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Free Online State Tax Filing

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Free Online State Tax Filing

Free online state tax filing 1. Free online state tax filing   Definitions You Need To Know Table of Contents Other options. Free online state tax filing Exception. Free online state tax filing Certain terms used in this publication are defined below. Free online state tax filing The same term used in another publication may have a slightly different meaning. Free online state tax filing Annual additions. Free online state tax filing   Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. Free online state tax filing Annual benefits. Free online state tax filing   Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. Free online state tax filing Business. Free online state tax filing   A business is an activity in which a profit motive is present and economic activity is involved. Free online state tax filing Service as a newspaper carrier under age 18 or as a public official is not a business. Free online state tax filing Common-law employee. Free online state tax filing   A common-law employee is any individual who, under common law, would have the status of an employee. Free online state tax filing A leased employee can also be a common-law employee. Free online state tax filing   A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. Free online state tax filing For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. Free online state tax filing   Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. Free online state tax filing For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. Free online state tax filing S. Free online state tax filing citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. Free online state tax filing   However, an individual may be a common-law employee and a self-employed person as well. Free online state tax filing For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. Free online state tax filing In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. Free online state tax filing However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. Free online state tax filing Compensation. Free online state tax filing   Compensation for plan allocations is the pay a participant received from you for personal services for a year. Free online state tax filing You can generally define compensation as including all the following payments. Free online state tax filing Wages and salaries. Free online state tax filing Fees for professional services. Free online state tax filing Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. Free online state tax filing Commissions and tips. Free online state tax filing Fringe benefits. Free online state tax filing Bonuses. Free online state tax filing   For a self-employed individual, compensation means the earned income, discussed later, of that individual. Free online state tax filing   Compensation generally includes amounts deferred in the following employee benefit plans. Free online state tax filing These amounts are elective deferrals. Free online state tax filing Qualified cash or deferred arrangement (section 401(k) plan). Free online state tax filing Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. Free online state tax filing Section 457 nonqualified deferred compensation plan. Free online state tax filing Section 125 cafeteria plan. Free online state tax filing   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. Free online state tax filing The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. Free online state tax filing Other options. Free online state tax filing   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. Free online state tax filing The employee's wages as defined for income tax withholding purposes. Free online state tax filing The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. Free online state tax filing The employee's social security wages (including elective deferrals). Free online state tax filing   Compensation generally cannot include either of the following items. Free online state tax filing Nontaxable reimbursements or other expense allowances. Free online state tax filing Deferred compensation (other than elective deferrals). Free online state tax filing SIMPLE plans. Free online state tax filing   A special definition of compensation applies for SIMPLE plans. Free online state tax filing See chapter 3. Free online state tax filing Contribution. Free online state tax filing   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. Free online state tax filing Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. Free online state tax filing Deduction. Free online state tax filing   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. Free online state tax filing Limits apply to the amount deductible. Free online state tax filing Earned income. Free online state tax filing   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. Free online state tax filing   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. Free online state tax filing Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. Free online state tax filing It includes income from licensing the use of property other than goodwill. Free online state tax filing   Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. Free online state tax filing   If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. Free online state tax filing Employer. Free online state tax filing   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. Free online state tax filing A sole proprietor is treated as his or her own employer for retirement plan purposes. Free online state tax filing However, a partner is not an employer for retirement plan purposes. Free online state tax filing Instead, the partnership is treated as the employer of each partner. Free online state tax filing Highly compensated employee. Free online state tax filing   A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. Free online state tax filing Leased employee. Free online state tax filing   A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. Free online state tax filing Provides services to you under an agreement between you and a leasing organization. Free online state tax filing Has performed services for you (or for you and related persons) substantially full time for at least 1 year. Free online state tax filing Performs services under your primary direction or control. Free online state tax filing Exception. Free online state tax filing   A leased employee is not treated as your employee if all the following conditions are met. Free online state tax filing Leased employees are not more than 20% of your non-highly compensated work force. Free online state tax filing The employee is covered under the leasing organization's qualified pension plan. Free online state tax filing The leasing organization's plan is a money purchase pension plan that has all the following provisions. Free online state tax filing Immediate participation. Free online state tax filing (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. Free online state tax filing ) Full and immediate