToFile a Return?You must file a federal income tax return ifyou are a citizen or resident of the UnitedStates or a resident of Puerto Rico and youmeet the filing requirements for any of thefollowing categories that apply to you.

1) Individuals in general (There are spe-cial rules for surviving spouses, exec-utors, administrators, or legal repre-sentatives; U.S. citizens living outsidethe United States; residents of PuertoRico; and individuals with income fromU.S. possessions.).

2) Dependents.

3) Self-Employed Persons.

4) Aliens.

The filing requirements for each cate-gory are explained in this chapter.

The filing requirements apply even if youdo not owe tax.

TIPEven if you do not have to file a re-turn, it may be to your advantage todo so. See Who Should File, later.

One return. File only one federal incometax return for the year regardless of howmany jobs you had, how many Forms W–2you received, or how many states you livedin during the year.

Individuals—In General If you are a U.S. citizen or resident, whetheryou must file a return depends on threefactors:

1) Your gross income,

2) Your filing status, and

3) Your age.

To find out whether you must file, seeTable 1–1, Table 1–2, and Table 1–3. Evenif no table shows that you must file, you mayneed to file to get money back (see WhoShould File, later).

Gross income. This includes all incomeyou receive in the form of money, goods,property, and services that is not exemptfrom tax. Common types of income arediscussed in the chapters in Part Two of thispublication.

Community property. If you are mar-ried and your permanent home is in acommunity property state, half of any in-come described by state law as communityincome may be considered yours. This af-fects your federal taxes, including whetheryou must file, if you do not file a joint returnwith your spouse. See Publication 555,Community Property, for more information.

Self-employed individuals. If you areself-employed, your gross income includesthe amount on line 7 of Schedule C (Form1040), Profit or Loss From Business, or line1 of Schedule C–EZ (Form 1040), Net ProfitFrom Business. See Self-Employed Per-sons, later, for more information about yourfiling requirements.

Filing status. Your filing status depends onwhether you are single or married and onyour family situation. Your filing status isdetermined on the last day of your tax year,which is December 31 for most taxpayers.See chapter 2 for an explanation of eachfiling status.

Page 4 Chapter 1 Filing Information

Age. If you are 65 or older at the end of theyear, you generally can have a higheramount of gross income than other taxpay-ers before you must file. See Table 1–1.You are considered 65 on the day beforeyour 65th birthday. For example, if your 65thbirthday was on January 1, 1999, you areconsidered 65 for 1998.

Surviving Spouses,Executors, Administrators,or Legal RepresentativesYou must file a final return for a decedent(a person who died) if both of the followingare true.

• You are the surviving spouse, executor,administrator, or legal representative.

• The decedent met the filing require-ments at the date of death.

For more information on rules for filinga decedent's final return, see chapter 4.

U.S. Citizens LivingOutside the U.S. If you are a U.S. citizen living outside theUnited States, you must file a return if youmeet the filing requirements. For informa-tion on special tax rules that may apply toyou, get Publication 54, Tax Guide for U.S.Citizens and Resident Aliens Abroad. It isavailable at most U.S. embassies and con-sulates. Also see How To Get More Infor-mation in the back of this publication.

Residents of Puerto Rico Generally, if you are a U.S. citizen and aresident of Puerto Rico, you must file a U.S.income tax return if you meet the filing re-quirements. This is in addition to any legalrequirement you may have to file an incometax return for Puerto Rico.

If you are a Puerto Rico resident for theentire year, gross income does not includeincome from sources within Puerto Rico,except for amounts received as an em-ployee of the United States or a UnitedStates agency. If you receive income fromPuerto Rican sources that is not subject toU.S. tax, you must reduce your standarddeduction. As a result, the amount of in-come you must have before you are re-quired to file a U.S. income tax return islower than the applicable amount in Table1–1 or Table 1–2. See U.S. taxation and itsdiscussion, Standard deduction, under TheCommonwealth of Puerto Rico in Publica-tion 570, Tax Guide for Individuals With In-come From U.S. Possessions, for furtherinformation.

Individuals With IncomeFrom U.S. Possessions If you had income from Guam, the Com-monwealth of the Northern Mariana Islands,American Samoa, or the Virgin Islands,special rules may apply when determiningwhether you must file a U.S. federal incometax return. In addition, you may have to filea return with the individual island govern-ment. See Publication 570 for more infor-mation.

Table 1-1. 1998 Filing Requirements for Most Taxpayers

To use this table, first find your marital status at the end of 1998. Then, read acrossthe line that shows your filing status and age at the end of 1998. You must file areturn if your gross income was at least the amount shown in the last column.

Gross income means all income you received in the form of money, goods,property, and services that is not exempt from tax, including any income from sourcesoutside the United States (even if you may exclude part or all of it).

Also, see Table 1-2 and Table 1-3 for other situations when you must file a return.

Marital Status Filing Status Age* Gross Income

Single (including divorcedand legally separated)

Single

Head ofhousehold

65 or olderunder 65 $6,950

$8,000

65 or olderunder 65 $8,950

$10,000

Married, with a child,living apart from yourspouse during the last 6months of 1998

Head ofhousehold 65 or older

under 65 $8,950$10,000

Married, separatereturn any age $2,700

Married, living withyour spouse at end of1998 (or on the date yourspouse died)

Married, jointreturn

65 or older(one spouse)

under 65(both spouses)

65 or older(both spouses)

$12,500

$13,350

$14,200

Married, not living withyour spouse at end of1998 (or on the date yourspouse died)

Married, joint orseparate return any age $2,700

Single

Head ofhousehold

65 or olderunder 65 $6,950

$8,000

65 or olderunder 65 $8,950

$10,000

Qualifyingwidow(er) withdependent child 65 or older

under 65 $9,800$10,650

Widowed before 1998 andnot remarried in 1998

*If you turned age 65 on January 1, 1999, you are considered to be age 65 at the end of 1998.

When using this table, do not include social security benefits as gross incomeunless you are married filing a separate return and lived with your spouse at any timein 1998. (If you must include the benefits, see chapter 12 for the amount to include.)

Dependents If you are a dependent (one who meets thedependency tests in chapter 3), see Table1–2 to find whether you must file a return.You also must file if your situation is de-scribed in Table 1–3.

Responsibility of parent. Generally, achild is responsible for filing his or her owntax return and for paying any tax on the re-turn. But if a dependent child who must filean income tax return cannot file it for anyreason, such as age, a parent, guardian,or other legally responsible person must fileit for the child. If the child cannot sign thereturn, the parent or guardian must sign thechild's name followed by the words “By(signature), parent (or guardian) for minorchild.”

Child's earnings. Amounts a childearns by performing services are his or hergross income. This is true even if under lo-cal law the child's parents have the right tothe earnings and may actually have re-ceived them. If the child does not pay the

tax due on this income, the parent is liablefor the tax.

Child Under Age 14 If a child's only income is interest and divi-dends (including Alaska Permanent Funddividends) and certain other conditions aremet, a parent can elect to include the child'sincome on the parent's return. If this electionis made, the child does not have to file areturn. See Parent's Election To ReportChild's Interest and Dividends in chapter 32.

Self-Employed PersonsYou are self-employed if you:

• Carry on a trade or business as a soleproprietor,

• Are an independent contractor,

• Are a member of a partnership, or

• Are in business for yourself in any otherway.

Chapter 1 Filing Information Page 5

Table 1-2. 1998 Filing Requirements for Dependents

If your parents (or someone else) can claim you as a dependent, and any of thesituations below apply to you, you must file a return. (See Table 1-3 for othersituations when you must file.)

In this table, earned income includes salaries, wages, tips, and professional fees. Italso includes taxable scholarship and fellowship grants (see Scholarship andFellowship Grants in chapter 13). Unearned income includes investment-type incomesuch as interest, dividends, and capital gains. It also includes unemploymentcompensation, taxable social security benefits, pensions, annuities, and distributionsof unearned income from a trust.

Single dependents—Were you either age 65 or older or blind?

See chapter 3 to find out if someone can claim you as a dependent.

Caution: If your gross income was $2,700 or more, you generally cannot be claimedas a dependent unless you were under age 19 or a full-time student under age 24.For details, see Gross Income Test in chapter 3.

No. You must file a return if any of the following apply.● Your unearned income was more than $700.

● Your gross income was more than the larger of:

Yes. You must file a return if any of the following apply.● Your earned income was more than $5,300 ($6,350 if 65 or older and blind).● Your unearned income was more than $1,750 ($2,800 if 65 or older and blind).● Your gross income was more than:

1) The larger of $700, or your earned income (up to $4,000) plus $250, plus2) $1,050 ($2,100 if 65 or older and blind).

Married dependents—Were you either age 65 or older or blind?No. You must file a return if any of the following apply.● Your gross income was at least $5 and your spouse files a separate return and

itemizes deductions.● Your earned income was more than $3,550.

Yes. You must file a return if any of the following apply.

● Your earned income was more than $4,400 ($5,250 if 65 or older and blind).● Your unearned income was more than $1,550 ($2,400 if 65 or older and blind).● Your gross income was more than:

1) The larger of $700 or your earned income (up to $3,300) plus $250, plus2) $850 ($1,700 if 65 or older and blind).

● Your unearned income was more than $700.

● Your gross income was at least $5 and your spouse files a separate return anditemizes deductions.

● Your earned income was more than $4,250.

1) $700, or2) Your earned income (up to $4,000) plus $250.

● Your gross income was more than the larger of:1) $700, or2) Your earned income (up to $3,300) plus $250.

Resident alien. If you are a resident alienfor the entire year, you must file a tax returnfollowing the same rules that apply to U.S.citizens. Use the forms discussed in thispublication.

Nonresident alien. If you are a nonresidentalien, the rules and tax forms that apply toyou are different from those that apply toU.S. citizens and resident aliens. See Pub-lication 519 to find out if U.S. income taxlaws apply to you and which forms youshould file.

Dual-status taxpayer. If you were a resi-dent alien for part of the tax year and anonresident alien for the rest of the year,you are a dual-status taxpayer. Differentrules apply for each part of the year. Forinformation on dual-status taxpayers, seePublication 519.

Who Should File

TIPEven if you do not have to file, youshould file a federal income tax re-turn to get money back if any of the

following conditions apply.

1) You had income tax withheld from yourpay.

2) You qualify for the earned incomecredit. See chapter 37 for more infor-mation.

3) You qualify for the additional child taxcredit. See chapter 35 for more infor-mation.

Which FormShould I Use?You must use one of three forms to file yourreturn — Form 1040EZ, Form 1040A, orForm 1040. (But also see Does My ReturnHave To Be On Paper, later.)

Form 1040EZForm 1040EZ is the simplest form to use.

You can use Form 1040EZ if all of thefollowing apply.

1) Your filing status is single or marriedfiling jointly.

2) You (and your spouse if married filinga joint return) were under age 65 onJanuary 1, 1999, and not blind at theend of 1998.

3) You do not claim any dependents.

4) Your taxable income is less than$50,000.

5) Your income is only from wages, sala-ries, tips, unemployment compen-sation, Alaska Permanent Fund divi-dends, taxable scholarship andfellowship grants, and taxable interestof $400 or less.

6) You did not receive any advanceearned income credit (EIC) payments.

7) If you were a nonresident alien at anytime in 1998, your filing status is mar-ried filing jointly.

Self-employment can include work inaddition to your regular full-time businessactivities. It also includes certain part-timework that you do at home or in addition toyour regular job.

You must file a return if your gross in-come is at least as much as the filing re-quirement amount for your filing status andage (shown in Table 1–1). Also, you mustfile Form 1040 and Schedule SE (Form1040), Self-Employment Tax, if:

1) Your net earnings from self-employment (excluding church em-ployee income) were $400 or more, or

2) You had church employee income of$108.28 or more (see Table 1–3).

Use Schedule SE (Form 1040) to figureyour self-employment tax. Self-employmenttax is comparable to the social security andMedicare tax withheld from an employee'swages. For more information about this tax,get Publication 533, Self-Employment Tax.

Foreign governments or internationalorganizations. If you are a U.S. citizen whoworks in the United States for an interna-tional organization, a foreign government,

or a wholly owned instrumentality of a for-eign government, and your employer doesnot deduct social security and Medicaretaxes from your income, you must includeyour earnings from services performed inthe United States when figuring your netearnings from self-employment.

Ministers. You must include incomefrom services you performed as a ministerwhen figuring your net earnings from self-employment, unless you have requestedand received an exemption from self-employment tax. This also applies toChristian Science practitioners and mem-bers of a religious order who have not takena vow of poverty. For more information, getPublication 517, Social Security and OtherInformation for Members of the Clergy andReligious Workers.

AliensYour status as an alien—resident, nonresi-dent, or dual-status—determines whetherand how you must file an income tax return.

The rules used to determine your alienstatus are discussed in Publication 519,U.S. Tax Guide for Aliens.