vesting. Free online state tax filing A nonintegrated employer contribution rate of at least 10% of compensation for each participant. Free online state tax filing However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. Free online state tax filing Net earnings from self-employment. Free online state tax filing   For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. Free online state tax filing Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. Free online state tax filing   Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. Free online state tax filing   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. Free online state tax filing You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. Free online state tax filing   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). Free online state tax filing It does not include income passed through to shareholders of S corporations. Free online state tax filing Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. Free online state tax filing Distributions of other income or loss to limited partners are not net earnings from self-employment. Free online state tax filing   For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. Free online state tax filing Qualified plan. Free online state tax filing   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. Free online state tax filing You can deduct contributions made to the plan for your employees. Free online state tax filing Earnings on these contributions are generally tax free until distributed at retirement. Free online state tax filing Profit-sharing, money purchase, and defined benefit plans are qualified plans. Free online state tax filing A 401(k) plan is also a qualified plan. Free online state tax filing Participant. Free online state tax filing   A participant is an eligible employee who is covered by your retirement plan. Free online state tax filing See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. Free online state tax filing Partner. Free online state tax filing   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. Free online state tax filing For retirement plans, a partner is treated as an employee of the partnership. Free online state tax filing Self-employed individual. Free online state tax filing   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. Free online state tax filing Sole proprietors and partners are self-employed. Free online state tax filing Self-employment can include part-time work. Free online state tax filing   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. Free online state tax filing See Common-law employee and Net earnings from self-employment , earlier. Free online state tax filing   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. Free online state tax filing See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. Free online state tax filing Sole proprietor. Free online state tax filing   A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. Free online state tax filing For retirement plans, a sole proprietor is treated as both an employer and an employee. Free online state tax filing Prev  Up  Next   Home   More Online Publications

The Free Online State Tax Filing

Free online state tax filing 2. Free online state tax filing   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Free online state tax filing Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Free online state tax filing S. Free online state tax filing or foreign source income. Free online state tax filing This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Free online state tax filing S. Free online state tax filing Virgin Islands (USVI). Free online state tax filing Generally, the same rules that apply for determining U. Free online state tax filing S. Free online state tax filing source income also apply for determining possession source income. Free online state tax filing However, there are some important exceptions to these rules. Free online state tax filing Both the general rules and the exceptions are discussed in this chapter. Free online state tax filing U. Free online state tax filing S. Free online state tax filing income rule. Free online state tax filing   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Free online state tax filing Table 2-1 shows the general rules for determining whether income is from sources within the United States. Free online state tax filing Table 2-1. Free online state tax filing General Rules for Determining U. Free online state tax filing S. Free online state tax filing Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Free online state tax filing Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Free online state tax filing For more information, see Regulations section 1. Free online state tax filing 863-1(b). Free online state tax filing Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Free online state tax filing Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Free online state tax filing Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Free online state tax filing It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Free online state tax filing Services performed wholly within a relevant possession. Free online state tax filing   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Free online state tax filing However, there is an exception for income earned as a member of the U. Free online state tax filing S. Free online state tax filing Armed Forces or a civilian spouse. Free online state tax filing U. Free online state tax filing S. Free online state tax filing Armed Forces. Free online state tax filing   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Free online state tax filing However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Free online state tax filing Civilian spouse of active duty member of the U. Free online state tax filing S. Free online state tax filing Armed Forces. Free online state tax filing   If you are a bona fide resident of a U. Free online state tax filing S. Free online state tax filing possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Free online state tax filing Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Free online state tax filing S. Free online state tax filing possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Free online state tax filing Services performed partly inside and partly outside a relevant possession. Free online state tax filing   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Free online state tax filing Compensation (other than certain fringe benefits) is sourced on a time basis. Free online state tax filing Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Free online state tax filing   Or, you may be permitted to use an alternative basis to determine the source of compensation. Free online state tax filing See Alternative basis , later. Free online state tax filing   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Free online state tax filing In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Free online state tax filing Time basis. Free online state tax filing   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Free online state tax