Page 6 Chapter 1 Filing Information

8) You do not claim a student loan inter-est deduction or education credit.

9) You do not owe any household em-ployment taxes on wages you paid toa household employee.

You must meet all of these requirements touse Form 1040EZ. If you do not, you mustuse Form 1040A or Form 1040.

Form 1040AIf you do not qualify to use Form 1040EZ,you may be able to use Form 1040A.

You can use Form 1040A if:

1) Your income is only from wages, sal-aries, tips, IRA distributions, pensionsand annuities, taxable social securityand railroad retirement benefits, taxa-ble scholarship and fellowship grants,interest, ordinary dividends (includingAlaska Permanent Fund dividends),and unemployment compensation,

2) Your taxable income is less than$50,000,

3) Your only adjustments to income are:

a) The deduction for contributions toan IRA, or

b) The student loan interest de-duction.

4) You do not itemize your deductions,

5) Your only taxes are:

a) The amount from the Tax Table,

b) Alternative minimum tax (seechapter 31), or

c) Advance earned income credit(EIC) payments, if you receivedany (see chapter 37).

Caution. You cannot use Form1040A for 1998 if you owe any em-ployment taxes on wages you paid toa household employee (see Publica-tion 926, Household Employer's TaxGuide).

6) Your only credits are:

a) The credit for child and dependentcare expenses (see chapter 33),

b) The credit for the elderly or thedisabled (see chapter 34),

c) The child tax credit (see chapter35),

d) The education credits (see chap-ter 36),

e) The earned income credit (seechapter 37), or

f) The adoption credit (see chapter38).

If you do not meet all of the above re-quirements, you cannot use Form 1040A.

Form 1040If you cannot use Form 1040EZ or Form1040A, you must use Form 1040. You canuse Form 1040 to report all types of income,deductions, and credits, including those youcannot put on either Form 1040EZ or Form1040A.

You may have received Form 1040A orForm 1040EZ in the mail because of the

Table 1-3. Other Situations When You Must File a 1998 Return

If any of the four conditions listed below apply, you must file a return, even if yourincome is less than the amount shown in Table 1-1 or Table 1-2.

1. You owe any special taxes, such as:

● Social security or Medicare tax on tips you did not report to your employer.(See chapter 7.)

● Uncollected social security, Medicare, or railroad retirement tax on tips youreported to your employer. (See chapter 7.)

● Uncollected social security, Medicare, or railroad retirement tax on yourgroup-term life insurance.

● Alternative minimum tax. (See chapter 31.)

● Tax from recapture of investment credit or a low-income housing credit youclaimed in a previous year. (See the instructions for Form 4255, Recapture ofInvestment Credit, or Form 8611, Recapture of Low-Income Housing Credit.)

● Recapture tax on the disposition of a home purchased with afederally-subsidized mortgage. (See chapter 16.)

● Recapture of the qualified electric vehicle credit. (See chapter 38.)

2. You received any advance earned income credit (EIC) payments from youremployer. This amount should be shown in box 9 of your Form W-2. (Seechapter 37.)

3. You had net earnings from self-employment of at least $400. (SeeSelf-Employed Persons in this chapter.)

4. You had wages of $108.28 or more from a church or qualifiedchurch-controlled organization that is exempt from employer social security andMedicare taxes. (See Publication 533.)

● Tax on a medical savings account (MSA). (See Publication 969, Medical SavingsAccounts (MSAs).)

● Tax on a qualified retirement plan, including an individual retirementarrangement (IRA). (See chapter 18.)

● Recapture of the Indian employment credit.

return you filed last year. If your situationhas changed this year, it may be to youradvantage to file Form 1040 instead. Youmay pay less tax by filing Form 1040 be-cause you can take itemized deductions,adjustments to income, and some creditsthat you cannot take on Form 1040A orForm 1040EZ.

You must use Form 1040 if:

1) Your taxable income is $50,000 ormore,

2) You itemize your deductions,

3) You received or paid accrued intereston securities transferred between in-terest payment dates,

4) You received nontaxable dividends orcapital gain distributions,

5) You have to complete Part III ofSchedule B (Form 1040) because:

a) You received a distribution froma foreign trust, or

b) You had a bank, securities, orother financial account in a foreigncountry at any time during theyear. Note: If the combined valueof the foreign account(s) was$10,000 or less during all of 1998,or if the account(s) was with aU.S. military banking facility oper-

ated by a U.S. financial institution,you may be able to use Form1040A or Form 1040EZ,

6) You had income that cannot be re-ported on Form 1040EZ or Form1040A. This includes gain from thesale of property, barter income,alimony income, taxable refunds ofstate and local income taxes, andself-employment income (includingfarm income),

7) You sold or exchanged capital assetsor business property,

8) You claim adjustments to gross incomefor payments to a medical savings ac-count; moving expenses; one-half ofyour self-employment tax; paymentsfor self-employed health insurance;payments to a Keogh, SEP, or SIMPLEplan; the penalty on early withdrawalof savings; alimony paid; certain re-quired repayments of supplementalunemployment benefits; jury payturned over to your employer; qualifiedperforming artists' expenses; or otherallowable adjustments to income,

9) Your Form W–2 shows uncollectedemployee tax (social security andMedicare tax) on tips or group-term lifeinsurance in box 13. See chapter 7,

10) You received $20 or more in tips in anyone month and did not report all of

Chapter 1 Filing Information Page 7

them to your employer. See chapter7,

11) You must pay tax on self-employmentincome. See Schedule SE (Form1040), Self-Employment Tax,

12) You must pay household employmenttaxes. See Schedule H (Form 1040),

13) You have to recapture an investmentcredit, a low-income housing credit, aqualified electric vehicle credit, or anIndian employment credit you claimedin a previous year,

14) You have to recapture tax on the dis-position of a home purchased with afederally-subsidized mortgage. Seechapter 16,

15) You have to pay tax on an excessgolden parachute payment,

16) You claim credits against your tax forany of the following:

a) Mortgage interest credit,

b) Foreign tax credit,

c) Any general business credit,

d) Credit for prior year minimum tax,

e) Credit for fuel from a nonconven-tional source,

f) Credit for federal tax on fuels,

g) Qualified electric vehicle credit,

h) Regulated investment companycredit, or

17) You file any of the following:

a) Form 2555, Foreign Earned In-come,

b) Form 2555–EZ, Foreign EarnedIncome Exclusion,

c) Form 4563, Exclusion of Incomefor Bona Fide Residents of Amer-ican Samoa,

d) Form 4970, Tax on AccumulationDistribution of Trusts,

e) Form 4972, Tax on Lump-SumDistributions (See chapter 11.),

f) Form 5329, Additional Taxes At-tributable to IRAs, Other QualifiedRetirement Plans, Annuities,Modified Endowment Contracts,and MSAs,

Note: Do not file Form 1040only because you have to fileForm 5329. File Form 5329 by it-self. (See chapters 11 and 18.)

g) Form 8271, Investor Reporting ofTax Shelter Registration Number,

h) Form 8814, Parents' Election ToReport Child's Interest and Divi-dends, or

i) Form 8853, Medical Savings Ac-counts and Long-Term Care In-surance Contracts.

Does My Return HaveTo Be On Paper? You may be able to file a paperless return,or a return with less paper. This section

explains:

1) IRS e-file (electronic filing):

a) Using a tax professional,

b) Using your personal computer, or

c) Using a telephone (TeleFile), and

2) Computerized returns.

IRS e-fileTable 1–4 lists the benefits of IRS e-file. IRSe-file uses automation to replace most of themanual steps needed to process paper re-turns. As a result, processing of e-file re-turns is faster and more accurate than theprocessing of paper returns. However, er-rors on the return or problems with itstransmission can delay processing.

As with a paper return, you are respon-sible for making sure your return containsaccurate information and is filed on time.

Using e-file does not affect your chancesof an IRS examination of your return.

State returns. In most states, you can filean electronic state return simultaneouslywith your federal return. For more informa-tion, check with your local IRS office, statetax agency, or tax professional.

Refunds. You can have a refund checkmailed to you, or you can have your refunddeposited directly to your savings orchecking account.

With e-file, your refund will be issued inhalf the time as when filing on paper (evenfaster if you choose direct deposit). Mostrefunds are issued within 3 weeks. In manycases, you can receive your refund in about14 days, particularly if you choose directdeposit. However, some refunds may betemporarily delayed as a result of compli-ance checks. These checks make sure thatreturns are filed accurately and the refundis correct.

Offset against debts. As with a paperreturn, you may not get all of your refund ifyou owe certain past-due amounts, such asfederal tax, a student loan, or child support.See Offset Against Debts under Refunds,later.

Refund inquiries. If you do not receiveyour refund within 4 weeks after your returnwas accepted by IRS, you can call TeleTaxRefund Information. The TeleTax numberfor your area is listed in your tax formspackage. Before you call TeleTax, pleasehave the following information from yourreturn available:

1) The first social security number shownon the return,

2) Your filing status, and

3) The exact whole-dollar amount of yourrefund.

If the TeleTax recording tells you thedate your refund was issued, you shouldreceive the refund within a week of thatdate. If you do not receive the refund by theend of that week, contact your IRS office.See the telephone numbers listed underCalling the IRS in your tax forms package.

If TeleTax has no information on yourreturn, contact your tax professional orelectronic return transmitter for the date IRSaccepted your return. If your return wasaccepted more than 6 weeks ago, contactthe IRS. Explain that you filed your returnelectronically and that TeleTax has no in-formation on it. Also, provide the first socialsecurity number shown on your return andthe date the IRS accepted your return.

Balance due. If you have a balance duewith your return, you must pay it by April 15,1999, to avoid late-payment penalties andinterest. Generally you should mail yourpayment with the Form 1040–V, PaymentVoucher, included in your tax forms pack-age (or provided by your tax professionalor electronic return transmitter).

Direct debit. If you have a balance dueon your 1998 tax return, you can have yourchecking or savings account debited directlyfor the amount of the balance due.

Free help. The free IRS Volunteer IncomeTax Assistance (VITA) and Tax Counselingfor the Elderly (TCE) programs may be ableto help you file your return electronically.For information on these programs, call theIRS.

Using a Tax ProfessionalMany tax professionals file returns elec-tronically for their clients. You can prepareyour own return and have a professionaltransmit it electronically, or you can have aprofessional both prepare it and transmit it.Look for the “Authorized IRS e-fileProvider” sign. Tax professionals maycharge a fee to e-file your return.

Form 8453. Your tax professional will askyou to sign Form 8453, U.S. Individual In-come Tax Declaration for Electronic Filing.Both spouses must sign if a joint return isbeing filed. Your tax professional will file theForm 8453, along with your Forms W–2 andother required documents, with the IRS.

Table 1-4. Benefits of IRS e-file

Accuracy ● Computer program quickly checks for errors ormissing information

Acknowledgment

File Now,Pay Later

Fast Refunds

SimultaneousFederal/StateFiling

● IRS provides an acknowledgement within 48 hoursthat your return has been accepted for processing

● File early and pay the balance due by April 15

● Expect to receive it in half the time as when filing onpaper—even faster with direct deposit

● File both federal and state returns with the IRS at thesame time (available in over 30 states)

Page 8 Chapter 1 Filing Information

Your tax professional is required to give youthe preparer-signed copy of your return, in-cluding a copy of the completed Form 8453.This material is for your records. Do not mailthis copy to the IRS.

Using a Personal ComputerIf you have a computer, a modem and taxpreparation software, you can e-file yourreturn electronically from your home. Taxpreparation software offering the e-file op-tion is available at your local computerretailer or through various web sites overthe Internet. Using your personal computer,you can file 24 hours a day, 7 days a week.You may be charged a fee for having yourreturn transmitted to the IRS. Your elec-tronic return transmitter will inform you ifyour return is accepted by the IRS.

What to send to IRS. You will then haveto send the IRS Form 8453–OL, U.S. Indi-vidual Income Tax Declaration for On-lineFiling, along with your Forms W–2 and otherrequired documents. Form 8453–OL isavailable through your electronic returntransmitter.

Note. If you filed electronically last year,you may receive a post card in the mail withan e-file customer number (ECN). If youmeet the requirements, you can use yourECN to file your return and not have to fileany paper forms.

Using a Telephone (TeleFile)If you receive a TeleFile tax package, youmay be able to file your Form 1040EZ in-formation over the phone. If you are eligibleto use TeleFile, IRS will send you theTeleFile tax package automatically. You canuse TeleFile only if you receive the pack-age. You cannot order it.

The call takes about 10 minutes. To fileusing TeleFile, follow the instructions in theTeleFile tax package. You must use atouch-tone phone, your filing status mustbe single or married filing jointly, you mustlive at the address printed on your TeleFileTax Record, and you cannot claim any de-pendents. In addition, you must meet theother requirements explained in the TeleFiletax package.