filing Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Free online state tax filing The time period for which the income is made does not have to be a year. Free online state tax filing Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Free online state tax filing Example. Free online state tax filing In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Free online state tax filing Your Puerto Rico source income is $60,000, figured as follows. Free online state tax filing       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Free online state tax filing   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Free online state tax filing Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Free online state tax filing You determine the period to which the income is attributable based on the facts and circumstances of your case. Free online state tax filing For more information on multi-year compensation, see Treasury Decision (T. Free online state tax filing D. Free online state tax filing ) 9212 and Regulations section 1. Free online state tax filing 861-4, 2005-35 I. Free online state tax filing R. Free online state tax filing B. Free online state tax filing 429, available at www. Free online state tax filing irs. Free online state tax filing gov/irb/2005-35_IRB/ar14. Free online state tax filing html. Free online state tax filing Certain fringe benefits sourced on a geographical basis. Free online state tax filing   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Free online state tax filing Housing. Free online state tax filing Education. Free online state tax filing Local transportation. Free online state tax filing Tax reimbursement. Free online state tax filing Hazardous or hardship duty pay. Free online state tax filing Moving expense reimbursement. Free online state tax filing For information on determining the source of the fringe benefits listed above, see Regulations section 1. Free online state tax filing 861-4. Free online state tax filing Alternative basis. Free online state tax filing   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Free online state tax filing If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Free online state tax filing De minimis exception. Free online state tax filing   There is an exception to the rule for determining the source of income earned in a possession. Free online state tax filing Generally, you will not have income from a possession if during a tax year you: Are a U. Free online state tax filing S. Free online state tax filing citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Free online state tax filing This exception began with income earned during your 2008 tax year. Free online state tax filing Pensions. Free online state tax filing   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Free online state tax filing The contribution portion is sourced according to where services were performed that earned the pension. Free online state tax filing The investment earnings portion is sourced according to the location of the pension trust. Free online state tax filing Example. Free online state tax filing You are a U. Free online state tax filing S. Free online state tax filing citizen who worked in Puerto Rico for a U. Free online state tax filing S. Free online state tax filing company. Free online state tax filing All services were performed in Puerto Rico. Free online state tax filing Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Free online state tax filing S. Free online state tax filing pension trust of your employer. Free online state tax filing Distributions from the U. Free online state tax filing S. Free online state tax filing pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Free online state tax filing S. Free online state tax filing source income. Free online state tax filing Investment Income This category includes such income as interest, dividends, rents, and royalties. Free online state tax filing Interest income. Free online state tax filing   The source of interest income is generally determined by the residence of the payer. Free online state tax filing Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Free online state tax filing   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Free online state tax filing See Regulations section 1. Free online state tax filing 937-2(i) for more information. Free online state tax filing Dividends. Free online state tax filing   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Free online state tax filing There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Free online state tax filing For more information, see Regulations section 1. Free online state tax filing 937-2(g). Free online state tax filing Rental income. Free online state tax filing   Rents from property located in a relevant possession are treated as income from sources within that possession. Free online state tax filing Royalties. Free online state tax filing   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Free online state tax filing   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Free online state tax filing Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Free online state tax filing The most common situations are discussed below. Free online state tax filing Real property. Free online state tax filing   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Free online state tax filing The location of the property generally determines the source of income from the sale. Free online state tax filing For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Free online state tax filing If, however, the home you sold was located in the United States, the gain is U. Free online state tax filing S. Free online state tax filing source income. Free online state tax filing Personal property. Free online state tax filing   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Free online state tax filing Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Free online state tax filing If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Free online state tax filing   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Free online state tax filing The rules applying to sales of inventory are discussed below. Free online state tax filing For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Free online state tax filing Inventory. Free online state tax filing   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Free online state tax filing The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Free online state tax filing Purchased. Free online state tax filing   Income from the sale of inventory that you purchased is sourced where you sell the property. Free online state tax filing Generally, this is where title to the property passes to the buyer. Free online state tax filing Produced. Free online state tax filing   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Free online state tax filing For information on making the allocation, see Regulations section 1. Free online state tax filing 863-3(f). Free online state tax filing Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Free online state tax filing S. Free online state tax filing citizen or resident alien prior to