TeleFile is a paperless system. You willnot have to mail a paper tax return or FormsW–2 to the IRS. If you owe additional tax,see your TeleFile package for informationon how to send payments.

Computerized Returns Almost anyone who files a tax return (Form1040, 1040A, or 1040EZ) can now file a1040PC return instead. You prepare a1040PC return on a personal computer. Itgenerally has fewer pages than a conven-tional return.

The computer prints the return in athree-column “answer sheet” format. Itprints line numbers and dollar amounts(and/or supporting explanations if neces-sary) only for lines on which you made anentry. Supporting tax forms and schedulesare also printed in this format. As a result,an 11-page conventional return requiringforms and schedules can be printed as atwo-page 1040PC return. For your records,the computer will also print out a legendpaper with line item descriptions.

If you need to list more items than fit ona regular tax return (such as more depen-dents than there are lines for), you can listthem all on the 1040PC and print them inorder, without the need for attaching anadditional statement.

Tax preparation software that includesthe 1040PC print option is checked andaccepted by the IRS and has the 1040PClogo. It can be processed faster and moreaccurately than the regular tax return. Soft-ware packages are available at many com-puter software stores. They are not avail-able from the IRS. For more information, callthe TeleTax number for your area listed inyour tax forms package.

When Do IHave To File?April 15, 1999, is the due date for filing your1998 income tax return if you use the cal-endar year. For a quick view of due datesfor filing a return with or without an exten-sion of time to file (discussed later), seeTable 1–5.

If you use a fiscal year (a year endingon the last day of any month except De-cember, or a 52–53 week year), your in-come tax return is due by the 15th day ofthe 4th month after the close of your fiscalyear.

When the due date for doing any act fortax purposes—filing a return, paying taxes,etc.—falls on a Saturday, Sunday, or legalholiday, the due date is delayed until thenext business day.

Filing on time. Your return is filed on timeif it is properly addressed and is postmarkedby the due date. The return must haveenough postage. If you send your return byregistered mail, the date of the registrationis the postmark date. The registration isevidence that the return was delivered. Ifyou send a return by certified mail and haveyour receipt postmarked by a postal em-ployee, the date on the receipt is the post-mark date. The postmarked certified mailreceipt is evidence that the return was de-livered.

Private delivery services. If you usea private delivery service designated by theIRS (rather than the U.S. Postal Service) tosend your return, the postmark date gener-ally is the date the private delivery servicerecords in its database or marks on themailing label. The private delivery servicecan tell you how to get written proof of thisdate.

The following are designated privatedelivery services.

• Airborne Express (Airborne): OvernightAir Express Service, Next AfternoonService, and Second Day Service.

• DHL Worldwide Express (DHL): DHL“Same Day” Service and DHL USAOvernight.

• Federal Express (FedEx): FedEx Prior-ity Overnight, FedEx Standard Over-night, and FedEx 2Day.

• United Parcel Service (UPS): UPS NextDay Air, UPS Next Day Air Saver, UPS2nd Day Air, and UPS 2nd Day Air A.M.

CAUTION!

Private delivery services cannot de-liver items to P.O. boxes. You mustuse the U.S. Postal Service to mail

any item to an IRS P.O. box address.

Filing late. If you do not file your return bythe due date, you may have to pay afailure-to-file penalty and interest. For moreinformation, see Penalties, later. Also seeInterest under Amount You Owe.

If your return is filed late, the postmarkdate does not determine the date of filing.Your return is considered filed when it isreceived by the Internal Revenue Service.

Nonresident alien. If you are a nonresidentalien and earn wages subject to U.S. in-come tax withholding, your 1998 U.S. in-come tax return (Form 1040NR or Form1040NR–EZ) is due by:

• April 15, 1999, if you use a calendaryear, or

• The 15th day of the 4th month after theend of your fiscal year if you use a fiscalyear.

If you do not earn wages subject to U.S.income tax withholding, your return is dueby:

• June 15, 1999, if you use a calendaryear, or

• The 15th day of the 6th month after theend of your fiscal year, if you use a fis-cal year.

Get Publication 519, U.S. Tax Guide for Al-iens, for more filing information.

Filing for a decedent. If you must file a finalreturn as an executor, administrator, legalrepresentative, or surviving spouse of ataxpayer who died during the year (a dece-dent), the income tax return is due by the15th day of the 4th month after the end ofthe decedent's normal tax year. In mostcases, for a 1998 return, this will be April15, 1999. See Final Return for the Decedentin chapter 4.

Extensions of Time To FileYou may be able to get an extension of timeto file your return. Special rules apply if youwere:

• Outside the United States, or

• Serving in a combat zone.

These rules are discussed separately.

Form 4868. If you cannot file your 1998return by the due date, you may be able toget an automatic 4-month extension of timeto file. To get the automatic extension, youmust file Form 4868, Application for Auto-matic Extension of Time To File U.S. Indi-vidual Income Tax Return.

Example. If your return is due on April15, 1999, you will have until August 16,1999, to file.

CAUTION!

If you want the IRS to figure yourtax, you cannot use the automaticextension of time to file. Nor can you

use it if you are under a court order to fileby the regular due date.

Chapter 1 Filing Information Page 9

Table 1-5. When To File Your 1998 Return (For U.S. citizens andresidents who file returns on a calendar year)

For MostTaxpayers

No extensionrequested

April 15, 1999 June 15, 1999

For Certain TaxpayersOutside the U.S.

Form 4868 filed(1st extension)

August 16, 1999

Form 2688 filedafter filing Form4868 (2ndextension)

October 15, 1999

August 16, 1999

October 15, 1999

United States and Puerto Rico,or

b) You are in military or naval serviceon duty outside the United Statesand Puerto Rico.

However, if you pay the tax due after theregular due date, interest will be chargedfrom the regular due date until the date thetax is paid.

See When To File and Pay in Publication54 for more information.

If you served in a combat zone, see In-dividuals Serving in Combat Zone, later, forspecial rules that apply to you.

Married taxpayers. If you file a joint return,only one spouse has to qualify for this au-tomatic extension. If you and your spousefile separate returns, this automatic exten-sion applies only to the spouse who quali-fies.

How to get the extension. To use thisspecial automatic extension, you must at-tach a statement to your return explainingwhat situation (see the situations listed un-der 2, earlier) qualified you for the exten-sion.

Extensions beyond 2 months. If you can-not file your return within the automatic2-month extension period, you may be ableto get an additional 2-month extension, fora total of 4 months. You must file Form 4868by the end of the automatic extension period(usually June 15, 1999) to get this additional2-month extension.

This additional 2-month extension oftime to file is not an extension of time topay. See Time to pay not extended, earlier.

Extension beyond 4 months. If you arestill unable to file your return within the4-month extension, you may be able to getan extension for 2 more months, for a totalof 6 months. See Extension beyond 4months, earlier.

No further extension. An extension ofmore than 6 months will generally not begranted. However, if you are outside theUnited States and meet certain tests, youmay be granted a longer extension. SeeWhen To File and Pay in Publication 54 formore information.

Individuals Servingin Combat ZoneThe deadline for filing your tax return, pay-ing any tax you may owe, and filing a claimfor refund is automatically extended if youserve in a combat zone. This applies tomembers of the Armed Forces, as well asRed Cross personnel, accredited corre-spondents, and civilians under the directionof the Armed Forces in support of theArmed Forces.

Combat zone. For purposes of the auto-matic extension, the term “combat zone”includes:

1) The Persian Gulf Area, effective Au-gust 2, 1990, and

2) The qualified hazardous duty area ofBosnia and Herzegovina, Croatia, andMacedonia, effective November 21,1995.

When to file. You must file Form 4868by April 15, 1999. If you are filing a fiscalyear return, file Form 4868 by the regulardue date for your return. You can file Form1040EZ, Form 1040A, or Form 1040 anytime before the 4-month extension periodends.

Time to pay not extended. An extensionof time to file is not an extension of time topay. You must make an accurate estimateof your tax for 1998 and send any neces-sary payment with your Form 4868. If youfind you cannot pay the full amount due withForm 4868, you can still get the extension.You will owe interest on the unpaid amount.

You also may be charged a penalty forpaying the tax late unless you have rea-sonable cause for not paying your tax whendue. See Penalties, later.

Interest and penalties are assessed(charged) from the original due date of thereturn, which, for most taxpayers, is April15, 1999.

When you file your return. Enter anypayment you made with Form 4868 on line61, Form 1040. If you file Form 1040EZ orForm 1040A, include any payment youmade with Form 4868 in your total pay-ments on line 9 of Form 1040EZ or line 39of Form 1040A. Also print “Form 4868” andthe amount paid in the space to the left ofline 9 or line 39.

Extension beyond 4 months. If you qualifyfor the 4-month extension and you later findthat you are not able to file within the4-month extension period, you may be ableto get 2 more months to file, for a total of 6months.

You can apply for an extension beyondthe 4-month extension either by writing aletter to the IRS or by filing Form 2688,Application for Additional Extension of TimeTo File U.S. Individual Income Tax Return.You should ask for the extension early sothat, if it is not approved, you still will be ableto file on time. Except in cases of unduehardship, a request for additional time willnot be approved unless you have first usedForm 4868 to get an automatic 4-monthextension. Form 2688 or your letter will notbe considered if you file it after the extendeddue date.

To get an extension beyond the auto-matic 4-month extension, you must give allthe following information.

• The reason for requesting the exten-sion.

• The tax year to which the extensionapplies.

• The length of time needed for the ex-tension.

• Whether another extension of time tofile has already been requested for thistax year.

You must sign the request for this exten-sion, or it may be signed by your attorney,CPA, enrolled agent, or a person with apower of attorney. If you are unable to signthe request because of illness or for anothergood reason, a person with a close personalor business relationship to you can sign foryou, stating why you could not sign the re-quest.

Extension approved. If your applicationfor this extension is approved, you will benotified by the IRS. Attach the notice to yourreturn when you file it.

If the IRS later determines that thestatements made on your request for thisextension are false or misleading and anextension would not have been approvedat the time based on the true facts, the ex-tension is null and void. You will have topay the failure-to-file penalty (discussedlater).

Extension not approved. If your appli-cation for this extension is not approved,you must file your return by the extendeddue date of the automatic extension. Youmay be allowed to file within 10 days of thedate of the notice you get from the IRS if theend of the 10–day period is later than thedue date. The notice will tell you if the10–day grace period is granted.

No further extensions. An extension ofmore than 6 months will not be approved ifyou are in the United States.

Individuals Outsidethe United StatesYou are allowed an automatic 2-month ex-tension (until June 15, 1999, if you use thecalendar year) to file your 1998 return andpay any federal income tax due if:

1) You are a U.S. citizen or resident, and

2) On the regular due date of your return(April 15, 1999, if you use the calendaryear):

a) You are living outside of theUnited States and Puerto Rico,and your main place of businessor post of duty is outside the

Page 10 Chapter 1 Filing Information

See Publication 3, Armed Forces' TaxGuide, for information about other tax ben-efits available to military personnel servingin a combat zone.

Extension period. The deadline for filingyour return, paying any tax due, and filinga claim for refund is extended for at least180 days after the later of:

1) The last day you are in a combat zone(or the last day the area qualifies as acombat zone), or

2) The last day of any continuous qual-ified hospitalization for injury from ser-vice in the combat zone.

In addition to the 180 days, your dead-line is also extended by the number of daysyou had left to file when you entered thecombat zone. For example, you have 31/2months (January 1 – April 15, 1999) to fileyour 1998 tax return. Any days left in thisperiod when you entered the combat zone(or the entire 31/2 months if you entered itbefore January 1, 1999) are added to the180 days.

How Do IPrepare My Return?This section explains how to get ready to fillin your tax return and when to report yourincome and expenses. It also explains howto complete certain sections of the form.You may find Table 1–6 helpful when youprepare your return.

In most cases, the IRS will mail youForm 1040, Form 1040A, or Form 1040EZwith related instructions, based on what youfiled last year. Before you fill in the form,look it over to see if you need additionalforms or schedules. You may also want toread Does My Return Have To Be On Pa-per, earlier.

If you do not receive a tax return pack-age in the mail, or if you need other forms,you can order them. See How To Get MoreInformation in the back of this publication.

Table 1-6. 6 Steps for PreparingYour Return

1—Get together your records forincome and expenses.

2—Get the forms, schedules, andpublications you need.

3—Fill in your return.

4—Check your return to make sure itis correct.

5—Sign and date your return.

6—Attach all required forms andschedules.

Substitute tax forms. You cannot use yourown version of a tax form unless it meetsthe requirements explained in Publication1167, Substitute Printed, Computer-Prepared, and Computer-Generated TaxForms and Schedules.

Form W–2. If you are an employee, youshould receive Form W–2 from your em-ployer. You will need the information fromthis form before you prepare your return.