becoming a bona fide resident of a possession. Free online state tax filing You are subject to these special rules if you meet both of the following conditions. Free online state tax filing For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Free online state tax filing For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Free online state tax filing If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Free online state tax filing Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Free online state tax filing S. Free online state tax filing tax return. Free online state tax filing (See chapter 3 for additional filing information. Free online state tax filing ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Free online state tax filing These rules apply to dispositions after April 11, 2005. Free online state tax filing For details, see Regulations section 1. Free online state tax filing 937-2(f)(1) and Examples 1 and 2 of section 1. Free online state tax filing 937-2(k). Free online state tax filing Example 1. Free online state tax filing In 2007, Cheryl Jones, a U. Free online state tax filing S. Free online state tax filing citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Free online state tax filing S. Free online state tax filing corporation listed on the New York Stock Exchange. Free online state tax filing On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Free online state tax filing Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Free online state tax filing On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Free online state tax filing On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Free online state tax filing Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Free online state tax filing The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Free online state tax filing This existing special rule applies if you are a U. Free online state tax filing S. Free online state tax filing citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Free online state tax filing S. Free online state tax filing assets during the 10-year period beginning when you became a bona fide resident. Free online state tax filing The gain is U. Free online state tax filing S. Free online state tax filing source income that generally is subject to U. Free online state tax filing S. Free online state tax filing tax if the property is either (1) located in the United States; (2) stock issued by a U. Free online state tax filing S. Free online state tax filing corporation or a debt obligation of a U. Free online state tax filing S. Free online state tax filing person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Free online state tax filing See chapter 3 for filing information. Free online state tax filing Special election. Free online state tax filing   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Free online state tax filing Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Free online state tax filing This election overrides both of the special rules discussed earlier. Free online state tax filing   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Free online state tax filing Marketable securities. Free online state tax filing   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Free online state tax filing Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Free online state tax filing S. Free online state tax filing holding periods. Free online state tax filing   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Free online state tax filing The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Free online state tax filing This is your gain (or loss) that is treated as being from sources within the relevant possession. Free online state tax filing If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Free online state tax filing Example 2. Free online state tax filing Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Free online state tax filing S. Free online state tax filing and possession holding periods. Free online state tax filing Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Free online state tax filing Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Free online state tax filing By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free online state tax filing Other personal property. Free online state tax filing   For personal property other than marketable securities, use a time-based allocation. Free online state tax filing Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Free online state tax filing      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Free online state tax filing Example 3. Free online state tax filing In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Free online state tax filing On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Free online state tax filing On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Free online state tax filing She had owned the interest for a total of 1,720 days. Free online state tax filing Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Free online state tax filing The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Free online state tax filing By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free online state tax filing Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Free online state tax filing Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Free online state tax filing These rules do not apply to amounts paid as salary or other compensation for services. Free online state tax filing See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Free online state tax filing Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Free online state tax filing These circumstances are listed below. Free online state tax filing You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Free online state tax filing That office or place of business is a material factor in producing the income. Free online state tax filing The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Free online state tax filing An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Free online state tax filing The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Free online state tax filing Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Free online state tax filing Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Free online state tax filing Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Free online state tax filing Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Free online state tax filing Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Free online state tax filing Example. Free online state tax filing Marcy Jackson is a bona fide resident of American Samoa. Free online state tax filing Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Free online state tax filing A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Free online state tax filing Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Free online state tax filing The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Free online state tax filing However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Free online state tax filing Prev  Up  Next   Home   More Online Publications