If you do not receive Form W–2 byFebruary 1, 1999, contact your employer. Ifyou still do not get the form by February 15,the IRS can help you by requesting the formfrom your employer. For more information,see Form W–2 under Credit for Withholdingand Estimated Tax in chapter 5.

Form 1099. If you received certain typesof income, you may receive a Form 1099.For example, if you received taxable interestof $10 or more, the payer generally mustgive you a Form 1099–INT. If you have notreceived it by February 1, 1999, contact thepayer. If you still do not get the form byFebruary 15, call the IRS for help.

When Do I Report MyIncome and Expenses? You must figure your taxable income on thebasis of a tax year. A “tax year” is an annualaccounting period used for keeping recordsand reporting income and expenses. Youmust account for your income and expensesin a way that clearly shows your taxable in-come. The way you do this is called an ac-counting method. This section explainswhich accounting periods and methods youcan use.

Accounting PeriodsMost individual tax returns cover a calendaryear — the 12 months from January 1through December 31. If you do not use acalendar year, your accounting period is a fiscal year. A regular fiscal year is a12-month period that ends on the last dayof any month except December. A 52–53week fiscal year varies from 52 to 53 weeksand ends on a particular day of the week.

You must choose your accounting periodwhen you file your first income tax return.It cannot be longer than 12 months.

More information. For more information onaccounting periods, including how tochange your accounting period, see Publi-cation 538, Accounting Periods and Meth-ods.

Accounting MethodsYour accounting method is the way youaccount for your income and expenses.Most taxpayers use either the cash methodor an accrual method. You choose a methodwhen you file your first income tax return.

Cash method. If you use this method, re-port all items of income in the year in whichyou actually or constructively receive them.Deduct all expenses in the year you paythem. This is the method most individualtaxpayers use.

Constructive receipt. You construc-tively receive income when it is credited toyour account or set apart in any way thatmakes it available to you. You do not needto have physical possession of it. For ex-ample, interest credited to your bank ac-count on December 31, 1998, is taxable in-come to you in 1998 if you could havewithdrawn it in 1998 (even if the amount is

not entered in your passbook or withdrawnuntil 1999).

Garnisheed wages. If your employeruses your wages to pay your debts, or ifyour wages are attached or garnisheed, thefull amount is constructively received byyou. You must include these wages in in-come for the year you would have receivedthem.

Brokerage and other accounts. Profitsfrom a brokerage account, or similar ac-count, are fully taxable in the year you earnthem. This is true even if:

1) You do not withdraw the earnings,

2) The credit balance in the account maybe reduced or eliminated by losses inlater years, or

3) Current profits are used to reduce oreliminate a debit balance from previousyears.

Debts paid for you. If another personcancels or pays your debts (but not as a giftor loan), you have constructively receivedthe amount and generally must include it inyour gross income for the year. See Can-celed Debts in chapter 13 for more infor-mation.

Payment to third party. If a third partyis paid income from property you own, youhave constructively received the income. Itis the same as if you had actually receivedthe income and paid it to the third party.

Payment to an agent. Income an agentreceives for you is income you construc-tively received in the year the agent re-ceives it. If you indicate in a contract thatyour income is to be paid to another person,you must include the amount in your grossincome when the other person receives it.

Check received or available. A validcheck you received or that was madeavailable to you before the end of the taxyear is constructively received by you in thatyear, even if you do not cash the check ordeposit it in your account until the next year.

No constructive receipt. There may befacts to show that you did not constructivelyreceive income.

Example. Alice Johnson, a teacher,agreed to her school board's condition that,in her absence, she would receive only thedifference between her regular salary andthe salary of a substitute teacher hired bythe school board. Therefore, Alice did notconstructively receive the amount by whichher salary was reduced to pay the substituteteacher.

Accrual method. If you use an accrualmethod, you generally report income whenyou earn it, rather than when you receive it.You generally deduct your expenses whenyou incur them, rather than when you paythem.

Income paid in advance. Prepaid in-come is generally included in gross incomein the year you receive it. Your method ofaccounting does not matter as long as theincome is available to you. Prepaid incomeincludes rents or interest you receive in ad-vance and pay for services you will performlater.

Additional information. For more informa-tion on accounting methods, including howto change your accounting method, getPublication 538.

Chapter 1 Filing Information Page 11

Social Security NumberYou must enter your social security number(SSN) in the space provided on your return.Be sure the SSN on your return is the sameas the SSN on your social security card. Ifyou are married, enter the SSNs for bothyou and your spouse, whether you file jointlyor separately.

If you are filing a joint return, write theSSNs in the same order as the names.Please use this same order in submittingother forms and documents to the IRS.

TIPThe peel-off address label you re-ceive with your 1998 return will notshow your SSN. You must write

your SSN in the spaces provided on yourtax return.

Name change. If you changed your namebecause of marriage, divorce, etc., imme-diately notify your Social Security Adminis-tration (SSA) office so the name on your taxreturn is the same as the one the SSA hason its records. This may prevent delays inissuing your refund and safeguard your fu-ture social security benefits.

Dependent's social security number. Youmust provide the SSN of each dependentyou claim, regardless of the dependent'sage. This requirement applies to all de-pendents (not just your children) claimedon your tax return.

Exception. If your child was born anddied in 1998 and you do not have an SSNfor the child, you may attach a copy of thechild's birth certificate instead. If you do,enter “DIED” in column 2 of line 6c.

No social security number. File FormSS–5 with your local SSA office to get anSSN for yourself or your dependent. It usu-ally takes about 2 weeks to get an SSN. Ifyou or your dependent is not eligible for anSSN, see Individual taxpayer identificationnumber for aliens, later.

If you are a U.S. citizen, you must showproof of age, identity, and citizenship withyour Form SS–5. If you are 18 or older, youmust appear in person with this proof at anSSA office.

Form SS–5 is available at any SSA of-fice. If you have any questions about whichdocuments you can use as proof of age,identity, or citizenship, contact your SSAoffice.

If your dependent does not have an SSNby the time your return is due, you may wantto ask for an extension of time to file, asexplained earlier under When Do I Have ToFile.

If you do not provide a required SSN orif you provide an incorrect SSN, your taxmay be increased and any refund may bereduced.

Adoptive child with no SSN. If you arein the process of adopting a child who is aU.S. citizen or resident and cannot get anSSN for the child until the adoption is final,you can apply for an adoption taxpayeridentification number (an ATIN) to use in-stead of an SSN.

File Form W–7A with the IRS to get anATIN if all of the following are true.

• You have a child living with you whowas placed in your home for legal

adoption by an authorized placementagency.

• You cannot get the child's existing SSNeven though you have made a reason-able attempt to get it from the birthparents, the placement agency, andother persons.

• You cannot get an SSN for the childfrom the SSA because, for example, theadoption is not final.

• You cannot get an ITIN for the child.

• You are eligible to claim the child as adependent on your tax return.

After the adoption is final, you must applyfor a social security number for the child.You cannot continue using the ATIN.

See Form W–7A for more information.

Nonresident alien spouse. If your spouseis a nonresident alien and you file a joint orseparate return, your spouse must have ei-ther an SSN or an individual taxpayer iden-tification number (ITIN). If your spouse isnot eligible for an SSN, see the next dis-cussion.

Individual taxpayer identification number(ITIN) for aliens. The IRS will issue you anITIN if you are a nonresident or resident al-ien and you do not have and are not eligibleto get an SSN. To apply for an ITIN, fileForm W–7 with the IRS. It usually takesabout 30 days to get an ITIN. Enter thisnumber on your tax return wherever yourSSN is requested. An incorrect or missingtaxpayer identification number may increaseyour tax or reduce your refund.

Alien dependent. If your dependent isa nonresident or resident alien who doesnot have and is not eligible to get a socialsecurity number (SSN), file Form W–7 withthe IRS to apply for an ITIN. Enter thisnumber on your return wherever the de-pendent's SSN is requested.

CAUTION!

An ITIN is for tax use only. It doesnot entitle you or your dependent tosocial security benefits or change

the employment or immigration status ofeither of you under U.S. law.

Penalty for not providing social securitynumber. If you do not include your SSN orthe SSN of your spouse or dependent asrequired, you may have to pay a penalty.See the discussion on Penalties, later, formore information.

SSN on correspondence. If you write tothe IRS about your tax account, be sure toinclude your SSN in your correspondence.Because your SSN is used to identify youraccount, this helps the IRS respond to yourcorrespondence promptly.

Presidential ElectionCampaign FundThis fund was set up to help pay for presi-dential election campaigns. You may have$3 of your tax liability go to this fund bychecking the Yes box on Form 1040, Form1040A, or Form 1040EZ. If you are filing ajoint return, your spouse may also have $3go to the fund. If you check Yes, it will notchange the tax you pay or the refund youwill receive.

Rounding Off DollarsYou may round off cents to whole dollarson your return and schedules. If you doround to whole dollars, you must round allamounts. To round, drop amounts under 50cents and increase amounts from 50 to 99cents to the next dollar. For example, $1.39becomes $1 and $2.50 becomes $3.

If you have to add two or more amountsto figure the amount to enter on a line, in-clude cents when adding the amounts andround off only the total.

Example. You receive two W–2 forms:one showing wages of $5,000.55 and oneshowing wages of $18,500.73. On Form1040, line 7, you would enter $23,501($5,000.55 + $18,500.73 = $23,501.28), not$23,502 ($5,001 + $18,501).

Attachments Depending on the form you file and theitems reported on your return, you may haveto complete additional schedules and formsand attach them to your return.

Form W–2. Form W–2, Wage and TaxStatement, is a statement from your em-ployer of wages and other compensationpaid to you and taxes withheld from yourpay. You should have a Form W–2 fromeach employer. Be sure to attach the firstcopy or copy B of Form W–2 in the placeindicated on the front page of your return.Attach it only to the front page of your re-turn, not to any attachments. For more in-formation, see Form W–2 in chapter 5.

If you received a Form 1099–R, Distri-butions from Pensions, Annuities, Retire-ment or Profit-Sharing Plans, IRAs, Insur-ance Contracts, etc., showing federalincome tax withheld, attach the first copyor Copy B of that form in the place indicatedon the front page of your return.

Form 1040EZ. There are no additionalschedules to file with Form 1040EZ.

Form 1040A. Attach the additional sched-ules and forms that you had to completebehind the Form 1040A in order by number.If you are filing Schedule EIC put it last. Donot attach items unless required to do so.

Form 1040. Attach any forms and sched-ules behind Form 1040 in order of the “At-tachment Sequence Number” shown in theupper right corner of the form or schedule.Put forms without an attachment sequencenumber next. Then arrange all other state-ments or attachments in the same order asthe forms and schedules they relate to andattach them last. Do not attach items unlessrequired to do so.

Signatures You must sign and date your return. If youfile a joint return, both you and your spousemust sign the return, even if only one of youhad income.

CAUTION!

If you file a joint return, bothspouses are generally liable for thetax, and the entire tax liability may

be assessed against either spouse. Seechapter 2.

If you are due a refund, it cannot be is-sued unless you have signed your return.

Page 12 Chapter 1 Filing Information

Enter your occupation in the space pro-vided in the signature section. If you file ajoint return, enter both your occupation andyour spouse's occupation. Entering yourdaytime telephone number is optional.

If you prepare your own return, leave thespace under your signature blank. If anotherperson prepares your return and does notcharge you, that person should not signyour return.

Paid preparer. Generally, anyone you payto prepare, assist in preparing, or reviewyour tax return must sign it and fill in theother blanks in the paid preparer's area ofyour return. Signature stamps and labelsare not acceptable. Paid preparers of Form1040EZ must also put an “X” in box 10 inthe lower right corner of page 1 of the re-turn.

If the preparer is self-employed (that is,not employed by any person or business toprepare the return), he or she should checkthe self-employed box in the Paid Preparer'sUse Only space on the return.

The preparer must give you a copy ofyour return in addition to the copy filed withthe IRS.

If you have questions about whether apreparer must sign your return, pleasecontact any IRS office.

When someone can sign for you. You canappoint an agent to sign your return if youare:

1) Unable to sign the return because ofdisease or injury,

2) Absent from the United States for acontinuous period of at least 60 daysbefore the due date for filing your re-turn, or

3) Given permission to do so by the IRSdistrict director in your district.

Power of attorney. A return signed byan agent in any of these cases must havea power of attorney (POA) attached thatauthorizes the agent to sign for you. Youcan use a POA that states that the agent isgranted authority to sign the return, or youcan use Form 2848, Power of Attorney andDeclaration of Representative. Part I ofForm 2848 must state that the agent isgranted authority to sign the return.

Unable to sign. If the taxpayer is men-tally incompetent and cannot sign the re-turn, it must be signed by a court-appointedrepresentative who can act for the taxpayer.

If the taxpayer is mentally competent butphysically unable to sign the return or POA,a valid “signature” is defined under statelaw. It can be anything that clearly indicatesthe taxpayer's intent to sign. For example,the taxpayer's “X” with the signatures of